Real Estate Investment; an enduring wealth!

Don’t wait to buy land, buy land to wait’ –Will Rogers

A good friend of mine is a chattered accountant with an oil-servicing firm. To say he is a mincer does not aptly describe his stiff management of resources to the extent of creating huge scarcity of necessities in his home stead. To him, money should be earned and not spent. In December, 2014, I was going to do final negotiation in an Estate where I was purchasing a property for investment purpose. I convinced him to go with me on the assurance that he would also find it rewarding to buy into. After some level of hesitation, he obliged my request and went with me. A few weeks down the line; he also bought into the mortgage property and secured a 2-bedroom semi detached for five million and fifty thousand naira, paid the required 10 percent equity and the 5 percent management fee, all amounting to less than seven hundred thousand naira and took the key.

A few weeks down the line, I noticed his calls became less often. He seldom replied my chats on social media and was avoiding our regular get-to-gathers where he was sure to meet me. When I noticed this, I opted to pay him an impromptu visit in his office on Lagos Island. Even his countenance on my arrival was far from being friendly. After some level of pressure from my end, he opened up and told me I got him into making an investment mistake that he is finding difficult to fathom. In his words, buy that house was like a manipulation. A decision he was unconsciously pushed to make. He said “Barrister, you know I do not spend unwisely. But I must confess to you that this mortgage you convinced me into was a huge error on my part” I smiled and asked him if that was responsible for his funny behavior lately. He said; “am not behaving funny, for now, you succeeded at convincing me to go and buy a mortgage in the suburb of Ogun State thereby committing my close to seven hundred thousand naira that could give me far more rewarding investment better than that; who knows, if I am not careful, you could get me into buying a plot of land in the middle of a forest between Ijubu-Ode and Okitipupa next. So, I have to avoid you before this happens”.

In March, 2015, a tenant moved into the apartment on an annual rent of One hundred and eighty thousand naira. My friend took this house on a fifteen year mortgage. He paid Five hundred and five thousand naira representing ten percent of the value of the property leaving him with a balance of four million, four hundred and forty-five thousand naira at six percent annual interest. His mortgage servicing comes to about thirty-six thousand naira monthly which is four hundred and two thousand naira annually. If you do simple arithmetic of subtraction by netting off the one hundred and eighty thousand naira annual rent he is already receiving, he is left to contend with two hundred and fifty-two thousand naira to pay annually. Between March and now, same apartment is already going for two hundred thousand naira in response to some infrastructural upgrade carried out by the Estate developer that owns the estate. By the time the next rent adjustment is made at the expiration of the current, we might be on a benchmark of two hundred and twenty thousand naira. This means, in the next four to five years, the rent from the property can sufficiently pay the annual mortgage. Remember, the mortgage, unlike the rent is fixed! Last Sunday after reading my article, my friends is asking for the possibility of an additional purchase. I have told him to give me time to think.

Real estate investment remains the only investment that does not hit ground zero. Today, investors are divesting from banking and energy sector to real estate. The energy sector keeps coming up with new cheaper innovations on energy generation. In the past, all you needed to generate power was hydro. Then, thermal generation came in. Today, there are numerous avenues of energy generation. So, those who thought they could endlessly smile to the banks on account of their investment in hydro system are taking the cuts from the banks as attention has long shifted to newer, safer and cheaper innovations.

Same is oil & gas. Watchers of the industry have helplessly watched as international prices have crumbled from over a hundred dollar par barrel of crude to less than fifty dollars now. The stock market is not a better story for year down the line now. For major investors in these key sectors, it has not been great times. This is the level of instability in these key investment windows.

I had a chat with one Honorable Fredrick Ehizogie, CEO, Habitat Properties Investment Limited with head office in Ogun state on the viability of Real estate investment. His company has interest in Real Estate as well as oil & gas. He confided in me that in the last few years, he has systematically divested his interest in oil & gas and consolidated on real estate, in his words; “your investment in real estate never goes down the drains. Come rain or shine, you must get returns higher than your investment. Yes, sometimes it is slow, but when it peaks, one transaction covers up for all the waiting period”. He said his company has taken over a thousand percent returns on investment in some instances mostly in the areas of land sales. To him, the nuisance posed by the notorious land grabbers popularly called ‘omon onile’ in the south-west is not enough deterrent to any willing investor. His advice is that a prospective buyer must get professionals involved in the buying process. When you successfully buy, the next urgent step is to perfect your title. This to him is the antidote to land grabbing. Once you do this, you are safe to go and you can confidently go to bed.

Real estate world over is safe, lucrative and the demand is infinitely elastic. The demand flow is endless and the land is a fixed factor. The ownership can change but it remains fixed. It is therefore an investment destination with perpetual returns you do not need millions to start your investment in real estate. All you just need do is to borrow from the words of William Penn Adair; a Cherokee leader and a Confederate colonel who lived between 1830 and 1880; “find out where the people are going and buy the land before they get there” If your investible investment is little, move further into the interior, some day soon, expansion will catch up with you there and your investment will accrue in real value! If major fund is an impediment, you can take the mortgage option out like my friend did. Do not look at the initial inconvenience that may be posed by the equity requirement. Take the step and you will achieve it. All you need is to muster the courage to achieve it.

I will close this with this famous quote from a legend “Real Estate can not be lost, nor carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world’’- Franklin D. Roosevelt.

Akhigbe Dominic