How long does it take to recoup one's investment in real estate

Posted by Felix Okoli on Friday December 28, 2012 at 12:59:33:

Assuming someone invests his money in building a house/home in Nigeria, how long do you think it will take him to recoup his investment?

Perhaps, you know of someone who built a house and rented it, he probably would not be able to get back the money spent on that building in just a year.

It takes years really and based on a bit of research I've done, it seems to take about 10 years to recoup the original capital spent in bulding homes for rent in Nigeria, especially in a place like Lagos.

Look at it this way, a man may invest about N20m in building a 2 storey building in a densely populated place in Lagos and it comes with about 6 flats. He then decides to rent it annually for about N300,000 to 6 families. For the 6 flats on rent, he would be getting about N1.8m rent annually and that implies that in 10 years, he would have recouped about N18m.

Most home owners in Nigeria follow that same idealogy in recouping their investment and this is how they do it.

How Landlords calculate their rent to recoup their investment
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- They keep a record of their expenditure in building that home
- Decide on how much they should be getting back in a year. It is at about 10%
- Divide that 10% by the number of flats to be rented
- Set the annual rent based on that 10%
- Hope to recoup their entire investment in about 10 years.

If renting out homes were not at least profitable to landlords, they won't be investing in them. So people who make investments in Nigeria, hope to get at least a 10% kickback annually from where they've put their money. Afterall, the basic interest on Fixed deposit accounts and mutual funds it around that annual rate too.

The good thing about investing in real estate is that the home owner can still keep on receiving rent for many more years even after he has recouped his initial investment.