Interest rates are high in Lagos Nigeria and everywhere else in Nigeria.
Commercial banks charge as high as 20 percent interest rate on personal and business loans. Construction loan is not different either.
This is a big challenge for investors who want to invest in Lagos Nigeria real estate. If you are interested in investment property and need construction loan, you need to discuss the fine details of the loan because the construction period may take up to six months (or more) depending on the speed, accuracy, dexterity of the construction company, and the size of the project.
Hence, it will be detrimental to the project if you start paying high interest rates on loans used in the construction work considering the fact that the
property will often not generate sizable income during the construction phase of the project.
If you are constructing or building a big estate, you can actually start marketing and selling the properties in the estate as soon as construction work starts. This is what most real estate developers do and you can repeat the feat. But that is a discussion for another day.
Back to the question of interest rate.
There are three things you can do about bank rates. You can . . .
1. Walk away because the rates are too high
2. Explore several banks and their loan options and pitch your tent where the conditions are most favourable or
3. Negotiate the loan rates if the loan amount you are targeting is huge
Option 1 is something you should not do because even though the bank loan charges are draconia, there are nonetheless advantages in investing in
Lagos Nigeria real estate using bank loans.
One good reason is because the return on the investment can be higher than the interest charged on the loan used in purchasing the property. That means you actually make a profit from the deal.
The second reason is this.
Investing heavily in real estate with commercial bank loans or mortgage loans compels you to save big time. In fact, the loan repayment amount is more or less savings for the purchase of your desired property. The advantage being that in this case, you have already purchased the property even though you did not have enough savings for it.
Don't abandon the banks because the interest rates are high. You will simply short-change yourself if you do.
Option 2 is a smart way to look at banks. It is actually my recommended strategy.
The truth is . . . banks are passionate about declaring huge profits at the end of the business year. Hence, each bank may give some concessions to
their customers simply to get their business.
For example, one bank may offer incentives that translates to 0.5 percent less on the bank charges. 0.5 percent sounds small. But it could be substantial when calculated as a function of the loan amount and the duration of the loan.
A friend was able to secure a commercial bank loan for interest rates as low as 17.5 percent when some other banks insisted on 20 percent. The 2.5% savings was worth the time spent in comparing bank loan options and market alternatives.
Option 3 is for people who are big time players.
When you have funds worth over five hundred million Naira to invest, you can actual arm twist the banks to come down significantly on the bank charges.
So what should you do?
Simple. Use all the arsenal at your disposal to get the best return on your investment. And be sure to read the real estate investing 101 book.
Remember . . . the lower the interest charged on the construction or home purchase loan, the lower the monthly loan repayment amount and the higher
your return on the investment.
Be smart. Explore all options available to you before signing up for a loan.