The Real Estate Return on Investment (ROI) is the standard metric that measures the performance and analyzes the return of an investment property. It is simply the profit that a Real Estate investor gets in comparison to the actual cash he/she has invested in the rental property. This metric is very comprehensive and it takes many important variables into account including:
- Annual Rental Income: This is exactly what it sounds like. The annual rental income is simply the gross rental income that your rental property will generate in a year. Real Estate inventors can calculate their annual rental income simply by multiplying the monthly rental income by 12 or by multiplying the weekly rental income by 52.
- Costs and Expenses: Every Real Estate investment property comes with different costs and expenses. Some are one-time startup costs (such as closing costs, appraisal, and renovation costs) and some are recurring costs (such as mortgage payments, insurance, utilities, and maintenance). The return on investment in rental properties takes all expenses and costs into account.
- Cost of Property: For Real Estate investors to truly understand how well an investment property is performing, they must compare its profit to its price (or fair market value). Without doing this, you may be deceived into thinking a rental property is performing well just because it generates high rental income. However, if this income is compared to its price and is insignificant, then the investment property is actually not performing as well as you have thought.
However, the ROI for a rental property is different depending on whether the property is financed via a mortgage or paid for in cash. As a general rule of thumb, the less cash paid upfront as a down payment on the property, the larger the mortgage loan balance will be, but the greater your ROI. Conversely, the more cash paid upfront and the less you borrow, the lower your ROI, since your initial cost would be higher. In other words, financing allows you to boost your ROI in the short-term since your initial costs are lower.
In this Article, we will be comparing the return on investment of properties between Lekki and Ikoyi, it cannot be overemphasized Lekki Phase 1 is a city in Lagos state located to the east of Lagos city. It is a naturally formed peninsula, adjoining to its west Victoria island and Ikoyi districts of Lagos, with the Atlantic ocean to its south, Lekki currently houses several estates, gated residential developments, agricultural farmlands, areas allocated for a Free Trade zone, International Schools, hospitals, etc. Lekki phase 1 currently has got a reputation as an area with one of the most expensive real estate assets.
The advantage of owning a property in Lekki phase 1 cannot be over-emphasized. Lekki Phase 1 is settled on a good location, and its proximity being that it is close to Victoria Island and Ikoyi axis
Property appreciation in Lekki phase 1 is high, and the cost of land will continue to appreciate significantly for the foreseeable future.
Typical Properties in Lekki Phase 1 such as the
- Two-Bedroom ranges from 50Million to 70Million
- Three Bedroom ranges from 70Million to 100Million
- Four Bedroom Terrace ranges from 120 Million to 140Million
- Five Bedroom Fully detached ranges 170Million to 300Million
- Lands ranges from 150,000 to 200,000 per square meter
In Ikoyi, we have a setup of many estates most of them which are gated estates. It is a high-class residential location. Properties in the estate are built individually by private developers, landowners and sold out to the public. Ikoyi is mainly residential consisting of semi-detached duplexes, fully detached houses, terraces, townhouses, penthouses, and bungalows; there are also private businesses, schools, luxurious hotels, and guesthouses. It was designed to suit a certain class of people consisting of a well-respected high class/influential people- the High-earning members of the society, business moguls, company CEOs/MDs, expatriates, and politicians, and also for high income earning families that want to live in a serene, safe and secure serviced environment
In Ikoyi we have several estates such as Banana Island, Parkview Estate, Dolphin Estate, Osbourne Estate, etc
Typical Properties in Ikoyi such as the
- Two-Bedroom ranges from 70 to 100Million
- Three Bedroom ranges from 85Million to 150Million
- Four Bed Terrace ranges from 200Million to 250Million
- Five Bedroom detached ranges from 250 to 380Million
- Lands ranges from 250,000 to 300,000 per square meter
The advantage of owning a property in Ikoyi cannot be over-emphasized; if you have the money, buy a property there, be it land or a house. It is a very good investment. Property appreciation in the estates are high, and may not go past what it is because that will be ridiculous.
So Far, these signals and figures above can help investors eliminate or select the best options. Likewise, investors should avoid negative ROI, which implies a net loss.
(BUSINESS DEVELOPMENT EXECUTIVE, PERIWINKLE RESIDENCES LIMITED),