There have been many discussions about how lucrative the real estate market is, and how to make money from this sector. The Ghanaian market, judged to be the most attractive real estate investment opportunity in West Africa, is expected to deliver the highest level of profits over a short term (2-3 years) or long term (10 year) horizon. With the 2012 GDP growth rate in Ghana expected to be amongst the highest in the world, a survey by Clifton Homes revealed broad consensus about the positive implications for real estate. 85% of experts interviewed expected real estate investments in Ghana to outperform the regional average over the next 5 years.
meqasa.com has compiled a list of the various ways that you can benefit financially from investing in the property sector.
Buying and selling houses – A notion which has been widely accepted is the fact that the prices of properties or houses increase. For example, if a house is bought at 150,000 Ghana cedis this year, the value of that property is likely to go up by approximately ten percent in a few years. The rate of appreciation depends on the rate of inflation and the level of development of the area. This includes the local infrastructure and the availability of social amenities, shopping malls and water. Making a decision on where to live is as important as acquiring a property. People looking to buy a home nowadays target developments that are in new areas since they are not as expensive as already developed places but show potential of becoming leading areas in Ghana.
Selling bare lands – Like the price of houses, bare lands appreciate after a number of years. For instance, a few years ago in Accra, land prices in areas such as Ofankor, Pokuase, Prampram and Oyibi were moderately priced, compared to now. This is mainly due to increasing demand that has led to major price hikes. Many developers have channeled their investments into such areas, which has consequently led to the price increase.
Buying land is an often overlooked form of real estate investment that can produce good returns. Land is a fairly hands-off investment but generating returns is more involved than with rental property. This is because to buy land there’s more research, evaluation, and firm profit strategy needed.
Most Ghanaians buy land for the purpose of constructing a house, building, farming or some other enterprise.
The intent of many Ghanaians is to accumulate property rather than to maximize economic returns (Antwi,1996). The real estate market in Ghana is still in its infancy, with relatively few property sales as compared to other real estate economies in other countries. However, the industry is growing in Ghana as the younger generation of Ghanaians realize the capital gains made from property especially land is a quick path to wealth in periods of rapid inflation.
Renting out spaces – Another way of making money is by renting out the space in a commercial property or dwelling to individuals. Since more people have been choosing to rent instead of own in the past few years, the interest in rental properties has skyrocketed. The rental market is so strong, that even large foreign investment firms have been snapping up rental properties by the hundreds. That means that the market for property management has never been better and may be a lucrative area to get involved in.In Ghana, landlords predominantly charge between one and three years rent in advance. The price of the space depends on the size of the property and the neighbourhood. Ghana has a population of about 40,000 expatriates most of whom live in Accra. The rental market in the capital is big at 37.5% while the rental income of non-residents is 10% and withheld at source.
According to Anderew McConnell, CEO, Rented.com, the rise of Airbnb and VRBO in recent years has created a tremendous real estate investment opportunity for those who have been paying attention. As travelers increasingly prefer “alternative accommodation” options to hotels, the rental demand for such properties increases. This increased demand leads both to greater occupancy and to higher nightly rates.In order to find a great short term rental property to invest in, focus your search in areas with high demand for short term rentals. This means cities like Accra, Kumasi and Takoradi, college towns, or areas popular with vacationers.
Improving your space – A way of increasing the value of your property and making money in the sector is by including new facilities and providing services, like replacing the toilets and adding cabinets to the kitchen. This will enable property owners to charge tenants extra money. Also, according to Than Merrill, CEO and founder of FortuneBuilders and Star of A&E’s Flip The House, fixing and flipping houses is an excellent short-term real estate investment strategy. In order to make money, house flippers search for undervalued homes that need renovation, then renovate and sell those homes for a profit. Profits from flipping real estate come from either buying low and selling high (often in a rapidly rising market), or buying a house that needs repair and fixing it up before reselling it for a profit.
While you want to improve your property and increase the value, you also want to be cautious so that you do not over-improve your property. You don’t want to spend an amount of money on a renovation where you will not see a return on your investment. For example, putting high-end Viking appliances in a home in a middle-class neighborhood would be an over-improvement. Before you renovate, do some research on your area to find out how much the property will be worth after the renovations. Once you properly gauge this new value, you can deduct the price you paid for the home and what you are left with is the maximum price you should spend for the renovation and any soft costs such as financing charges, closing costs, and holding costs if the property will sit vacant while the renovations occur. For example, you buy a house for $200,000 and put in $50,000 worth of renovations. If you sell the house for $240,000, which is more than you bought it for, you will actually lose money when you factor in the renovation costs, as well as additional costs to hold the property and sell the property.
Become a real estate agent – Acting as the middle-man between the landlord and a customer is another great way to make money. A real estate agent or broker’s role is to connect a landlord with a house-hunter, with the view of ensuring that a deal is successfully closed. Real estate agents have access to the largest body of property for sale. According to a research by National Association of Realtors in the US, only 8% of real estate sales are for sale by the owner, meaning that more property is listed through real estate agencies than anywhere else.
The real estate agent makes an income through commissions on the sale or rent of properties. The rental income is paid between one to three years in advance. The normal practice though is six months in advance and then paid every six months.
The downside to becoming a property agent is that the seller has agreed to pay a commission for the sale, which will be reflected in the price. So, the commission effectively makes the asking price of the property perhaps 3%-5% higher than another property which is being sold by the owner directly. Keep in mind that property prices are generally negotiable, so you may be able to overcome the higher asking price with good negotiation.
What are the common mistakes that need to be avoided?
Do not go into the business without gathering information on real estate. Educate yourself about the business before investing. As an informed property investor, you should be aware of the value of your property at all times. Though some people have made quick riches from real estate without much knowledge about investing, others do their homework before committing their finances to the undertaking. Real estate can be profitable when people have the knowledge to make wise investments.
Do not think there are no risks involved in this sector; put in place contingency plans for unforeseen circumstances. Certain things can cause the market price to decrease. Some of these things, such as natural disasters, are out of your control so you should factor them into consideration before setting out.
Risk arises from uncertainty, and in the world of real estate investing, there is no “set it and forget it.” Risk management for real estate investments requires ongoing diligence and a strategy that needs to be constantly monitored and adjusted accordingly. One way to avoid risk is to diversify your portfolio into multiple locations. Stay on top of trends and keep an eye on comparable properties in areas around the city.
Before you purchase a property, decide what exactly you will be using the property for. Deciding on what you’ll use the property for will influence your budget in determining how much you are willing to spend on the property. Also, decide on how you live not where you’ll live in relation to looking for a property for residential purposes. A home that offers dramatic mountain views may seem as an ideal place to call home but if you’re barely home then this wonderful view won’t be visible to you most of the time.When you finally do make a decision, should you make an offer right away? Sometimes yes. sometimes no. You may want to consider sleeping on it overnight. The exception can be when a market is especially active. Would you be broken hearted if you lost this house to another buyer? If the answer is yes, make an offer. Seldom will you go wrong if you follow your heart.