Real estate experts give 5 risks involved in investing in real estate in Nigeria
All investments carry with them some degree of risk – the same holds true with real estate investing. Despite the promise of high rewards you should temper those ambitions with the reality that the risks involved are more often than not just as high as the potential rewards.
Key risks include bad locations, negative cash flow, high vacancies, and problem tenants.
Other risks to consider are the lack of liquidity, hidden structural problems, and the unpredictable nature of the real estate market.
For these reasons you need to take every possible precaution in order to ensure that you minimize your exposure to risk whenever possible or at the very least be prepared, financially and mentally to accept or absorb the consequences of those risks if the time comes.
Now, many times that we try to sell investment packages there is the potential to overlook and underestimate the risks – as the buyer and investor, you should not and that is why this article is as important or more important than the others on how to invest.
(Here is me also hoping that I am not shooting myself in the head by doing this – but it’s the truth that needs to be said and I might as well be the one to)
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The most obvious risk when it comes to real estate investing is the immediate risk of losing your investment. This risk can be a huge blow depending on how large your investment was to begin with but isn’t the worst thing that can happen during the course of a real estate investment gone wrong. While I’m certainly not trying to talk you out of investing in real estate all together, it is a good idea to have a realistic view of the risks alongside the potential rewards.
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If you are flipping or buying off-plan houses as your real estate investment, you have the potential to lose a little more as you can become injured during the course of your work – or your workers could. Or just as with the pandemics’ effect on the economy, prices of materials can skyrocket and developers will struggle with keeping to the initially agreed costs without making a loss.
The sad truth is that many who are attempting to break into the business of real estate generally have neither adequate insurance coverage (this is true of themselves and the property in general and others that may be working on the property), the money, nor the time that a serious injury/blow might require to keep work moving along smoothly.
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Take for example, off-plan developments that had been negotiated before the pandemic with payment plans up to 18months (that fell into the pandemic) and either of the subscribers and/or developer are in some level of default. Those projects are causing some level of difficult discussions and feelings to be at play currently. Because with the cost of money, investors have lost time from extended delivery of their projects and developers have had to be lenient/understanding of honest inabilities for some clients to have made all their payments on time.
Which is another risk common to real estate investing – stuff happens!!
Market trends tumble, companies go out of business leaving towns and the local real estate market in shambles, accidents happen during the course of the work, natural disasters occur, and buyers change their minds and pull out at the last minute. Each of these things can have devastating consequences and are almost always events that are completely beyond your control as a real estate investor (thankfully, not all of these occurrences apply to our local Nigerian market).
If that wasn’t enough many investors fail to have a proper inspection and find out when it is really too late that there are serious structural problems and other sorts of things wrong with the property. These things cost money to repair and cut into profits, occasionally resulting in a loss or a continued spend that should not have been in the first place.
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If this doesn’t remind you of the importance of a thorough inspection I have no idea exactly what will happen but inspections are important for many reasons and can save a lot of time and money if you have one done ahead of time.
Risks of investing:
Do not allow the risks of real estate investing prevent you from taking the plunge. They are spelled out here to remind you that prudence and caution are necessary when investing in real estate.
- To mitigate these risks whilst deciding on your choice for investing in real estate, you should
- Understand the market you want to deal in so you can limit your risk exposure at the appropriate times
- Ensure that your choice of investment strategy is defined by the amount of effort that you can either take on or have managed for you
- Follow all procedures that ensure you are getting value and quality at the same time
- Associate with a real estate investment club so you can learn more especially from engaging with others like you.
If you are interested in real estate investing there is no reason on earth you shouldn’t take the time and make the effort to learn more about its potential.
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Thankfully you are reading this and I hope it spurs you on to subscribe and/or turn on post notifications to keep getting them delivered to your inbox.
Next week, I am going to write about the specific types of risks that apply to real estate and proffer possible solutions for how to mitigate and deal with them as amicably as possible.
So watch out for this …….