By Olawale Fatunwase
In my previous article on how to start real estate investing in Nigeria with little or no capital, I explored the various options or investment opportunities a newbie might find helpful in having a head start with building financial fortune through real estate. Today’s topic is a continuation of the series. Grab a seat, plus a bowl of popcorn and let’s have a wonderful session of learning!
Nigeria’s high-interest rates (18–30% from commercial banks) demand creative financing. Here’s how to fund deals smartly—with real-world scenarios and alternatives:
1. Traditional Mortgages: Navigating the Pitfalls
Use banks strategically—not as a first resort.
National Housing Fund (NHF):
How it works: Civil servants contribute 2.5% of salary monthly → access loans at 6% interest for 30 years.
Cap: ₦15 million max (insufficient for Lagos/Abuja prime areas).
Scenario:
- Tunde (salary: ₦300k/month) uses NHF:
- Buys ₦14M 2-bedroom in Kubwa (Abuja).
- Pays ₦58k/month vs. ₦210k with a commercial bank.
Commercial Bank Mortgages:
Reality: 18–25% interest, 20–30% down payment, 5–10 year tenure.
Only viable for: High-income earners or short-term flips (e.g., renovate/resell in 12 months).
2. Private Money Lenders: Speed Over Cost
Ideal for time-sensitive deals (auctions, distressed sales).
Structure: 10–15% interest per annum, but often structured as 3–5% monthly (e.g., ₦10M loan = ₦300k–₦500k monthly interest).
Collateral: Land documents or existing properties.
Red Flag Avoidance:
- Never sign blank documents.
- Demand a stamped repayment schedule.
Scenario:
- Chioma finds a bank-repossessed duplex in Lekki at 40% discount (₦45M).
- Borrows ₦30M from a private lender at 4%/month for 6 months.
- Renovates (₦5M), sells for ₦70M → Pays lender ₦37.2M (capital + interest), nets ₦27.8M profit.
3. Seller Financing: The "Pay Small Small" Model
Direct deal with property owners to bypass banks.
How it works:
a. Pay 30–50% deposit.
b. Balance paid over 1–3 years at 0–10% interest (versus bank rates).
Negotiation Tip: Offer higher deposit for lower interest.
Example:
Emeka agrees with a landowner in Ajah:
a. Price: ₦20M → Pays ₦8M deposit.
b. Pays ₦1M/month for 12 months (₦12M total) with 0% interest.
c. Saves ₦4.8M vs. bank loan interest.
4. Cooperative Societies ("Ajo" or "Esusu")
Leverage community-based funding.
How: Join housing cooperatives (e.g., Lagos State Cooperative Federation).
Advantages:
- Interest rates: 5–10% per year.
- No collateral if members guarantee you.
Process: Save consistently for 6–12 months → access loans 3x your savings.
Scenario:
Ngozi joins "Home Builders Cooperative":
- Saves ₦100k/month for 10 months (₦1M total).
- Borrows ₦3M at 8% interest → Buys land in Mowe (Ogun).
- Repays ₦90k/month for 36 months.
5. Real Estate Crowdfunding Revisited
For passive investors or micro-developers.
Platform Mechanics:
- Investors pool funds (₦50k–₦5M each).
- Platform develops/buys property → splits rental income or sale profits.
Top Picks: Fibonacci (Fibo), Estate Intel (SEC-regulated).
Case Study:
Platform: Fibo’s "Lagos Warehouse Project"
- Total raise: ₦200M from 400 investors.
- Annual returns: 15% (₦75k/year on ₦500k investment).
- Exit after 3 years: 22% profit including asset appreciation.
6. Diaspora Financing: Tapping into Foreign Currency.
Leverage stronger currencies (USD, GBP) for lower rates.
Options:
a. Diaspora Mortgages: Banks like GTB offer USD loans at 7–9% interest.
b. Family Partnerships: Relatives abroad lend USD → you repay in naira (saving 10%+ on exchange spreads).
Caution: Avoid unlicensed "currency converters" – use CBN-licensed IMTOs. Example:
Ken (UK-based) lends sister ₦50M equivalent ($34k) at 8% interest.
- Sister buys 4 flats in Ibadan → rents generate ₦6M/year.
- She repays $222.22/month (₦333,333k) from rent income.
Critical Risk Mitigation Strategies
A. Title Verification:
I. Never accept "Excision in Process" or "Gazette" as proof – demand Governor’s Consent.
II. Budget ₦100k for a lawyer to run land searches at state registries.
B. Interest Rate Traps:
If borrowing above 12% p.a., ensure your ROI exceeds 25% (e.g., quick flips or high-yield rentals).
C. Exit Clauses:
For private loans, include: "If unable to repay after 6 months, property transfers to the lender."
Pro Tip: Stack Financing Models
Example: Buy land via cooperative loan (₦5M at 8%) → Use land as collateral for private lender (₦10M at 5%/month) → Build duplex → Refinance with NHF loan (6%) to repay private lender.
🔥Key Insight: "The best financing is one where someone else’s money takes the risk, and your sweat equity drives the profit."
Focus on speed-to-ownership over cheap rates—appreciation often outpaces interest costs.
For consultation on how to start or make the best use of your resources in real estate investing, you can write directly to me via email at luxe.solicitors@yahoo.com.
See you on the next one. For now, cheers.
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