An Analysis of Real Estate Investment as a Business

Executive Summary

Buying real estate as an investment can bring great rewards. Holding real estate and watching its values rise over the long term is a nice way to retirement for many people.

One of the advantages of real estate can be a disadvantage; however it’s not a liquid asset. You can’t get your money out easily.

An important factor in real estate is land. Land provides the foundation for the social and economic activities of people. It is both a tangible and physical commodity and a source of wealth.

Land uses derive from mandates of organized society. In countries where ownership and marketability of land are not free, government often dictates the use of land. In free market economies, land use is regulated within a framework of laws.

To understand how the various forces affecting land operate, the basic role of law must be recognized amongst such laws are Land Use Act of 1978, Nigeria Urban Regional Planning etc.

Real Estate as an Individual

An investor in Real Estate invents either directly or indirectly, purchases a stream of anticipated future receipts which are expected to be generated by real estate.

Passive and Active Investors

Many investors acquire direct title to real property in which they invest. They either oversee the property themselves or hire professional management firms to handle day to day management chores. Importantly the investor holds an interest in an enterprise whose products includes real estate services and can be analyzed in much same manner as any other enterprise that requires capital expenditures.

Investment and Speculation

A clear distinction between investment and speculation is that speculation is an assumption of business risk in hope of gain; more specifically, purchase or sale in hope of benefitting from market fluctuations, while investment is the commitment of money in hopes of financial gain.

Time

This is an important factor in reaching an investment decisions in real estate. This also reflects on the anticipated appreciation a property can achieve by holding same for a long period.

In year 2002, a development by Solid Homes at Victoria Island extension was introduced to client at foundation level going for N15, 000,000.  He could not appreciate the seriousness of the developer, though all the infrastructures were made but construction of the detached house was rather slow. He did not buy. Gulf Bank got wind of it and through their investment aim – Bacad Investment bought 10 units at N15 million making a down payment as development progresses. Eventually the properties were delivered to Bacad Investments.

In 2004, my client could not believe what the development had turned into; we eventually bought at N27, 500,000. In 2years capital appreciation on the property was more than 80%.

The property was let to Ghana High Commission at a rent of N2, 500.000 per annum and they occupied the property for 3years. We decided not to increase their rent after the second year since we were informed they would vacate the premises.

In 2008 we sold the property for N80, 000,000

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