by
Patrick Ogungbola
MD/ CEO, BLUEHEDGE REALTORS
We welcome you to the new month of March 2018.
I almost found it difficult to believe that the month of February is ended. February used to be very strange to me. It is the shortest month of the year; while every other month ends on the 30th or 31st, February ends on the 28th. Then, I used to feel that other months cheated February, but after much protest by Mr. February, they decided to compensate him by donating one extra day to him which he gets every four years (that is, the leap year). Well, I used to feel cheated too by the number of days in the month of February, but I always console myself because everyone of us has equal amount of time, including the world’s richest people. It is not the number of days in each month that counts, but what we are able to accomplish with each passing day. If not for any other thing, we are highly privileged to witness the dawn of a new season. This shall be our best month ever!
Our article for this month is titled, ‘The Fundamentals of Real Estate Investment’. Brandon Turner defined real estate investing as the art and science of using properties to generate wealth through a variety of niches and strategies. No doubt, real estate is one of the most lucrative investments in the world, and almost every wealthy people have real estate as part of their valuable assets. As a matter of fact, most of them became rich through capital appreciation of their real estate assets which they have held for many years. No wonder, John D. Rockefeller (one of the richest men that ever lived), once said, ‘The major fortunes made in America have been made in real estate’.
As common and popular as real estate seems to be, we have discovered that so many people are still bewildered by the concept; they are confused about its operation and ways to take advantage of the opportunities in the sector. As a result of this confusion, most don’t do anything or take positive action towards investing in real estate, even when the opportunity surfaces. An old Chinese proverb says, ‘The best time to plant a tree was 20 years ago, the second best time is now’. This also holds true for real estate. Real estate is not a rocket science; it’s more of common sense. Just like any other investment, knowledge, experience and timing counts a lot to make the best real estate decision.
At this juncture, it needs to be mentioned that every investment come with its own risks. Real estate, like other forms of investments, is not completely a safe haven like many people tend to portray. This means that with all the knowledge, experience and the ability to time the market, some losses can still be incurred along the line. Put in another way, there are inherent risks that come with almost all investments. The best investors all over the world treat their business and/ or investment as a kind of game. They try as much as possible to understand the rules of the game and they play according to the rule, but even at that, they still get it wrong once in a while. This can be likened to any game (sport). The best football teams or players will concede goals from the opponents even if they play according to rule of the game, but they will still be regarded as the champion if the aggregate of their ‘wins’ or scores is higher than that of their opponents or other teams. This is the same scenario that plays out in the world of business and investment; the investor or business man must ensure that the gains far outstrip the losses, but one cannot be completely shielded from loss.
The above notwithstanding, with adequate knowledge, foresight, due diligence and experience, the risks in real estate can be analysed and to some extent be mitigated. Real estate has a very wide scope, it goes beyond land and buildings, but includes everything on land, underneath the land and above of it. This means that title to real estate can include surface (ground) rights, mineral rights (underneath the land), and air rights (above the land) which can be bought, leased, sold, or transferred together or separately (http://bit.ly/2oybhL3).
This means everyone interacts with real estate on per second basis, as our very existence is anchored on real estate. The wide scope of real estate guarantees that almost everyone can go into an aspect of it and still create a profitable business and/ or investment out of it. For instance, the only aspect of real estate some people are involved in is land acquisition and resale. This means that they just buy the land, keep it and wait, then sell after some years and they realise huge profit. Some other real estate investors go after rundown houses; they buy and do a facelift (renovation/ remodelling) of the house, and then flip (sell) for a higher price. To make good money in real estate, like in any other ventures, your creativity and ingenuity must come to bear. Also, you must inculcate the habit of learning and relearning, as you can never learn enough, since the world is changing and the way of doing things are also changing.
In a nutshell, to be successful as a real estate investor, the following five points must be put into consideration:
Define your real estate objective. Why do you want to go into real estate? If the purpose of a thing is not known, abuse becomes inevitable. Do you have passion for real estate? It is passion that will keep you going even in difficult times; it will give you the staying power. It’s always not all rosy in real estate as already mentioned. In the recent past, we have heard of the Europe and U.S. credit crunch and the negative impact on their real estate and mortgage market. However, people that get the most from real estate, like any other endeavours are those that sees it as their calling or ‘lifetime assignment’. It is this passion and conviction that is driving them and will not allow them to quit.
Decide on the real estate business sector you want to specialise. As earlier noted, the scope of real estate is very wide, and hence the decision on the particular aspect to go into will largely determine your success rate. Real estate classifications could be on the basis of location (geographical classification – Lagos market, Abuja market, Port Harcourt market, Ibadan market, London market, New York market, etc.) and physical classification or use (Residential use – apartments, maisonettes, terrace house, detached and semi-detached houses; Commercial use – shops, offices, hotels/ guest houses, filling stations; Agricultural use- farmland, ranches; Recreational Centres – Playgrounds, Tourism centres, etc). Decide from the outset on which area you want to specialise.
Real estate is local. The popular saying that real estate is all about location, location and location will forever hold true. What makes real estate unique from other forms of investments is its fixed, immovable nature. A property will always be where it is located. For this reason, adequate knowledge of the location you want to invest is very important. What are the current types of development in the area? What is the current level of demand and supply vis-à-vis the quantity of housing stock and vacancy rate? What is the population density? What is the future potential of the area? Lagos real estate market is different from New York real estate market, so also, Lekki real estate market is different from Ajah real estate market despite the fact that one is an extension of the other. Asking the right questions will give rise to the right answers.
Be knowledgeable about the real estate fundamentals. As earlier said, you can never learn enough or know enough in the field of real estate. Knowledge, they say, is power, and the right application of knowledge is wisdom. You must know what drives value or moves the market in a particular location. What are people’s perceptions of the area? What future plans does the government have for the area? Are there factories or industries few kilometres to the subject property or are there plans to build such in the nearest future? Find out about the history of the area and the various events that led to the current development. This is because history repeats itself. Learn all there is to learn. Information is very crucial in the real estate market, just like in other forms of investments. The news of Dangote’s refinery and several other developmental efforts along the Lekki Free Trade Zone (LFTZ) area of Ibeju-Lekki area of Lagos are serious drivers of value today in that area.
Think long term and be Futuristic. There is a season and a time for everything under heavens, says the Holy Scripture. Just like in farming, there’s a season for planting, and a season to harvest, and different crops or plants have different life cycle or gestation period. The same applies to real estate. After investing, you may need to wait for a considerable period of time which atimes can run into years before recouping your investment. No wonder, Will Rogers said, ‘Don’t wait to buy real estate, buy real estate and wait’. Consider and plan for the waiting period. To build a lasting and time tested wealth in real estate, you need to wait. Time itself is the builder of wealth.
The above are just a tip of the iceberg as far as the knowledge of real estate investing is concerned, however, they are solid foundation upon which other principles or knowledge can be built. No matter your age or occupation, real estate has a place for you. The mistake most people make is that whenever the subject of real estate or property is mentioned, they think of everyone else but themselves. They believe that to get in, you will need millions or billions of naira or dollars, but this is just an illusion. Most of the Lagos landlord we have today, most especially in the Lagos mainland used to be traders, and most didn’t acquire much formal education like most of us today, but with discipline, dedication and determination, they were able to save up to buy properties. Most of them bought their land many years ago for what we can call peanuts today. They bought in those ‘dark age’ when many people will even reject such land as gift.
Many of us are now better informed than the above set of people in terms of education, exposure and high standard of living, but can we say we are better than them in terms of having the wisdom for real estate investment. Not having the financial ability for the time being is understandable, but how about those that have the resources to invest, but will never because of the fear of the unknown or other reasons best known to them. It was mentioned in our last article that the beautiful places you see in our cities of today were thick forest few years ago. The ability to see the cities of tomorrow from the so-called forest or bush of today will stand you out. In real estate, no place is far; distance is relative and it is dependent on the place of comparison. For instance, for somebody residing in Lagos, Maiduguri will be considered very far, whereas, the person residing in Maiduguri will feel the same way about Lagos. If a large deposit of precious metal such as gold or diamond is discovered in such places we refer to as very far today, we will suddenly realize how close such a place will suddenly become, despite the fact that the distance hasn’t changed. Real estate is gold to an enlightened mind; discover it, explore it and invest in it.
As usual, we want to remind you that we care so much about you, and that when it comes to your real estate investment and advisory, we are always here to give you the very best service you can never get elsewhere. That is our promise, and will always be.
Thank you.
