Approaches To Buying Property: Private Lender Approach

You may find yourself asking if there can be other ways of buying property apart from the conventional way we all know.

As is common, I would usually lace a lot of presentations and approaches with practical experiences that we’ve had as a company or that I know that other people, associates, or friends that we know in the industry have had. While I was preparing for this topic, I realized that people have just conditioned their minds to one single way of buying properties which is “I need to just have the money”. “Cash for hand, back for ground” as is normally said but is that all that is? Also, if you listen to foreign teachings or books, they say things like buying properties with no cash; as in no money, no part down payment purchases. In their system, it’s almost effortless to be able to do that but does that exist in the system or it doesn’t? Those are some of the things we will be looking at today. And if it does, how can you make it possible!

Let me say that we won’t be talking about cash now because there’s nothing to talk about. If they say the price of a property is five million and you have it, no other way to buy than to bring the five million and buy it. It is when they say the property is five million and you don’t have that kind of cash but you are interested in the property, then the things we’ll be discussing about today will become useful for you.

Now, the approaches I’m going to discuss today, you may not be able to use them singularly for a transaction. You may find yourself combining a number of them to successfully carry out a particular transaction. I will begin with this one:

Private Lender Approach to Buying property

I’ll give you an example and how private lender can play a role in your purchases.

There is a property my company is buying as we speak and after putting all our resources together, we were short of some few millions of naira to make up the payment for the property. We just needed the funding, which can be called gap funding to be filled for like two months time. In two months’ time, we would be in a place to pay that money but the problem is there is a risk in waiting till two months’ time to buy the property because it may be out of the market. In fact, we’ve been holding the property for some time and if anybody knows anything about real estate, even though this is the time a lot of people go on holidays, this is the time as well a lot of people buy properties especially the Nigerian system where a number of guys come from abroad to spend time with their family. This is the time they actually buy a lot of properties and a property like that can go out of the market within this period so we didn’t want to wait any longer.

What we did was to discuss with some other friendly organizations that we know. We discussed with two of them and raised the money we needed between the two of them. What we actually needed to be precise was ten million naira. One gave us 4, 000, 000 at 2.5% per annum while the other gave us 6, 000, 000 at 4% flat per month on a reducing balance. I’m mentioning the figures to explain certain things. The organization that gave us 6, 000, 000 said as well that we are going to pay for the COT so if we add the COT and the VAT, we are paying an extra 19, 000. Remember I said this was for only two months by our own reckoning and since we are buying the property with all our excess cash flow, it means that ordinarily we are supposed to pay half of this money since it’s going to last two months then in the second month pay the balance. However, the truth of the matter is we are not sure we are going to have that money to pay in the first month because we are mopping all our resources and we still needed ten million.

So, what we structured to be able to pay back in two months was to pay the interest alone. That means our principal will not reduce so the interest we pay in the first month is still exactly the interest we’ll pay in the second month when we want to pay the principal because the wholesome is going to last with us for two months. For the one that charged us 2.5% of 4, 000, 000, at the end of one month, we’ll pay 100, 000 back then by the second month, we’ll pay the 4, 000, 000 and another 100, 000. This means the cost of borrowing this money is at most, 200. 000. For the one that charged 4% of 6, 000, 000, we’ll pay 240, 000 and 19, 000 in the first month and in the second month, we’ll pay 240, 000 and 6, 000, 000. This means the cost of borrowing this money is at most, 499. 000. In totality, the 10, 000, 000 is costing us a total of 699, 000 interest in two months.

Now, you may think that this is much but I’m explaining all these so you know which money you are to use for certain transactions. The question is why are we doing this? It is because we need the money urgently. We may be able to get it from the banks but we may be getting it when the property has gone. They’ll ask you to pay something and then go and evaluate the property. By the time you go and make your presentation, they ask to see your godfather then when he appears, they want to see his own godmother. When she appears, they’ll ask to see bank statement since Lord Lugard was in Lagos. By the time you go through all of that rigma-rolling, the transaction may not be necessary anymore. If you need speed, sometimes, you may not mind the interest or the cost. You may not be able to get the best of the two worlds all the time. We went for a private lender simply because of that.

It is a very effective approach you can explore to buy a property, even when you don’t seem to have the capacity to buy it first time. I will continue on this approach in the sequel to this series, which will be out on Monday, December 22.

I wish you a merry Christmas and a happy new year in advance.

‘Debo Adejana.

Related: Buying Property: Private Lender Approach II