What is real estate?
I like to think of real estate as land and everything on or around it, this includes buildings and infrastructures, farms and even water. Real estate can also be simply put as shelter and work space because we buy and rent real estate to live in them or work in them. Real estate, “property” has always existed from the beginning of time because it brings about our source of livelihood
Real estate is very broad and important so when you get tired of seeing a property ad, remember that it’s all part of our existence. The most important feature of real estate and why it makes it so valuable is the fact that real estate does not depreciate rather its value increases over time, interesting right? The supply of land is finite (no one is producing more) and its demand is ever increasing because there’s always a constant increase in population. Except there’s instability in a given location, we should expect an increase in real estate demand and price over time.
As much as real estate is known to increase in value, it should also be stated that it is “Land” that holds such value because buildings are sure to depreciate over time as a result of different factors such as the materials used in construction, climate change, topography etc. while a property is being valued, it is the value of the land that holds the most value, the condition of the building and the cost of the building will be put into consideration to determine the market value of such property.
A lot of people think real estate is just about buying and selling of land but it is so much more than that because a lot of things happen to make turn a piece of land into a residential/ commercial property or even a farmland. There’s the financial consideration, there’s the development stage, there’s also the acquisition of the property and disposal of the same property. Real estate can be divided into the following groups
Real estate investment
Real estate investment can be simply put as “how to make money off real estate”. An investor is someone who puts money into real estate or a property to make a profit in the short run or on the long run. The type of real estate investment you want to get into will be determined by your financial capabilities, how quickly you want returns and the level of risk you are willing to bear.
There is a real estate investment for every income level, so when you feel like you have to wait till you’re rich to invest, then you would have wasted valuable time and waited till the property in question appreciates. You will end up buying that same property at the price you should be selling. Here in Lagos you can buy a property of N500,00 and expect it to yield 200% return in 2 years around Epe/ Ibeju Lekki axis. This is because these locations are undergoing huge developments and a lot of infrastructures are being put into place. There are factors you need to consider before you invest in real estate and the location’s infrastructure and development is one of them.
Real estate development
Real estate development refers to the process in which a landed property is converted into a residential or commercial building. A developer is one who facilitates the development process; he or she might bear the financial burden or get an investor to finance the development. The developer acquires the land, creates the vision for the land and executes its development by engaging contractors to build based on the vision created.
In real estate, the developer bears the highest risk because during the construction process anything can happen. The profit or loss made will be determined by how well the funds budgeted for the development was managed. If the actual cost exceeds the budgeted cost then the developer will be running at a loss and if the actual cost is lower or equal to the budgeted cost the developer will make a profit.
The best developers are usually cost effecient and they know how to manage both human and capital resources. It takes a series of development to make a developer well known and recognized. Developers work with everyone, the investors (to source for finance), the agents (to acquire land and sell development), architects, interior designers and other contractors. Developments can either be residential or commercial most developers specialize in one type.
Real estate agency
Real estate agency involves buying and selling of land, residential and commercial properties. A real estate agent or realtor is one who facilitates/ brokers the sale or lease of a property between a buyer and seller. Real estate agents get paid based on commission from a deal, in Lagos, Nigeria, commission for rent is usually 10% and for sale is usually 5% depending on the agreement.
A lot of developers start out as agents so they learn the ropes of the real estate market and save enough money or make enough connections to finance a development. By then, they can make money off proceeds from sales and commission from sales.
Since agency involves brokering a real estate deal, a lot of money has been made on commission by just being able to bring the buyer and seller together. You find out that a lot of real estate agents in Nigeria are not professional and know nothing about the property market. They only set out to connect buyers and sellers and don’t do their due diligence to find out if the deal is safe or not. A lot of people have fallen victims of incompetent agents and sometimes dubious ones.
So whether you want to make money off real estate as an investor, developer or agent, it is important you have knowledge, do your homework and don’t fall a victim of scammers or buy/ invest in a property that has been acquired by the government or in a location that will not yield much returns over time. Always seek for professionals.