One of the heaviest recurrent expenses of a family is rent. However, in Nigeria, paying rent is almost an inevitability until that pot of gold comes with which you can build your own house. This is even made worse by the dire straits of mortgage in the country. There are signs, however, that there is hope for people who want to own homes, without having to wait forever to save or take a mortgage.
We spoke to a few home owners who built their houses in Nigeria without a mortgage and here is how they did it.
Sow a seed
One of the smartest way to build a house these days is buy sowing a seed long before you even start building. A friend who just completed his house in Ajah said he could get most of the funds he used to build his house by selling his land. Sounds counter-intuitive?
Here is how it works.
He said he envisaged that land prices could rise in the Lekki Ajah axis after considering the spate of development in Lekki Phase 1 and 2. He also considered population increase in Lagos and knew that before long people will start building around the Ajah axis. So rather than miss out on another Lekki Phase 1 like his parents did, he decided to take the risk and bought 3 plots of land at N1 million about 15 years ago.
When he was ready to build about three years back he sold one of the plots for N5 million and added it to his saving which he then used to develop one of the other plots. He says he isn’t sure yet what to do with the undeveloped plot.
This method is especially applicable in areas where land is still cheap presently. Land is an asset whose value only goes up, therefore in a couple of years, you can get more than threefold or fourfold what you invested on each plot. Then, you can sell one or two of the plots and use the cash windfall to finance the project. But the catch here is that, your bet that land prices in that area will increase has to be spot on. I know a lot of people who took a bet on the Mowe Lagos Ibadan Express way axis. It hasn’t turned out as well as the Lekki Axis, in terms of land value appreciation.
A joint venture in this sense refers to an agreement between two or more persons to jointly develop a land, following which the proceeds of the sale will be shared among the JV owners equitably.
Here is how it works
Home owners who have used this method to buy their homes explain that the best way to do this is to own a land in a prime location or a location that attracts commercial activity or increased residential activity. You then seek for or get approached by developers to come and help build a block of flats for onward sale to prospective home owners. Since the owner of the land is contributing their land, they need not cough out any more equity. The land is considered an equity while the other JV partners source for the funds to build. A developer, who has used developed a few homes like this before, informs us that the deals typically includes securing a flat for the guy who contributes the land and/or cash payment, often to pay for rent while the development is ongoing.
The key element in this sort of arrangement is to make sure you have a land with significant value and often at least 20% of the value of the project.
Power of more
Harness the power of more. There are cooperatives, (seek out reliable ones) of people with similar ideologies and goals. After proper investigation, you can enroll with one of the. The advantage of doing this is that when land and/or materials are to be bought, then they are bought in bulk, which often reduces the unit price to the advantage of individual members.
How it works
As part of a cooperative society in her school, an Awka-based teacher said the huge sums involved in owning a house initially deterred her from making any move. However, when the cost savings was explained at a cooperative meeting, she found out that it was something she could do. Although slow, she says the project is developing steadily. Similarly, if you chose to pump the money into servicing your mortgage, you are assured of prompt payment and reduce the risk of defaulting.
Being a member of thriving cooperative is somehow connected to also having a very good job in a viable company. Cooperative works when members contribute money as and when due mostly by a direct debit from their salary accounts.
Rent to own Schemes
A relatively new model in Nigeria and promoted by the Lagos State Government.
How it works
You live in an apartment after depositing about 10% of the value of the house. You pay every rent to the proper owner for a set duration of time which also buys you an option to buy the home when the time expires. If you exercise the option to buy the home, an agreed portion of your rental payment and your initial deposit is deducted from the final purchase value of the home.
Rent to own schemes works very well for home owners who may not qualify to get a mortgage due to the level of their income. The downside remains if you fail to exercise the option to purchase you might forfeit your rent.