At every stage in life, you’ve got to take another step. If you really, want to make money in real estates, you’ve got to take a step from single-family home level with proper finances, if you own about ten-unit apartment building or strip mal, you may be able to have good positive cash flow from the onset. How could hire someone to manage the property so you don’t have to constantly be undertaking to be collecting the rents, fixing the house, etc.
On the other hand, its not as rosy as it may sound, there is also a great potential for loss. Assuming you had just one single- family, home, you need just one need a large number of tenants.
In tough times, you may not be able to rent out the lot hence resulting in a serious negative cash flow therefore when going big, you should bear in mind that there are lots of risk to undertake. It is always good to aim at an object and not the image similarly, in investment, you’re got to know where the profits are coming from.
With single – family homes, prices go up as overall residential market value increases. If you buy with lets say 20% down and the value of the property goes up by 10%, you’ve made a profit of 50% (forgetting the costs of transaction temporarily). A house may cost twenty five million Naira and then you deposit five million naira. The value of that house goes up by 10%. The value of that house is now N27, 500,000 your equity is now N7.5million one and a half time
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what you started with for a fifty percent profit. On the other hand, considering an apartment building, prices are mainly tied to rental income. If you increase your rents, you will have significant profits in a short while rental rates of apartment building does not move the same way with single family homes. Suppose you have an apartment building lets say a 15 unit building where each unit is rented for N1,000,000 annually. The value of the property is based on that rental rate. If you decide to increase the rental rate to let’s say N1, 600,000 annually. The value of the property is a product of number of units and the new rental rate which equals N24, 000,000. this can happen without the prices of single family houses moving. If you paid N15, 000,000 for that building initially, by lifting the rents 60%, you have raised the value of the house 60%. If you kept 20% as deposit, i.e. N3, 000,000 on your apartment building, forgetting temporarily of your mortgage your profit is now 300% which is N9,000,000.
Commercial buildings operate in a similar way to apartment buildings. Their value is also directly determined by their rental income. The greater the rental income, the greater the value. If you buy a building at one level of rental income and increase the rents, you can sell at a higher price. The rent for commercial properties is determined by the front foot. Access to the public is essential for businesses to survive, the more exposure, the more valuable the location. Therefore, a tenant will pay defending on the number of people that will directly flow into their location or how many feet is directly accessible to the public. A commercial tenant on the second floor of a commercial building is most likely to pay a reduced rent than a commercial tenant on the first floor of the building.
On the otherhand, office buildings does not hold access to the public as a valuable factor rather the major factor is the total amount of floor space. Therefore, such buildings are rented out on the basis of square footage. This is the reason why most office buildings are very high as is observable in Marina, the official hob of Lagos. here the higher the building and the larger the office room, the higher the rent.
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Another vital area in real estates is investing in bare land and developing properties. The basis of all property value is the land. In most cases price appreciation is attributable entirely to land. The structure never goes up in value, it is the land. Land is immobile, it is a natural resource, it is a store of value. Working on a bareland could be very complicated or simplified. Those who specialize in bare land are called speculators. Land speculation entails buying plots of land and developing them for a resell. This is mostly common in rural areas. You could also buy a large plot of land and split it before reselling thereby making substantial profit. You could buy and Acre of a for N9, 000,000 and resell it in halves for N6, 000,000 each and make a profit of N3, 000,000. You could also buy a piece of land and change the land use to suit what you are willing to do with it e.g. you could buy an arable land for a lot low price and change the land use to industrial purposes and later resell the land for a lot of profit on capital. Although this usually involves a lot of expenses but at the end it will be worth the expenses. You could also buy broken-down buildings scrape off the serap and construct new structures on the land. You could also buy poor buildings located on a profitable land, scrape off the building and construct a new building that matches the quality of land. This is usually carried out on old houses which are obsolete but which the land underneath is a very good investment sometimes, you see that a small building stands on a massive acre of land. If such buildings are put up for sale, I will advise that you take up the opportunity immediately.
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