10 Rules of Financial Freedom in Real Estate

Retiring with millions of Naira stashed in the account and sipping a margarita on Ibiza beach is the classic Nigerian dream – No worries, no stress. However, it’s a long walk to freedom from the average life. One of the most awesome ways to achieve financial freedom is (prudent) investment in real estate but before doing that, you must have to invest in yourself. Knowing what to do and how to do them before investing in resources around you is essential so you do not end up with stories that touch due to bad decisions.
I would be sharing with you, 10 rules of real estate investing in order to live the life you were made for.

1. Educate Yourself

In this age of steady personal development, knowledge is the new currency and without it, one is doomed to blindly following other people’s advice whether good or bad. This same knowledge is what will help you move from a good investor to a great investor and help provide a passive stream of income for you and your family.

2. Set Investment Goals

Goals and wishes are very different; one may wish to be rich but what steps have they taken to make those wishes come true? Setting clear and precise investment goals, especially by writing them down, becomes your road map and action plan which subsequently sets you up for financial independence. For example, your goals can include the number of properties you need to acquire each year, the type and location of each, as well as the annual cash flow they can generate.

3. Never Speculate

Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will peak and it’s usually 6 to 9 months after the fact when you find out. Don’t chase after appreciation. Only invest in prudent value plays where the numbers make sense from the beginning.

4. Invest for Cash-Flow

With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is directly related to the before-tax cash-flow from your property.
Cash-flow is the “glue” that keeps your investment together. Your equity will grow over time (through appreciation and loan amortization), while the cash-
flow covers the operating expenses and debt service on your property.

5. Take a Top-Down Approach

Always start by selecting the best real estate markets that align with your investment goals. Most investors start by analyzing properties with little to no regard of its location. This can be a big mistake if you don’t consider the investment in light of the market and neighborhood it’s in.
The best approach is to first choose your city or town based on its housing market and local economy (unemployment, job growth, population growth, etc.). For example, the new Dangote Refinery, the new international airport and many more industries are located in Ibeju-Lekki and its environs. Even Otedola has purchased a lot of lands there in order to prepare for the influx of people and industries to the area. Keep in mind that recruitment for the refinery has begun and most people would want to live in these areas to leverage on proximity to work. Seize this opportunity to find the best deals within those neighborhoods.

6. Be Market Agnostic

Nigeria is a large country made up of hundreds of local real estate markets. Each market moves up and down independently of one another due to many local factors. As such, you should recognize that there are times when it makes sense to invest in a particular market, and times when it does not. Only invest in markets when it makes sense to do so, not because you live there or you bought property there before. There’s an element of timing and you don’t want to buck the trend.

7. Diversify Across Markets

Focus on one market at a time. Once you’ve added a few properties to your portfolio, you would diversify into another shrewd market that is geographically different than the previous one. Typically that means focusing on another state.
One of the fundamental reasons for diversification within the same asset class (real estate), is to have your assets spread across different economic centers. Every real estate market is “local” and each housing market moves independently from one another. Diversifying across multiple states helps reduce your “risk” should one market decline for any reason (increased unemployment, increased taxes, etc.).
For example, even if you don’t live in Lagos or Abuja, you can invest in their real estate markets, which is becoming a focus of buyer activity as well as locations for head offices of most firms.

8. Use Professional Property Management

Never manage your own properties unless you run your own property management company. Property management is an unappreciated job that requires a solid understanding of tenant-landlord laws, good marketing skills, and strong people skills to deal with tenant complaints and excuses. Your time is valuable and should be spent on your family, your career, and looking for more property.

9. Maintain Control

Be a direct investor in real estate. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don’t control. You always want to be in control of your real estate investments. Don’t leave it up to corporations or fund managers.

10. Leverage Your Investment Capital

Real estate is the only investment where you can borrow other people’s money to purchase and control income-producing property. This allows you to leverage your investment capital into more property than purchasing using “all cash”. Leverage magnifies your overall rate-of-return and accelerates your wealth creation.

Conclusion

Not investing in real estate at this time in Nigeria when the market is rapidly expanding is an error that will be regretted in the nearest future. A wise man once said, “Find out where the people are headed and buy the land before they get there.” Candid advice only.

Remember, Real Estate just got realer with Bricks & Tierra.


Culled from noradarealestate.com