Buying and establishing real estate is a great investment strategy that can be both lucrative and fulfilling to accomplish. Quite different from bond and stock investors, potential real estate owners can decide to use leverage to acquire a property of choice. This is achieved by using leverage to pay for the total cost of the property acquired upfront, then completing the payment off the balance as time progresses.
Many of the real estate investors’ primary purpose of investment is for profit maximization and some may even be a long-term investment. Flipper investors buy property to resell at a higher price to earn income, while other real estate investors simply want to be a landlord of their rental property. Before we proceed, let’s find out the meaning of Commercial Real Estate?
What is Commercial Real Estate?
This is the process of acquiring real estate that its main purpose is majorly for business-related and income-generating purposes. This type of real estate can either be for multi-family rental residential or mainly for industrial purposes, most times a combination of both. However, we have the various categories that make up commercial real estate, they include office space, retailers’ shops, hotels & resorts, malls & restaurants, and even healthcare facilities.
Commercial real estate yields rental income in combination with other capital appreciation on the property as time progresses. Although,investing in commercial real estate always needs more sophistication and huge amounts of finance from investors than does residential real estate.
How Do Commercial Real Estate Works?
Just as the name implies, commercial real estate is available for industrial/commerce, multi-unit rental and can also serve as a residential space for tenants. It works through different methods that’ll be discussed in this article. They include;
Long-term Commercial Lease: In this method, the property is leased by the investor or group of investors who own the property to the interested user for a long time, like 5-10 years.
Short-term Rental Period: In this method, the property is rented for a short period, like 12 months after the rental rate has been concluded by both parties. It can even be leased for a short period of a month.
Flipping Commercial Method: This is the process whereby an investor or group of investors simply acquire a property or some properties for reselling aim. They buy at a cheaper rate and resell at a higher rate for profit gain. Some investors can keep the property for as long as they wish before reselling but a large percentage resell within a short period (like 3 to 6 months) of it being purchased.
Managing Your Commercial Real Estate
This can be done by the owner or through the services of a good commercial real estate management firm that aids in the proper maintenance & management of the property. The firm assists the owner to find & retain tenants, manage, coordinate the activities of the property. Most times, the services of a commercial real estate firm is highly recommended because of their vast knowledge of the rules and regulation, government policy guiding real estate investment in our country. Meanwhile, let’s see if investing in commercial real estate in Lagos is such a good idea.
Is Investing in Commercial Real Estate in Lagos a Good Idea?
Lagos is the World’s sixth megacity, a major economic hub in Nigeria with a population of 24.6 million inhabitants in 2015 according to UN-Habitat and international Agencies. Thus, Lagos population is increasing 10 times faster when compared to New York City and Los Angeles, also bigger than the population of 32 different African nations joined together. Lagos state’s population increases by 77 people every hour. Of course,with this kind of population, the housing requirement is such a hot cake and a core investment area. Hence, as Lagos city grows, also is the same increase in demand for housing and commercial real estate.
Housing Sector in Lagos
Housing has been one of the most challenging issues with urban areas especially in Lagos state due to the increasing inflow being recorded yearly. Over 500,000 people relocate to the megacity each year, this has also caused a housing deficit of upto 17 million units. Thus, this deficit provides a market and brings an opportunity for real estate investors who’re interested in building real estate mainly for commercial purposes. According to a BBC report concerning housing in Lagos, it was estimated that middle to high income housing expense cost at the rate of $2,000 to $35,000 yearly for a 2-bedroom apartment and above. Even at this price, there’s inadequate housing provision for the inhabitants of the state.
Meanwhile, when compared with the cost of renting a commercial apartment in other states such as Ogun, Anambra, Oyo, Enugu, Kaduna, Cross river, etc. Lagos state has about 35% to 55% higher cost in renting an apartment or any commercial real estate category to other states. So, for investors trying to set-up a commercial real estate in Lagos, they can never go wrong with their investment once they follow judiciously the standard guiding building a commercial real estate investment in the state.
But this can’t be assured for other states. For instance, I have a client who first set up a commercial real estate (a retailer’s shop outlet) in the rural area of Mowe, Ogun State. And, since his investment in the area, he hasn’t been able to recover 60% of the cost of the building for over 5years now. And this was as a result of low population & low cost of living in the area. Meanwhile, that same client setup another investment at Sangotedo, Lekki almost the same as the one at Mowe but a little different due to the standard required by the Lagos state government and has made over 200% Return on investment on the property.
Therefore, I won’t be wrong if I state that commercial real estate in Lagos a good idea and a huge platform for one to invest in because of its market availability on the ground. So, from our discussion, you can see that commercial real estate in Lagos is favorable depending on your purpose of investment.
Dennis Isong Helps Individuals Invest Right In Real Estate. For Questions On This Article Or Enquiring About Real Estate Email: Dennis@Landproperty.ng or Whatsapp/Call +2348164741041