Nine ways to secure high-yield rental properties in Nigeria

Rental property can provide Nigerian investors with regular income and long-term capital growth, but buying a house and putting it up for rent does not automatically make it a profitable investment.

The location, purchase price, expected rent, maintenance costs, vacancy periods, taxes and financing costs all affect how much an investor eventually earns.

A property that looks attractive because of its high annual rent may deliver a disappointing return once all expenses are deducted. For this reason, investors should look beyond the advertised rent and calculate the property’s actual earning potential before committing their money.

In this article, Tribune Online highlights the important factors to consider when searching for a high-yield rental property in Nigeria.

Start with the rental demand

A profitable rental property begins with people who actually want to rent it. Before buying, investigate who lives, works or studies in the area and what type of accommodation they need.

An area close to universities may have strong demand for student accommodation, while neighbourhoods close to business districts may attract working professionals.

Areas surrounding major employment centres, hospitals, industrial zones and transport corridors can also benefit from consistent rental demand. 

However, proximity to a university or business district does not guarantee that a property will remain occupied. Compare the number of available properties with the number of prospective tenants and find out how long similar properties typically remain vacant.

Choose the right type of property

The most profitable property is not necessarily the biggest one. A two-bedroom flat may generate a better return than a large four-bedroom house if it costs considerably less to acquire and has stronger demand among tenants.

Think about the type of tenant you want to attract before choosing the property. Students, young professionals, families and corporate tenants have different requirements and budgets.

For example, a modest, well-located flat may have a wider pool of potential tenants than an expensive luxury property in an area where only a small number of people can afford 

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Work out the net return

Gross yield can make a property look more profitable than it really is. Suppose a property generates 2.4 million Naira in annual rent but the owner spends 400,000 Naira on maintenance, management, service charges and other recurring costs. The income remaining before other applicable expenses is 2 million Naira.

That gives a much lower return than simply dividing the rent by the purchase price.

Investors should therefore estimate recurring expenses before making an offer. Include likely repairs, security costs, insurance where applicable, property management, service charges and periods when the property may be vacant. 

The most realistic calculation is the one that uses the money the investor expects to retain, not simply the rent collected.

Investigate vacancy rates

A property cannot generate rental income while it is empty. An investor  should find out how quickly comparable properties in the neighbourhood are rented out. Speak with local agents, landlords and residents and inspect competing properties that are currently available.

If several similar houses have been advertised for months, that may indicate weaker demand or rents that are too high for the area.

It is better to buy a property with realistic and sustainable rental demand than one that promises an impressive rent on paper but spends long periods without a tenant.

Look beyond the property’s current rent

A high rent today does not automatically mean that the property will remain profitable.

Consider what is happening around the neighbourhood. New roads, commercial centres, universities, hospitals and employment hubs can improve demand. 

On the other hand, deteriorating infrastructure, insecurity, poor drainage or an oversupply of new apartments can weaken demand. Future developments should also be investigated carefully. 

Do not increase your valuation simply because an agent claims that a major project is coming.

Consider accessibility and infrastructure

Tenants usually care about how easily they can move between their homes and the places they regularly visit. A property with good access to major roads, public transport, workplaces, schools and essential services may be more attractive than a cheaper property located far from everyday necessities.

However, accessibility should be assessed at different times of the day. A road that appears convenient during a weekend inspection may become severely congested during weekday rush hours.

Visit the neighbourhood more than once before buying. Also check drainage, water supply, electricity, road conditions, waste disposal and mobile network coverage. These seemingly ordinary factors can influence whether tenants stay or move elsewhere.

Do not ignore the condition of the building

A cheap property can become expensive after purchase if it requires extensive repairs.

Inspect the roof, plumbing, electrical system, walls, flooring, windows and other major components before committing to the transaction. Where necessary, pay a qualified professional to inspect the building and identify defects that may not be obvious during a normal viewing. 

A property requiring substantial renovation may still be a good investment, but the renovation cost must be included in the investment calculation.

Be careful with unfinished properties

An uncompleted building can sometimes offer an opportunity to acquire property at a lower entry price, but the apparent savings should be examined carefully. 

Before buying a shell property, calculate the complete cost of finishing it to a standard that tenants will accept. Include plumbing, electrical work, roofing, flooring, doors, windows, painting, fittings and external works.

The total cost of acquisition and completion should then be compared with the property’s expected market value and rental income.

Buying cheaply is not the objective. The objective is to acquire an income-producing asset at a price that makes financial sense.

Verify ownership before paying

A potentially high-yield property is worthless as an investment if its ownership is disputed.

Before paying for land or a building, conduct the necessary searches and verify the seller’s ownership documents through the appropriate land registry and professional channels.

Use an independent property lawyer rather than relying entirely on documents or assurances provided by the seller.