Know How To Raise Money For Your Property Investments
Culled from www.smartnigerianinvestor.com
The relatively high cost profile of real estate is one major reason a lot of people are scarred off property investment, even when they strongly desire to have a bite of this universally acclaimed high-yield investment option. This is particularly so in our environment where funding options are unarguably very limited. The high interest rate also constitutes another huge stumbling block.
The result is a general notion that you must personally fund and build your own house. While it will be untrue to state that nobody is able to borrow to fund property acquisition, the reality is that the exclusion rate is so high that the success ratio pales into insignificance. Such challenges logically raise the question, “if I’m to begin to invest in real estate, how am I going to finance it?”
We offer no quick fixes. But if there is the will, there will always be a way. The key step is to begin to think like an investor, looking principally at your investment outlay and return on investment. Most of us see property as owning a home and often build or acquire to live in it. Nothing is wrong with that, but our focus here is on property as a business, an investment where the objective is reasonable returns. Not withstanding the huge odds against funding it, you probably already know that the profitability in terms of rental earnings and value appreciation could, quite often, be outstanding, especially if you have invested well. Isn’t this enough motivation to brave the odds and wade into this honey-pot? Here are a few beaten tracks that you can still ply to fund real estate investments:
1. Self Help
You may reason that if you were thinking of self-funding you wouldn’t be reading this piece. Well, this option is still viable and could just be your last resort. Look at it this way: if nobody would fund your investment and you still wanted a piece of the real estate action, should you give up in despair? If you agree that ‘no’ is the fitting answer, you must begin to structure what you can do by yourself, even as you pursue other funding options we will discuss here. Investing for profit is not necessarily about a big mansion or a multi-user apartment. You may actually just acquire a shop in a market that has growth prospect, if that’s what you can afford. This may be your seed investment, a prelude to bigger things, if the price appreciates and you sell. It is not impossible to gradually save enough to invest in such relatively low-cost property. That process becomes an eye-opener and can motivate you to do much bigger things.
2. National Housing Fund (NHF)
Granted that this fund has largely failed because of the irresponsible approach to government business prior to the current reform programme, it remains the cheapest source of funding for housing development. Disbursements are still going on, albeit at a crawling pace. First off, you must be a contributor to stand any chance of drawing from the fund. Secondly, you must apply through a Primary Mortgage Institution (mortgage bank), which means you need to open a relationship with one. While the NHF is designed for residential accommodation, having one property would be a major breakthrough. If the value appreciates significantly, possible measures you could take to consolidate your position include:
-sale off, using part to liquidate the facility and retaining the balance as investment fund;
– refinance with another mortgage which leaves you a margin to invest in other property.
3. Mortgage Facility From A Mortgage Institution
Participation in the NHF is only one funding option for PMI’s. Their internal funds constitute the major part of their mortgage funding portfolio. You also stand a stronger chance of succeeding, more quickly, with the in-house facility of a PMI than the NHF. The snag is just the high interest cost: normal market rates, averaging 20% currently, are charged.
4. Mortgage Lending By A Universal Bank
Many banks provide mortgage lending to customers. Some have it packaged as part of their consumer finance portfolio. Your bank may therefore just be where to find the money to start with. The concern, again, will be about the interest rate, which remains high. Considering that you are borrowing for investment, should the interest rate totally stop you? If well-considered, it shouldn’t. You simply need a holistic analysis that factors in all the cost elements of the proposed investment. If you calculations show a satisfactory returns profile, even with the worst-case assumptions, there is no good reason not to invest. Your margins will be low initially, substantially eaten up by interest cost, but with time, you will accumulate an investment fund from those margins.
5. Housing Projects
Major housing projects are usually financed by mortgage institutions and banks. Most times, mortgage finance for subscribers is integrated into the package, pre-arranged by the developer. This is perhaps the easiest of the options, since the funding institution is familiar with the project and requires no further due diligence except as to your credit worthiness. The downside of this option is the high property prices which will often appear bloated (after absorbing inefficiencies and possible impact of corruption on the project). The answer is to diligently search out for a project you are comfortable with its pricing, provided other critical criteria of a good property investment are met.
Ultimately, it is your will power that will count most if you choose to go into real estate investing. The funding odds are difficult to wave off, but a determined mind will find ways to advance its vision. The funding options highlighted here may appear farfetched, but if you remain focused on you goal, you probably will find a window in them to accomplish astonishing results.
