Distressed sales are really profitable when you understand the market and while there are bad buys, many have made good money of flipping properties from distressed sales. The entire country is focused on buying and selling new properties, while there are numerous methods to make a living of real estate in Lagos.
The key take-away is to buy distressed properties from desperate sellers at a good bargain price. Why? These sellers are selling forcibly out of unfortunate reasons. The immediate need to cash out or liquefy an asset to solve problems is what puts them at disadvantage in negotiations, depending on the urgency.
So here are the things to know before diving into the sector of making money from distressed sales in Lagos real estate.
What is the Goal in Distress Sales? – Your Strategy.
Never go into any business without a plan with an exit strategy. Having a purpose for a property will help you negate wrong decisions, tempting offers, and whatever low bargain may come.
Questions to ask yourself are:
Are you buying to hold long term or short term? How will you pay for the property? The goal of the property, fix, and sell? What if the property doesn’t sell for the anticipated amount? Is there an exit plan?
These are all things you need to consider before you buy your first property.
Buy from only distressed sellers.
The situation of every seller is different. Many will advertise properties to you or you may even see some tempting offers but stay true to the goal, the true intent to buy only from desperate sellers. In distress sales, their bargains should be to your advantage. Never buy from someone who isn’t in need but only wants to sell.
You may encounter sellers who want to sell a home for 80 million Naira while the going rate in the market is 85 million Naira. While it may seem like a good profit of 5 million, however, without accounting for total expenses on repairs and marketing then trust me, this is not a good sale.
Take Proper Accounting.
Before the bargain, I need you to understand how to calculate how much or rather to determine how much you should pay for a property.
After Repair Value (ARV) x 65% – Less the Repair Estimate (RE) = Your Maximum Offer Price (MOP)
The most you should pay to purchase the property is your MOP. At this stage, you have enough insights into the value of neighborhood or similar property prices (you can’t use online research alone).
Establish a material, labor cost, and repair estimate.
A good sale should look like this – A homeowner has put up his 4 bedroom duplex with good finishing in Lekki up for 50 million. We know for sure the average going rate for such properties in Lekki is 65 to 70 million nairas.
That is 15 to 20 million Naira below average market price, if damages and repairs are well below or at 5 to 7 million Naira then I believe you have a very good buy.
Other Factors before Negotiations
To have a solid understanding of your gain in a distressed sale, be sure to factor in insurance, property taxes, interest, fees, commission after you fix and sell, and closing cost. Other things may arise so it is good to do good research before making a bid to a distressed seller because after all is said and done, you will be the one at a disadvantage if things go south.
Sales Price (minus) – Commission – Purchase Price – Repair Estimate (RE) – Your Holding Costs – Maintenance and Repairs – Your Closing Costs = Your Potential Profit.
Knowing how much you will sell a property after repairs should give you a quick and fair estimate if that property is worth it.
If you are still considering this method of Investment, then you should know that there are potential and money to be made in Lagos real estate. Most Often do we see large companies practice this method to swallow up small estates of properties to make more money but there are single investors who do and I have been fortunate to meet some of them here in Lekki, Lagos.
However, if you a single investor or beginner please always contact a professional so that you may learn how to bid, repair as discussed here, and sell with the right marketing strategies.