IS YOUR RETURN ON INVESTMENT HEALTHY?

Return on Investment (ROI) is very important when calculating profits on your property investments. Real estate return on investment, is a simple way to determine whether any given property purchase will yield a significant profit. Before you start the process of investing, be sure to gather all relevant information, such as what the rent payments, service charge payments, any property costs such as taxes and insurance fees and the original amount of your investment will amount to

A lot of investors set out to buy properties only thinking of the rental income, conveniently forgetting the amount they spent on building or buying the property, forgetting the amounts they spend on purchasing the land, all levy’s and all other charges if on an estate, forgetting the amount spent on putting in fittings in the property and other improvements. Many so called property developers and investors do not realise that they end up spending far more on their properties than what they can gain back in profits for many years to come. The first thing any wise investor should do is determine what their investment gain will be. Unlike profit, an investment gain tells you how much you receive before subtracting expenses. Determine how much you will receive from your investment on an annual basis. I will use a very conservative simple example although it is almost impossible to find good properties for this price in any city in Nigeria. Let us say you make N1.2m rent per year on a property you bought for N10million. The rent is your gains.  Add up all investment-related expenses. For example, if you are required to pay any taxes or insurance, be sure to include these figures. Repair costs are another important factor to consider. Let's say you spend N100k per year in taxes, N50k in insurance and N50k in other expenses. Add these figures together to get your real cost of investment. In this example the total cost of investment totals N200k. Subtract the cost of investment from the investment gain. N1.2m – N200k = N1m. Divide this number by the total cost of your investment. For example, since you bought your investment property for N10m. The calculation would look like this: N1m ÷ N10m =0.10. Convert the decimal into a percentage. In this example, this would be 10 percent. This means that you will receive a 10 percent return on investment each year from your real estate, which is an extremely healthy profit anywhere in the world. Anything over 7% should be aimed for, although many do not achieve the correct figures due to their micalculations.

Some estates along the Lekki Expressway axis sold their units for N24m –N30m about four years ago, these same units are going for N40-N55m today and climbing. As you can see, minus all charges these units have almost doubled in prices giving the owners over 30% ROI without them even lifting a finger. This can be likened to them winning the lottery! If they had bought two or more units, they will be laughing all the way to the bank. Wise investors will reinvest their profits in order to maximise their earnings. I get told all the time that these rapid increases will soon stop as the properties cannot be worth that much, but as a property speculator, I will not say that an investor should not buy or build just because they feel that the price increases will stop. There is a saying that “bricks and mortar” are the best way to save and grow your money anywhere in the world. Even if there is a property slump for a period, it will always appreciate again after a few years if one remains patient. Nigeria’s property boom is relatively new and will continue to grow for many years to come. The UK and the USA have been through many property rises and falls and have always come out of it better than the last. Of course there are some people who are just speculators and want to turn over their investment fast and see property buying and selling as a business. The location you buy in is the most important factor in buying for investment, as you will want the property rented out immediately and permanently, therefore the property will need to be accessible and near  amenities and infrastructure, it helps if it is serviced as well. This is unless you are building your dream country home in a remote part of your home town, where you can indulge your hears desires and have no worries about the property being empty for long periods and not earning an income from it..

Be a wise investor!