Many people often get curious as to how some investors make so much money investing in an emerging real estate market.
The question that often comes to their
mind is how do you recognise an emerging real estate market and what
pitfalls should you avoid if seeking to maximise such opportunities.
An emerging real estate market is an
area with rapid growth and appreciation in the value of its real estate.
It is an area that suddenly seems to burst out with life and
developments that cause the properties within that environment to
experience sudden jumps in value. Those who are able to recognise and
plug into this market will make significant profit whilst those who miss
out in the season would likely blame themselves.
How do you recognise an emerging real estate market? The first thing to look for is the job market.
There seems to be a direct correlation
between the value of real estate in an area and the proximity of the job
market or employers.
Continue after the cut...
People love to live close to their
places of work or sources of income. There seems to be a psychological
peace that many enjoy when close to their means of income.
It is also convenient and cost-effective.
In addition, money is required to rent, lease, acquire, develop or sell real estate.
Thus, a person who desires to own property will most likely think of such a step when he or she is gainfully employed.
This is why places close to commercial or economic hubs of any nation will generally experience rapid development.
When you desire to invest in an emerging
market begin to look for new areas where the companies are going or
businesses are setting up their shops or offices.
Another trend to look for is the
location of major government projects or offices or schools or where
major institutions are setting up. For instance, some of the state
governments in Nigeria have established free trade zones and they are
seeking investors in those areas. Although most of such projects have
not taken off fully, they will eventually gain momentum.
The best time to invest in those areas or the adjourning communities is now.
One thing you can be sure of is that as
those government projects gain momentum and businesses begin to move
into those areas the value of land in the adjourning communities will go
up.
The factory workers and white collar
workers in those zones will need accommodation and some will even begin
to buy land and build.
This will jump start construction and
supply businesses in the area. As more people begin to live in those
areas there would be the need for schools, supermarkets and other basic
services.
These service providers will require shops and office spaces.
And all these will increase the value of real estate in those areas.
As simple as these analysis may appear,
time and time again most people fail to read the signs and catch in on
these opportunities.
I remember a friend lamenting that he was once taken to an emerging area and ask to buy a plot of land at N500,000.
He had the money and could easily afford
two plots but rather than look at the future possibilities of the area
he was focused on the present state of lack of basic infrastructure.
He did not buy the land.
About seven years to ten years after, a plot of land in the same place now sells for N10m.
He could have been a couple of millions richer today if he had made the right move then.
The good news is that it is still not too late. When it comes to opportunities you should not be too slow and also not too fast.
There should be a simple balance between the time you see an opportunity,evaluate it and then make a decision.
But once you have decided, act. Emerging
markets often change so rapidly that every day you fail to act costs
you money. Time indeed is money.
In an emerging area, your investment options should be determined by your long and short-term goals.
One of the commonest strategies being
used by astute investors is to buy and hold with the intention of
reselling all or part of their holdings when the area begins to mature.
For instance, if my friend that I
referred to earlier had bought two plots of land and later sold the two
when they appreciated, his initial investment of N1m would have given
him N19m within less than ten years. He could then decide what to do
with the money.
He could also have sold one of the plots
and used the money to develop the other plot with the intention of
living in the property or renting it out for cash flow.
Another hidden opportunity in emerging
real estate markets is the ease of setting up businesses compared with
more matured markets. It requires no gainsaying that setting up several
businesses, such as schools and supermarkets, are more easily done in
emerging areas where the dominant brands are not yet present. In fact,
your business may eventually dominate the market, a feat that may take
you more funds and more time to achieve in a more developed area.
Finally, acquisition of properties could
be done with more flexible payment terms from the sellers who are
desirous of attracting investors or businesses to their area. You may
find it easier to secure plans which allow you to pay in installments
and offer you other developmental concessions.
All this will afford you the opportunity to position yourself to profit from an emerging market.
-Abiodun Doherty (abiodundoherty@yahoo.com)
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