Understanding real estate development stages and mastering timing in your real estate investments.
Everything in life happens in stages and cycles. There is time for everything.
There was a time you were only a child fully dependent on your mother and the breast milk she fed you.
There was a time you were a young adult, wanting nothing more than freedom, total freedom from your parents.
At this point in time even your mother’s best intentioned acts of love and care like telling you not to stay out too late at night seemed to you like the ultimate act of control and you rebelled at every opportunity.
Now you are an adult yourself and the whole thing has come full circle because now you got your own kids and you worry about them.
Like I said in the second sentence of this article, there is time for everything.
Everything, especially real estate.
There are all kinds of rookie mistakes that people make when investing in real estate. Some buy and sell too early, some wait too long and buy when the price of a location has skyrocketed.
To become a successful, one of a kind real estate investor, you need to understand the different circles and stages of real estate development.
Why is this important? Why do you need to know this? Why not just invest whenever and wherever?
The answer is simple, this knowledge will enable you to time your real estate investments. Know when to get in and when to exit with your profits.
Timing just like in everything is very important in your real estate investments.
Knowing the cycles and stages of real estate developments will stop you from buying and selling a location too early or from waiting too long and buying when the price has gone up too much.
In the early 2000s Paul Adefarasin acquired about 10 acres (60 plots) of land at Lekki Peninsula for just ₦25 million then. When you break it down you will see that he bought it at ₦417,000 per plot.
Today how much do you think a plot of land is selling there now?
How much do you think his ₦25 million real estate investment is worth now?
Over ₦5 billion.
This is what happens when you understand cycles and stages of real estate developments which will help you perfect your timing.
There are various stages of real estate developments but I have condensed them into 5 main stages, your key to being a successful real estate investor lies in understanding these various stages and the appropriate investment strategies and and tactics to implement in each stage, Starting with..
1. Pioneer Stage Locations;
This is the earliest possible stage. The pioneer stage is when nothing yet is happening in a location but there are proposed new developments known usually to a select few that when and if those projects happen will transform real estate in that location.
This was Epe in 2015–2018. The fate of Epe real estate took a positive turn when Akinwunmi Ambode came to power and became the governor of Lagos state.
It all started with him because when he came to power he started massive infrastructural development in Epe, focusing on roads, accessibility and power. This opened up Epe to subsequent developments and more projects that will come later.
Now during this time there were a few people, these are what I call pioneer real estate investors who have intense vision and who when they saw Ambode come to power, quickly positioned themselves in Epe and bought prime plots for ₦200,000, 150k per plot then.
Nothing was happening. No major projects had been announced, no work had been started, but they bought. These are pioneer real estate investors.
The most successful pioneer real estate investor I know is Matthew Ashimolowo. He is the most successful by far. He bought the current location where he is building his Makarios estate over 2 decades ago. Yes, over 20 years.
By that time there was totally nothing happening in that axis. Totally nothing.
Buying a location in the pioneer stage is how you make the most money, the most ROI. This is because being that you bought literally before any other person, you buy it for peanuts. Literally for peanuts.
However when you are buying a location that is in the pioneer stage. You need to give that investment a very long period of time to appreciate so you make the most money possible.
You need to be patient and give the location 15 to 20 years to properly appreciate and open up before you cash out. Just like Matthew Ashimolowo.
He held Makarios for over 20 years and now he is selling it for ₦150 million per plot.
When investing in pioneer stage locations, you must be thinking and investing for long term.
You don’t have to do this, but i suggest you do.
For example those that bought Epe in 2015–2018 for ₦200,000 per plot can comfortably sell it now for ₦3 million or ₦4 million a plot and make 15X to 20X what they invested but if they can hold and still sit on their investment for the next 10 years, they can easily make 80X to 100X on their investment.
Yeah, that’s the joy and beauty of being a pioneer real estate investor. If you can be visionary enough to buy that early and patient enough to hoard your investments long enough, you will make crazy returns.
Apart from being patient enough to hold your investments for a long period of time, another tactic to make the most money when investing in pioneer locations is to buy as much as possible.
You can afford 2 acres? Buy 2 acre, You can afford 10 acres? Buy it. Buy as much as you can. It is a numbers game. The more acres you can acquire the more money you will make when you finally resell.
Besides this, acquiring more gives you a lot of options and flexibility. For example let’s say that among the pioneers real estate investors who bought Epe in 2015–18 for cheap, one of them acquired 10 acres at ₦200,000 each. An acre is made up of 6 plots, so that’s 60 plots.
200k X 60 plots = ₦12 million.
Now he can decide to liquidate 2 acres, that’s 12 plots at ₦3 million each. 2 acres is 12 plots.
₦3 million X 12 plots = ₦36 million.
By selling 12 plots now at ₦3 million each he has made back the ₦12 million he spent in the beginning to acquire the entire 10 acres. He has made back his total investment plus a healthy ₦24 million profit and guess what, he still has 8 acres left.
He has eaten his cake and still has a bigger cut of the cake left. This is why acquiring as much as you can is very important. It will help you make the most money because whenever you need emergency cash, you can liquidate a part of your investments and still have a lot left.
The challenge with pioneer real estate locations is having the vision to spot them. Currently an active pioneer real estate location is Ibadan and the Ogun side of Epe.
2. Growth Stage Locations.
This is the stage immediately after the pioneer stage. This is the stage where a majority of smart real estate investors have finally caught wind of what is happening in a location and started positioning their investments there.
It is usually marked by concrete developments, new project announcements and fast appreciating price of real estate.
This is the current stage of Epe. The best time to invest in a location is at the pioneer stage, the next best time to invest is when it is in the growth stage. Locations in the growth stage of developments are solid investments if, I repeat, if you can get in on time.
The mistake many real estate investors make with investing in growth stage locations is that they come in too late. They delay with their decision making, they pray to God for guidance(which is okay. I pray myself), they talk to their wives, brothers, uncles, seeking for advice.
Heck if they could, they would resurrect their dead grandparents to ask for guidance too.
By the time they finally make up their mind and decide to finally take action and buy, the growth location has become very pricey and they find out that they can only buy less with the budget they have.
Say their budget is ₦30 million when they started and that could buy them an acre or thereabouts when they started, by the time they finally decide to take action, price has increased so significantly that their ₦30 million Naira budget will be able to get them 3 or 4 plots instead of 6.
Bear in mind that one of the characteristics of growth stage locations is fast appreciating price of real estate.
Why is this?
Economics 101. Everyone is falling over themselves trying to position themselves in that location meaning that demand is at an all time high. This high demand keeps pushing the price up and up.
Exactly what is happening at Epe today. Currently Epe is appreciating at a rate of 90% to 100% per annum. That’s crazy when you think about it!
This is a blessing to pioneer real estate investors who acquired plots super early. It is the dream scenario for them.
On the second hand, this is good news for the majority of smart real estate investors who are acquiring plots right now at Epe. It is the ideal scenario for them because they are watching their investments appreciate before their very eyes.
On the opposite end, this is very bad news for all the people who are still dragging their feet and twiddling their thumbs, still waiting on the sidelines, waiting to invest. It is a nightmare scenario for them though most of them don’t know it because by the time they are ready, the price has gotten so high.
When buying growing locations, to make the most money and get the most ROI, you should buy as early, as early as possible. Yes, you aren’t one of the pioneer investors but try your best to be among the first secondary investors to invest in a location.
Otherwise you will be buying at the wrong price curve. Epe right now is entering the wrong price curve. It is getting too pricey and will only continue this way.
Another thing you should bear in mind when investing in growth stage locations is to acquire as much as you can. Buy as much as you are able to.
Just like in the pioneer stage, that price you are buying your plots are the cheapest they will ever be, so by buying as much as you can, you give yourself the same leverage and options that the pioneer investors gave themselves when they acquired acres.
The only different is that you missed the peanut price they paid for their plots. But there is absolutely no need to complain, remember, the earliest bird catches the biggest worms.
You aren’t a pioneer investor? That’s fine. Just make sure you are among the the earliest secondary investors to buy a growth stage location.
A growth stage location is still a long term investment. When buying growth stage locations, give it ideally 10 years to maximally develop and appreciate.
3. Appreciation and early development stage.
This is the next stage of development. It immediately follows the growth stage. It is characterized by one thing and one thing only and that is visible and obvious infrastructural and project developments which is actively driving population growth which in turn is driving the price of real estate.
Appreciation stage locations is characterized by a rapid rise in the population, and an increased demand in housing for this new population which leads to increase in the prices of both available houses and lands.
That is the distinguishing factor between appreciation stage locations and both pioneer stage and growth stage locations.
Demand for real estate in both pioneer stage locations and growth stage locations are driven by vision, faith, announcement of projects and other abstract factors but for appreciation stage, the demand is real and concrete, made by secondary buyers and first time home builders.
So in a nutshell, the rapidly growing population is the major factor behind the increased demand and price of real estate.
A good example of appreciation stage location is Ibeju-Lekki, Abijo even some parts of Sangotedo.
In appreciating stage locations, the most money is now on houses, no longer lands. The investors most active in appreciation stage locations are developers who are seeking to build residential houses to meet the increased housing demand.
This is not to say that acquiring lands in appreciation stage locations is no longer profitable. No! It is.
The major drawback is that you will need a lot more money. Money that you will use to acquire an acre or two in a growth stage location, might be only enough for you to acquire a plot, maybe 2 maximum in an appreciation stage location.
That is why the most active investors in appreciation stage location are developers who are backed by billions and intend to develop housing units.
However if you have the money, acquiring lands in appreciation stage locations is incredibly profitable and unlike growth stage locations and pioneer stage locations where you need to give your investments 10 years 15 or 20 years, 5 years is usually enough for your investment to appreciate enough for you to liquidate and walk away with very healthy and generous profit.
So appreciation stage locations have shorter investments timelines and also shorter ROI margins.
For example, when you are buying a pioneer stage location, you should expect 50X, 80X, even 100X return on your investments.
When you are buying a growth stage location, 20X, 30X returns on your investments is normal and expected.
However with appreciation stage locations, the numbers and figures are a bit more modest. 5X returns on your investments is the expected and average result. This can obviously be lower.
Please note that these are just estimates as there are various other factors that can and will influence the returns that you make on any real estate investments.
Appreciation stage locations are the ideal investment for you if you don’t have the patience to wait years and years for your real estate investments to appreciate and have the necessary funds.
4. Fast developing stage.
If a location was a human organism, this stage is the teenage stage.
Remember that stage you were filled with energy, growing so fast it looked like you would outgrow everyone, rebelling at everything, and challenging all authorities that you could challenge?
That is the real estate equivalent of fast developing locations. Fast developing locations are marked by even more rapid rising human population and housing demand than appreciation stage locations.
Simply put, it is the immediate older brother of appreciation stage locations.
Best examples in my city, Lagos, are Ajah, some parts of Sangotedo and Lekki phase II.
The investors who are active in fast developing stage locations are the big players. Big players, usually made up of very wealthy individuals who are so rich, so rich they don’t have the patience to wait years for their real estate investments to appreciate so they shy away from pioneer and appreciation stage locations.
They understand that time is money. Thus time is extremely valuable. 80% of them are developers with a war chest running into billions and what they are mainly doing is building new houses and selling off to home buyers.
So 90% of land acquisitions is not for the purpose of holding it and waiting for it to appreciate before selling it off. No! Like I said previously, these are big players. They aren’t speculators.
90% of all land acquisitions is for the purpose of building on it immediately, selling off the housing units and starting another one. They are running a business at this point not merely investing in real estate.
With this said, there is a very lucrative opportunity for you as an investor. If you got the money to play and operate at this level, there is an investment strategy i teach my clients and help them implement in fast developing stage locations.
I call it the ‘Monopoly Investor System’. It is quite simple, you go to a fast developing location with lots of new developments which signifies high demand of land and acquire all available plots of land Or at least as much as you can afford.
Ideally, you should acquire all available plots and sit on them(not literally), because you are the sole owner of land in that axis, you can name your price and the developers who are usually anxious to build will either pay your price or do a Joint Venture deal with you to develop on your land.
Either way, you win because everything will be done on your terms. You will basically have monopoly over lands in that neighbourhood, you and i know what happens in a monopoly market.
Understandably it is not cheap, at all but you will make so much money from it, so much money. If you want to learn more about this Monopoly Investor system, you will see a way to contact me at the end of this article.
Any pioneer investor who manages to hold his land from the pioneer stage to the fast developing stage will build a multi-generational wealth for his family.
His grandkids and even great grand kids will benefit from that single real estate investment.
The most notable example of this is Mr Joseph Adefarasin. He is the father of Paul Adefarasin and he bought land at Akin Adesola, Now Victoria Island for just £2,000. When the place was in the pioneer stage.
When the location opened up he did a Joint Venture deal with one development company and they developed the site for him and rented out the housing units they built there for 10 years after which they transferred the whole property, land and all back to him.
He started collecting rent and used the rental income he was getting from the property to train his kids in the best international schools and enjoy his old age.
50 years after he bought the property, by then even he had died, his kids sold the property for $5 million USD. From £2,000 to $5,000,000 USD.
What made this possible was the fact that he was able to do a JV deal on it. That gave him the opportunity of getting rental income on the property while it appreciated.
So the dream scenario for every pioneer investor is to be able to hold the investment till it reaches fast developing stage.
The investment timeline for lands you acquire in fast developing stage locations is less than 1 year.
5. Fully developed stage.
This is the ultimate stage. The final stage. There is nothing beyond this. In fully developed stage locations, the location is exactly that, fully developed.
Typical examples are Lekki Phase 1, Ikoyi, Victoria Island. There is only one thing I have to say about investing in real estate in developed locations like this, and that is, ‘If your skin no full, no put body!’
In developed locations, lands are so scarce, so so scarce the prices are exorbitant.
Main investments in developed stage locations are houses. You either buy to rent/lease or you buy to use for shortlets or you buy off-plan and resell upon completion. There are so many different strategies i can’t really go into them because this article is already longer than i intended.
Most land investments in developed stage locations are for flipping purposes. I heard of someone who acquired land at Victoria Island at 1.2M/sqm and about 6 weeks later resold it at 1.8M/sqm.
That is the main type of land investments being made in developed stage locations. In developed stage locations, land is gold. Diamond even.
So these are all the stages of real estate developments and their investments timelines.
There is something I always tell my clients which I will tell you now too. An average investor focuses on buying one stage of real estate developments location but a successful one diversifies their portfolio and buys different locations.
Your real estate portfolio should contain pioneer stage locations, growth stage locations, appreciation stage locations and fast developing stage locations.
Don’t worry about fully developed stage locations, if you have investment in other stages, that’s enough. That is okay.
I know what you might be thinking, having real estate investments in all the 4 development stage locations I mentioned above sounds intimidating but believe me, it is actually not.
You are probably thinking that there is so much money involved but the thing is, everything is all about strategies.
Have you ever heard about the Rumble in the Jungle boxing fight between Muhammad Ali and George Foreman? Foreman was such a natural heavyweight and power puncher that Ali, widely regarded as the greatest boxer of all time was a 1–4 underdog to beat Foreman.
The odds were so stacked against Ali that if you bet ₦25 million on him to win, you would make over ₦100 million back. That’s how much thhe odds were against him.
So Ali in order to win implemented the rope-a-dope tactic. the Ali began to lean on the ropes and cover up, letting Foreman punch him on the arms and body (a strategy Ali later dubbed the rope-a-dope).
As a result, Foreman spent his energy throwing punches (without earning points) that either did not hit Ali or were deflected in a way that made Foreman hitting Ali’s head difficult, while sapping Foreman’s strength due to the large number of punches he threw.
This loss of energy was key to Ali’s rope-a-dope tactic. After several rounds of this, Foreman began to tire. His face became increasingly damaged by hard, fast jabs and crosses by Ali.
Ali pounced as Foreman tried to pin Ali on the ropes, landing several right hooks over Foreman’s jab, followed by a five-punch combination, culminating in a left hook that brought Foreman’s head up into position and a hard right straight to the face that caused Foreman to stumble to the canvas.
Foreman rose to one knee but referee Zack Clayton signaled the end of the fight before Foreman got to his feet. At the stoppage, Ali led on all three scorecards by 68–66, 70–67, and 69–66.
Everything in life is about strategies.
With the right strategies you can compound ₦20 million to ₦200 million and ₦200 million to ₦2 billion.
This article is already too big so I can’t really discuss much strategies here. You can reach out to me via my WhatsApp below if you want to discuss that.
I Am. Ugochukwu.
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