How to control real estate and profit from it without owning it in Nigeria
Real estate is one of the basic needs of man. Of course, the basic three are food shelter and clothing. As such, shelter be it for whatsoever purpose is actually one of the most important needs anybody has as regards the daily functions and needs of life. Solving the need of shelter is one of the most basic ways to creating wealth the World over. The downside of the shelter business is that it requires a significant investment of capital in order to participate in. However, there exist ways and means through which anybody anywhere can make profits from the real estate sector in Nigeria.
The key to making profits in the real estate sector is that the participant has to realize that it is not how many assets a person owns that is important; rather it is how many assets that a person controls. That gives the participant the required leverage to make the profit that he or she so desires in the sector. This is what leverage can do in the making of profit. It can turn the fortunes of a person in one minute.
Another issue to understand in the control of property is the use of a legal instrument called power of attorney. Power of attorney refers to a document that bestows powers to act in the stead of a person as an agent in order to make decisions on his or her behalf. The Supreme Court of Nigeria has this to say as per a working definition:
A Power of Attorney is a document, and may be under seal, which authorises a person to act for another person as his agent. The person who donates the power is called the ‘donor’ while the person donated is called the ‘donee.’ The power conferred on the done may be either general or special.
Wali, JSC, Chime v. Chime, (2001) LPELR-24858(SC)(at page 33, paras. D-E.
This may be done in regards to real estate, intellectual property or other actions that may need the done to handle such matters. It is advised that you obtain the services of a qualified legal adviser who shall guide you in the processes, protocols and procedures for the obtaining of a power of attorney.
The aim of obtaining a power of attorney is to become the donee in order to control the real estate. Ways, methods and means to achieve that will be discussed shortly.
The mention of this instrument is important because it is usually through this instrument that control over real estate is usually exercised. Thus, one must be well acquainted with the use of such an instrument as regards real estate in Nigeria. The prevailing concept to bear in mind is the concept of interest. Meaning that the donee must have a prevailing interest which must be clearly and expressly stated in the power of attorney. This what will make the instrument truly irrevocable not only in principle, but also in practice as well (should in case the rights and actions of the donee be challenged in court). This of course is the job of the legal adviser as he or she would be able to draw up the power of attorney in such a way that protects the donee. It is also important to note that the implementation of the power of attorney as per land use laws in Nigeria vary from state to state and as such, lawyers with adequate expertise can provide the right knowledge for a small fee which can produce huge profits!
The following ways are depicted as ways of controlling real estate without actual ownership:
- The use of lease to purchase option: In this type of arrangement, the owner of the property has given the person leasing the property (the lessee) the OPTION of purchasing the property at a certain price in the future. As such, if the owner of the property (lessor) sells the property to another without the prevailing INTEREST of the individual leasing (lessee) being protected, then there is due cause for fraud. This is because the owner has agreed to give the lessee the OPTION sell the property to the lessee at a certain time in the future. This means then that the lease has an interest in the property. Lawyers have ways of making this kind of transaction to be iron clad (that is to make sure that the owner of the property MUST adhere to his or her side of the agreement). The key to profiting from this arrangement is that the property now exists at a fixed price to the lessee than at market rates. As such, the lessee can then now make a cross-transaction (that is to buy from the seller and sell to the buyer without any problem) between both parties. This can only be done of course after the obtaining of power of attorney from the owner of the property which in some cases may require Governor’s consent; depending on the states’ land use laws. Effective negotiations skills are required in regard to the above. Note that an extra fee may be paid to the owner of the property for the exercise of the lease.
- The use of lease to credit option: In this particular case, corporate organizations usually utilize this option for the purposes of credit enhancement. After due negotiations, the corporate organization obtains the lease with an OPTION to use for the purposes of credit enhancement. The purpose of the credit enhancement must be clearly stated in the lease agreement and the power of attorney to be signed. As usual, the owner of the property will be paid a fee for this OPTION to borrow at a certain price depending on the stated value of the property. The key to the success of such a transaction is the real estate valuation report. If both the corporate institution (the lessee) and the credit awarding institution use the same institution or at best similar institutions, then it becomes easier for the transaction to go on. Ways to protect the interests of the owner include but are not limited to: awarding of shares in the institution via power of attorney, the appointing of the owner to the board of directors of the institution, the listing of the owner as a beneficiary to the credit facility to be processed and so on and so forth. Note that the Governor’s consent is usually needed for these kinds of transactions.
- The use of agency: This is the method most people are familiar with. It has to do with the owner awarding agents to either sell or rent properties on their behalf for a commission. Especially in the cases of sale, the owner grants the agent the power of attorney with the specific purpose of selling the property. The Governors’ consent in almost all such cases is required. Agency fees are usually not protected and this creates a lot of confusion in the business of agency as regards real estate in Nigeria. A solution to this problem would be the provision of a master fee protection agreement which would protect all the key actors in the agency of a real estate transaction.
- Investments in real estate based investment products and vehicles: If an investor does not want to get his or hands dirty in the business of real estate development, rent and sales, investments in special vehicles such as real estate mutual funds, real estate investment trusts (REITS), real estate public equity companies and so on and so forth provide the investor with the unique opportunity to control real estate without the risk of owning it but with the strategic advantage of having such assets to be controlled by professionals who are in turn regulated by government. The due diligence that is required is much more easily performed due to the fact that the investor is dealing with securities that are regulated by some sort of securities commission (the securities and exchanges commission SEC for example). Another key advantage of such securities is that they are backed by the value of the properties in portfolio which in most cases go up and doesn’t go down.
- Service as a mortgage broker: In this specific type of method, the broker is the person who brings the off-taker and the mortgage financial institution together for the purpose of a commission. This allows for the off-taker to use the property while the mortgage financial institution takes a lien on the property and actually owns it. Ownership is actually transferred once the full value of the line of credit (the mortgage) is paid off. Mortgage brokerage can be very lucrative especially when the clientele are en masse (a whole government agency for instance) and there exists a housing project that is new. This creates a tremendous amount of value which when harnessed is extremely profitable. There exists in Nigeria a housing deficit ( that is the total number of people who need houses are more than the houses that exist), and this creates a very huge need for mortgage brokers , real estate developers and all the other professionals that exist in the housing value chain.
There exist more exotic ways and means for the control of real estate without ownership in Nigeria. The key issue here is to figure out the purpose of the transaction which involves the real estate. Once that can be deduced, the methods, means and processes can then be figured out according to the law and common sense. Do you have any ideas on how to control real estate in Nigeria without ownership? Feel free to share!!