How Investing in Real Estate Can Help You Build a Diversified Portfolio

How Investing in Real Estate Can Help You Build a Diversified Portfolio

How Investing in Real Estate Can Help You Build a Diversified Portfolio

15th July, 2022

2 minutes, 44 seconds read

According to Fundrise and Investopedia, since April 2020, the stock market around the world has not been at its best. Investors are voraciously searching for ways to reduce fluctuation in their portfolios to make them more resilient. The option of diversification aids this process. Below, we explore some of the ways you can glean from diversifying into real estate.

What Is Diversification?

Maximizing returns is the goal behind diversification. The saying, “don’t put all your eggs in one basket” is essentially an appeal for diversification. From the finance perspective, it is the process of mixing various asset classes within an investment portfolio. 

An asset class is a group of investments that have similar characteristics and are subject to the same laws & regulations. The risk profile attached to assets in the same class fall in similar ranges. Typically, you should only invest based on your risk appetite. That means before you invest, ask yourself- “how much risk can I afford to take on this asset”? This is why you should research the risk profile for assets you invest in. Some asset classes are Shares, Bonds, Commodities, Properties, and Cash.

 

How Will Investing in Real Estate Diversify Your Portfolio and Yielding ROI?[1]

Real estate historically has strong returns, making it a valuable choice for diversification. Unlike stocks, real estate has longevity which means that it matures over time. You can always expect its value to appreciate. Real estate also falls in the low-risk asset class which encourages consistent and sustainable returns over a longer period. Basically, your real estate investment can provide for others after you. The advantage is that depending on your risk appetite, you can mix aggressive and low-risk assets in your portfolio. It creates a baseline that will buffer impact and enable more returns. Real estate is also popular for its ability to generate passive income. It will get you cash flow for your retirement years.

Another benefit of investing in real estate is being able to build equity. Equity is an asset that is part of your net worth. Real estate can also be a good hedge against inflation and gives you leverage to acquire more property.

 

How to Use a Mix of Real Estate Assets to Diversify Your Portfolio


Experts recommend a 60/40 split when diversifying portfolios, allocating 60% of capital to stocks and 40% to fixed-income investments such as bonds. Real estate bonds are fixed-income investments or loans, backed by real property. Some other options to invest in real estate are private equity funds, publicly-traded REITs (Real Estate Investment Trusts), and DIY by purchasing directly from other real estate platforms.

As an independent investor doing it yourself, selecting the right piece of real estate to invest in is a vital part of the process. When choosing, you need to do thorough due diligence. If you use a real estate platform, consider the structure of service, the actual value of properties on offer, and process management expertise. We recommend using one that has both local and international appeal. That way, those in the diaspora can invest in properties. A proven track record is a good standard to rely on.

BuyletLive.com is an excellent reference for a real estate marketplace that fulfills these conditions. Using a seamless process, users can purchase properties. Agents’ posts are advertised through Buyletlive’s paid effort, addressing potential local & international customers. This helps agents gather more leads and users connect faster to properties for sale. The properties posted are thoroughly verified to ensure that their current state keeps up with maximum standards. There is also dedicated customer service available to handhold a user through the entire process and manage every inquiry.

 

Want to see for yourself? Check today’s properties here.



[1] ROI- Return on Investments. It means profits.

Share:

Related Posts

15th July, 2022

2 minutes, 1 second read

Owning a home is easier than you think. Here’s why

Many of us have at one point or the other dreamt of owning a home. Experts agree that there is no age or status barrier toward home ownership. Anything is possible with the right information and tools at your fingertips.

While we acknowledge that renting has some great benefits, long-term options in a place like Nigeria reflect that owning a home offers more unique advantages.

Your Home is a store of value. Because Real estate typically appreciates, all things being equal, your home assumes higher value with time. You'll also have living security and can earn passive income. Real Estate is generally a low-risk asset class that accounts for steady and sustainable profits over time. You can use it to hedge against inflation. It gives you more control over costs and as a big addition, your mortgage repayments can be a way of saving money by relying on extended payment duration.

Financial capacity is usually the first thing people contemplate in home ownership. One might wonder where to access lump sums to buy a home, considering the high value placed on real estate in Nigeria and abroad. Some options to address this worry can be found in mortgage systems, installment payment plans, housing loans, etc. Microfinance banks and larger financial institutions offer credit loans for home ownership.

While you sort the finance aspect, the other part of home ownership is to have a plan that suits your unique context. Your plan should typically include the choice of location, the size of the house, maximum budget, payment plan, and renovation requirements, and so on. When these are aligned to suit your objectives, you can then scout the market to see what’s available and how your plan measures against market realities.

Property search as a key item in this process can be overwhelming sometimes. The options available may not meet your requirements or offer you decent comparisons. The photos to peruse could be unclear and not cover the areas you want to see. Getting feedback on additional inquiries may take longer than anticipated and going for physical inspections might prove challenging. This is why you need BuyLetLive. We are all about creating an easier, happier, and faster property search experience.

On the BuyLetLive platform, you have an array of great properties to choose from and seamless steps to complete the process. Our dedicated customer care team will handhold you as you go along and soon, our mobile app will launch. That means better, faster, and easier property search at your fingertips!

Remember that after you find a suitable home, another level of due diligence is required to ensure that you are dealing with a property of correct value. All you need to do is work with verified agents and developers, get started on https://buyletlive.com/


15th July, 2022

4 minutes, 32 seconds read

Why repurposing assets is now a major need in Nigeria's real estate market

It is interesting how virtual working and virtual shopping have fused into our daily living, fundamentally changing the world, especially the global real estate market dynamics. The initial impact was a downward turn in revenue from shopping malls, office space rentals, and purchases. Although macroeconomic statistics show that adversely impacted sectors are beginning to rebound, one critical fact is that the way our world works may not return to what it was pre-COVID-19.

Will the real estate market in Nigeria make a full recovery? Can companies operate without a physical office or return to the status quo? How can the real estate market in Nigeria make a full recovery to pre-COVID19 revenue levels and grow above it? Perhaps repurposing some of the purpose-built real estate assets to the property types in current demand can give respite? Let’s dive in!

Since the 2016 Recession, retail and office sectors in Nigeria have recorded a decline in performance. In Nigeria, COVID-19 only accelerated the impending decline as factors like xenophobic attacks on malls, reduced office occupancy, remote work, and booming e-commerce were already reducing the demand for office spaces, shopping malls, and retail chain stores. Before the pandemic, the asking rent in Lagos for prime office projects in Ikoyi and Victoria Island (VI) was already down to $700 and $600 respectively from about $1,000 and $800 per square meter while prime shopping centers in Lagos like Ikeja City Mall (ICM) had a weighted average rent of more than $42/m²/month. In contrast with today, these rents have dropped by over 15% between 2016 and 2021. Further deepening this, a number of major anchor retailers including Shoprite, Mr. Price, Woolworths, and Truworths International have recently made an exit from the Nigerian market further declining the real estate demand in their supply chain.

 How is this impacting the bottom line of asset owners?

Reports show that Investors have lost over 40% of rental revenue since 2016. Since 2018, the rent and occupancy levels for Grade A office spaces in Lagos have fallen by more than 20% according to data from Knight Frank Africa and Estate Intel. According to a report by W Hospitality Group, the Lagos and Abuja hotel markets since 2016 and through the pandemic have seen a double-digit decline in occupancy rates. According to hotel experts, room occupancy in April 2019 was 63.7% but had dropped by over 30% in April 2020, leaving the market struggling to date. Abuja experienced a 51% drop in occupancy over the same period. There is a widening gap to fill following the exit of these major anchor retailers.

According to Broll Property Services, the ideal average rent in core markets including Lagos was between US$50 to US$80/m² per month in 2016 but is now at a 16% decline over a 6-year period. Even worse, outside Lagos, rentals in less prime locations, previously reported to be within $35-$50/sqm/month before 2016 currently average at $20/sqm/month. It represents a steep 43% decline. Following the facts, we estimate that investors have lost over 40% of revenue on office, hotel, and retail assets since 2016.

 How can investors make a recovery? Repurpose, relaunch and sweat their existing assets.

With the world’s revolution post-COVID, investors are constantly exploring ways to adapt assets for alternative uses. Real estate investors across the world are doing this too to make the best of the situation. In a highly sought-after city like Lagos, possibilities exist for investors to benefit from this approach. At the beginning of the year, Growthpoint, South Africa’s largest office developer partnered with Setso and BlackBrick to convert its Riverwoods, Bedfordview office project into a residential villa. This was a clever response to oversupply in the market and the growing demand in the city’s residential sector after the pandemic.

 What strategies should you consider when repurposing?

Target sub-sectors with a strong long-term demand pool

At the end of 2021, it was estimated that Nigeria had a housing deficit of over 20 million units. Lagos alone, reputed to be the commercial nerve center of the country, had a deficit of about 3.2 million units. To date, housing Nigeria’s growing population remains a national challenge.

Estate Intel reports that Lagos has approximately 13,490 hospital beds in the healthcare sector, serving a population of over 21 million. This means that there is less than 1 hospital bed to serve a thousand people. It is 88% short of WHO’s recommended 5 beds per 1,000 population.

In a 2021 report by Knight Frank, the real estate consulting firm alluded that changing occupier requirements and fast-moving consumer goods underpin strong demand for real estate tailored to logistics. According to Knight Frank, warehouse demand in Lagos currently stands at over 1,000,000 square meters, with only about 300,000 square meters available for supply.

All these data reflect a strong undersupply of real estate in the residential, healthcare, and logistics sectors of Nigeria’s economy. It clearly shows what investors thinking about repurposing their assets should consider.

There is also a need for investors to position their assets to help address broader economic and social issues.

 ESG, Sustainability Considerations, and the need to treat each asset uniquely.

The rising prominence of Environmental, Social, and Corporate Governance (ESG) in our world today is also shifting real estate needs. Responsible and socially conscious investing is another way to term it. Rising global concerns over climate change are prompting actions from all players in the industry. Investors are beginning to demand more sustainable buildings and it is not only because of pressures from governments and authorities. Sustainable buildings tend to save on maintenance and operational costs in the long term.

 However, not ‘one-size-fits-all’, location, demand, and local infrastructure will inform what is viable. In the context of Lagos State, possible use cases are likely to range from residential (especially for younger people) to healthcare and pharmaceuticals. Co-working/flex spaces and provision for logistics will occur with demonstrated demand. Although it might be a difficult time for investors, we believe this presents an opportunity to meet a new and evolving market demand.

 Your thoughts?

Let us know how else non-performing real estate assets can be better positioned for profitability. You can check out BuyLetLive.com to find affordable homes that meet your taste and budget. We would love to keep in touch! Follow us on LinkedIn and Instagram for more insights on how to navigate the Nigerian real estate market.