How to make money from Off-plan investing
Last time, we spoke about what Off-plan investing was, its benefits, risks attached and how to reduce the risks. You can read the article here (What is off-plan investing). Today, we are going to talk about how to make money from off-plan investing. Let’s dive right in.
There are two primary ways of profiting from an off plan investment: a simple way and a more advanced way.
Buy and hold: the simple way
This method entails a buyer holding onto their investment for the longer term and seeing the discount gained as a bonus: icing on the cake. It is simpler, less risky and there are fewer variables to contend with. You simply lock in the discounted price of a property you want to acquire, with a small down payment.
Let’s say you eventually get a 20% off-plan discount. This can be treated as money you can use to invest in something else. Perhaps deposit on another residential development or used for land banking outside the city.
In a rising real estate market such as Abuja, where prices are always going up, price discounts gained can be upwards of 50% by the time construction has actually finished!
Flipping before completion: the advanced way
Buying a property off plan means initially putting down only a small deposit. The rest is often only payable when it’s finished or is to be paid in installments, depending on the project reaching set milestones. Deposits can be as low as 5% in certain cases.
As an example:
You buy an off plan property for 40 million Naira, putting down an initial deposit of 2 million Naira (5%).
As demand increases, 7 months down the line, property prices in the neighborhood rise by 5% meaning the house that is still under construction will be worth 42 million Naira upon completion.
You may be able to find a buyer looking for a home to live in or just a straight up investor, willing to pay you for the right to buy the off plan property. For instance, they might offer you 4 million Naira for the right to buy the property at 40 million Naira upon completion.
You have essentially flipped the property for a 2 million Naira profit: a 100% return on investment (the other 2 million is for the initial deposit you put down making a total of 4 million Naira).
This strategy is extremely popular for developments in prime locations and is frequently used where properties are bought at very early stages of development: when marketing is still at its infancy.
The process of buying off plan property
- You will likely pay an application or reservation fee indicating your interest in the said off plan property. Fees vary by developer but are usually around 10,000 Naira. These fees are usually deducted from the deposit paid at later stages.
- You hire a lawyer that will go through the same legal process as you would when acquiring any other property. So things like company history, legal searches and going through the contract will be done. If everything is ok, your lawyer will give you the go ahead to pay the initial down payment and sign the contract.
- Here you will monitor progress of the construction work and pay any installment payments agreed as per your contract.
- Upon completion, the developer will request final payment(s) to be made ahead of handing over the keys to you.
Finally: should you buy off plan?
The resounding answer is yes. But only if you know what you are doing, purchase in a good location, target the right type of property and buy from the right developer.
When it comes to location, Abuja and Lagos offer the best off plan investment prospects in Nigeria. This is chiefly due to the fact that the demand for residential housing in these two markets is strong and growing daily. Every day people are moving to these two cities, thus causing house prices to rise. This trend is likely to continue for the foreseeable future.
With regards to the right type of property, residential properties are by far and away the safest to invest in: due to the strong demand. Commercial properties can be extremely profitable but are for more seasoned investors.
Finally, when it comes to finding an off-plan property, it’s best to work with reputable real estate agents. Estate agents have access to a wide network of contacts that can bring you the best developer deals possible: stress free.
Want to buy property in Lagos and don’t know how to go about it? Why not send us a message by clicking the link below.