Buying and establishing real estate is a great investment strategy that can be both lucrative and fulfilling. 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 profit maximization and 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.
Commercial real estate is the process of acquiring real estate mainly for the purpose of doing and generating income. This type of real estate can either be for multi-family residential, industrial purposes, or a combination of both. However, we have the various categories that make up commercial real estate which include office space, retailers’ shops, hotels and resorts, malls and 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 residential real estate.
How does Commercial Real Estate Work?
Just as the name implies, commercial real estate is available for industrial/commerce, multi-unit rental and can also serves as a residential space for tenants. It works through different methods that include:
- Long-term Commercial Lease: Here, 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: 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 with the aim to resell them. They buy at a cheaper rate and resell at a higher rate for profit. 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 and management of the property. The firm assists the owner to find and retain tenants, manage, and 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.
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 an estimated population of 14,862,11. Lagos population is increasing 10 times faster when compared to New York City and Los Angeles and is bigger than the population of 32 different African nations combined. Of course, with this kind of population, housing requirement is such a hot cake and a core investment area. As the population of Lagos grows, also does the demand for housing and commercial real estate.
Housing 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 up to 17 million units. Thus, this deficit provides a market and brings an opportunity for real estate investors who’re interested in building for commercial purposes. The cost of accommodation in Lagos State is very high, but even at this price, there’s inadequate housing provision for the inhabitants of the state.
When compared with the cost of renting a commercial apartment in other states such as Ogun, Anambra, Oyo, Enugu, Kaduna, Cross river, and so on. Investors can never go wrong when it comes to setting up commercial real estate in Lagos, as long once they judiciously follow the standard guiding the building of 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 but he hasn’t been able to recover 60% cost of the building for over 5 years now. This is a result of the low population and the low cost of living in the area. Meanwhile, that same client setup a similar investment at Sangotedo, Lekki, and has made over 200% return on investment on the property.
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. I believe that commercial real estate in Lagos is favourable, depending on your purpose of investment.
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