For a long time, most investors were hesitant to enter the real estate sector due to the low yield associated with the widely used annual rent policy. This practice, which dates back to the early 1990s, has become a long-standing tradition in the Nigerian rent chronology. However, some property experts’ adoption of the short term lets market has reawakened enlightenment that seemed lost during those years of long-term monthly and yearly rental practice.
The revelation was that short term lets property rental is more profitable than the traditional long term real estate market pattern. Most land dealers opposed this paradigm shift and some property practitioners labelled it a “risky involvement.” Nonetheless, what exactly is the short term lets rental real estate market? Is it profitable?
The Lucrative Nature of the Nigerian Real Estate Sector
Nigeria, the acclaimed “Giant of Africa,” has Africa’s largest real estate market. The real estate sector has attracted over $523 million in investment. Despite how good these statistics appear, the value of ROI remains less than 3% across the country. This figure reflects the increasing risk in the industry.
However, despite the risks, real estate is generally promising and profitable. Property investors, according to experts, have a good chance of recouping around 17% of their initial investment. And this can rise to 20%, with the lowest expected income estimated to be around 15%.
Naira Depreciation and Real Estate
Currently, the Nigerian Naira is losing the forex war against the US Dollar, and this has impacted the net income of most property businessmen. This negative movement is a two-edged sword, however, carrying both positives and negatives.
Positively, as long as the property is kept in good condition, the value will not be affected in the long run, making the profit somewhat illiquid. On the other hand, naira depreciation is a source of concern for most real estate investors because it is one of the primary causes of profit vulnerability, which may result in losses.
Most of the time, the percentage gain in profits equates to the naira depreciation, leaving investors in a profit neutral zone. These unfavourable circumstances have stifled the growth of the real estate market, but the arrival of the property short let movement has signalled the start of a new era in the sector.
What is Short Term Lets Real Estate Market all About?
The short term lets rental market is a modern rental pattern in which landowners place house residents daily. It was discovered by Shortlethomes and has since been adopted by many real estate players due to its profitability and promising future.
Many factors influence the market’s rising fame, one of which is the average yield associated with a long-term rental agreement. Nonetheless, this short term lets rental agreement contains a few exceptions and limitations.
As things currently stand, the Naira value depreciation rate is 15%, and the only way to make meaningful gains in the short term lets market is to accommodate at least 50% of residents. Furthermore, international investors are unlikely to make tangible profits if they invest in the local community.
The cost of building materials also plays a significant role in short term lets rental, as it is responsible for the majority of earnings drop. Nonetheless, with short term lets rental property, a 40 percent yield can be obtained and maintained, as opposed to the 15 percent – 20 percent yield obtained in the long term lets rental market.
Tapping into the multi-million naira short term lets rental market
Though the short term lets rental market is expensive in terms of construction materials, the revenue generated over a short period makes the investment worthwhile. Many property practitioners have made millions of Naira in rental income and recovered their capital costs in a short period thanks to good management.
However, a 50 percent occupancy rate should be attained at the very least because anything less than this figure will most likely not generate good dividends. To achieve these goals, good management, effective marketing, and quality assurance all play important roles.
Drivers of the Short Term Lets Market
The short term lets rental of real estate is yet another competitive accommodation service provider added to the brisk rental market. It competes with hotels, motels, and guest houses, among others, and has generally acceptable regulations.
The lack of regulation in accommodation service rental like hotels is a strong indicator that it is not yet safe and will most likely continue in the same manner. Furthermore, some people are unaware of the trend and thus, unfortunately, choose hotels for short term lodging.
Most short term lets rental players have devised methods to generate additional revenue to gain a competitive advantage and raise awareness. Show nights, party villas, baby showers, marriage events, child dedications, spas, bridal showers, birthdays, and other art celebrations are examples of these.
Apart from the short term lets earnings from daily profits, these events can generate additional income amounting to millions of naira. The reason for this is that Nigeria’s recreational market is currently one of the most profitable and viable in the country.
Setting Up a Short Term Lets property Business
The short term lets rental business, like any other, is funded. The amount of capital required will be determined by the size of the building and the market price of construction materials.
Real estate investors who choose large, high-quality apartments will profit more than those who choose medium-sized buildings with modest home appliances. The location is another important factor that influences its profitability. Short term lets rental investments in downtown and cities will yield higher returns than those in rural and suburban areas.
The options for renting, leasing, and buying in the short term lets real estate market promise to open up new financial opportunities for investors. This enticing and expanding multi-million dollar market has grown in popularity, and events are predicting that it will soon be on par with lodgings, motels, hotels, etc.
Some short term lets investors have added recreational activities to the game, but the catch is that you must achieve at least a 50% occupancy rate to generate millions in this market
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