Real estate investment has always been as a mixed bag of opportunities and banana skin for the unwary.

Therefore, before the advent of the ongoing global economic meltdown, the sector had significantly impacted on the lives of people worldwide.

While savvy investors had made and continue to make millions of naira on their real estate investments, a lot of people with little knowledge about how the market operates have had their fingers burnt.

Many Nigerians, who were caught in the stock market frenzy, lost massively when the bubble eventually burst on the market that had promised mouth-watering returns and delivered little due to a combination of factors, ranging from insider abuse and manipulations, margin trading by banks and uninformed speculations by brokers.

However, due to its long-term nature and the relative stability and steady return, many investors have turned to real estate as the next bastion of hope. But experts say the sub-prime crisis in the United States that triggered the global financial crisis should serve as a reminder to investors that real estate too can indeed be vulnerable to the vagaries of the general economic turbulence.

The Managing Director, UACN Property Development Company Plc, Mr. Abdul Bello, says that the global meltdown is affecting everybody and has not spared the real estate sector.

He notes, “Once you have a phenomenon that affects so many people and institutions, one way or the other you will be affected. I do recognise that from last year, some 25 per cent drop in prices had taken place in the Ikoyi area; and in some other places like Banana Island, the drop had been more significant and land prices too had gone down.

“Generally, the pace at which developers are able to sell had gone down because the number of potential buyers who have the financial wherewithal to consummate sales has reduced and the banks they borrow from are having some difficulties of their own, so to that extent, we are feeling the impact. Yes, the industry is having problems; the credit crunch is affecting the economy.”

He adds, “One can say what is happening now is a blessing in disguise because a lot of people went into real estate development thinking that a lot of money is to be made, and as the market is correcting itself, they are finding out that it is not as rosy as they initially thought.”

In an online article, Neda Dabestani-Ryba, a licensed realtor in Maryland, USA, says that when it comes to investing, everybody has certain goals and aspirations. However, there are certain guidelines every aspiring real estate investor needs to know.

Compare property values and rents: she says financial statistics only go so far; the best measure of a property’s market value is often the sale prices of nearby properties. The same holds true for area rents. A low price can often be justified by a reasonable rent; renters who can afford a high rent can afford to buy instead, so reasonably priced rent is a need.

She advises investors to be careful because tax laws may change, saying, “Don’t base your tax investment on current tax laws. The tax code is constantly changing, and a good investment regardless of the tax code. The right property with the right financing is what you should look for as an investor.”

Dabestani-Ryba urges investors to specialise in something they know by starting in a familiar market segment. “Whether you focus on fixer-uppers, foreclosures, starter homes, low-down payment properties, condominiums, or small apartment buildings, you’ll benefit from experience by specialising in one aspect of investment real estate properties,” she adds.

She equally advises investors to know the financial statements inside out, saying that questions like; what are operating expenses, loan payments, vacancy costs and taxes, and what the cash flow statement looks like must be addressed before making a solid investment.

She says, “If the last rent increase was recent, your tenants may be considering a move. If tenants have a short-term lease, they may be living there simply to attract unsuspecting buyers. It is also important to collect the tenants’ security deposits at closing.

“Taxes are an integral part of successful real estate investing, and they often make the difference between a positive cash flow and a negative one. Know the tax situation, and see how it can be manipulated to your advantage. It may be a good idea to consult a tax advisor. Taxation is a key element of successful real estate investing, so, be sure to find an accountant who is well-versed with the constantly evolving tax code.”

Dabestani-Ryba also wants real estate investors to investigate insurance coverage because if the seller’s coverage is based on lower-than-current replacement value, the buyer’s insurance cost may increase when he pays a higher purchase price.

On a final but significant note, she advises, “Make sure that you always perform a thorough inspection of the property before buying it. Never, ever buy any property without at least examining the site. In some cases, hiring professional inspectors to examine the structural mechanical system may be a sound investment.”