Real Estate Investments: Land or Houses, Which One Should You Buy?

This is a question a client of mine asked me on the first day that we met.

Our mutual friend, who is my client linked us together. One day they were having a conversation and she disclosed that she wanted to get started with investing in real estate.

So my client gave her my number. She called and arranged an appointment with me at her residence in Ikoyi.

When I arrived she welcomed me, we sat down in her living room to talk business.

“So Ugochukwu,” she started, “My problem is that I have ₦150 million I want to invest in real estate but am a bit confused. I don’t know if I should buy land or I should buy houses. Land or house, which one should I buy?”. She finally asked.

I understand that many people face this dilemma when they are finally ready to start their real estate investment which is why am writing this article to further educate you on what’s best for you.

So the truth is that it depends on your needs. Everyone need is unique and different.

When choosing between houses or lands which one to go for, there are some questions that need to be answered that will help you know which one is best for you.

Those questions are;

1. What’s your budget?

This is the first question you need to answer. Of course you don’t have to wait till your money is 150M like my client above before you start investing in real estate.

If your budget is anything below ₦50 million. Automatically I will advice you to leave houses first and instead start your real estate investment by buying lands.

₦50 million is not enough to get you a decent duplex in prime locations like Lekki, Ikoyi, V.I not to mention Banana Island or Eko Atlantic City.

To get good ROI on a house you purchased for investment purposes, the house needs to be in high-end neighborhoods like the ones I mentioned above and 50 million doesn’t cut it.

But if like my client above you have ₦150 million, ₦300 million, ₦500 million. Then the next question you should ask yourself is.

2. Do you want an asset that gives you consistent cashflow but is subject to value loss long term or do you want an asset that may not give you consistent cashflow but can only appreciate long term?

Let’s face it. The truth is, when it comes to long term appreciation. Lands beat houses hands down. It is not even a fair match-up.

When you take hundreds of millions of naira and use it to buy a house in high-end neighbourhoods like the ones I mentioned above for investment.

You are guaranteed consistent yearly or monthly cash-flow depending on if you are using it for rental or shortlet business.

However you still need to furnish the house if you want to use it for shortlet business. You still need to maintain the house.

Repaint it when necessary, fix broken pipes. Over the years to ensure that the house is in order and still up to par with other houses in the market, you will be spending money.

So houses give you consistent yearly or monthly cash-flow but require more hands on approach, maintenance and of course it is subject to long-term depreciation in value.

Go check how much houses that were built last 15 years in Lekki is currently selling in the market today.

When you are done, go check how much people bought land in Lekki 15 years ago. Then check how much those lands are selling now.

Investing in land is almost the exact opposite of investing in houses.

When you buy land. Get your title and all necessary documents that prove your ownership. You are done. Shikinah!

You can choose not to add any other value to that land and it will still appreciate better than any house.

With land you are not maintaining any part of the property. You are not worried about getting tenants.

You are not spending any other money to add value to the property yet in the long term, you will get better and bigger ROI on that landed investment than you would get on a house.

As an added bonus, you can even get consistent income from your landed investment. Yes!

You can lease out your land. This way you can eat your cake and still have it. You can be making yearly income on your land while it appreciates.

Let me tell you the story of Joseph Adefarasin who is the father of Paul Adefarasin, the founder of House On the Rock church.

Joseph Adefarasin used his entire retirement savings which then was £2,000 to buy land at Akin Adesola which is now Victoria Island when that whole place was still an under developed, marshy land.

Years later developments started coming in and a real estate company reached out to him and told him that they want to lease his land for 10 years.

They didn’t have the cash to pay so they proposed that he will grant them use of the land for 10 years, during which they will develop and build houses and collect yearly rent.

After the period of that 10 years, the ownership of the houses will be transferred to him.

Any money rental money collected afterwards would be his. They signed.

So after 10 years, the houses that real estate company built on his land became his.

The rent he got from those houses are what he used to train Paul Adefarasin and his other kids abroad.

Years later that marshy, undeveloped land he got for just £2,000 was sold for $5 million.

For long term investment. Land is the best way to go. You can’t go wrong ever when you buy land.

So far the land has a genuine title. You can’t go wrong.

At the end of my meeting with the client. She was no longer asking whether she should buy lands or houses.

The only question she was asking me was which land should she buy?

I drew up a strategy for her and we spread the 150M between lands in Epe and Ibeju-Lekki.

₦150 million invested buying lands in strategic locations easily gives you 1000% ROI in 10 years which is ₦1.5 billion. This is actually the worst case scenario.

Paul Adefarasin himself bought just under 10 acres of land at Lekki Peninsula for just ₦25 million about 12 years ago.

Today that land is valued at over ₦5 billion naira. That’s a whooping 12,000% ROI.

While ₦150 million invested in houses won’t even come close to ₦500 million in 10 years when you calculate the total cashflow you have gotten from the property, the amount you have spent maintaining it and the time that you have invested in it.

The final decision of where to invest is up to you. My job is to educate you so that you can make an informed decision. But if like my client, you are currently asking yourself, land or houses?

Permit me to answer the question. Buy land.

I am Ugochukwu.