Lagos new-build flat at 6.1% gross yield — which costs am I missing?

D

DirectHarbor

Landlord
This would be our first rental, so I want to catch any obvious omission before proceeding. It is a 4-bed new-build flat in Lagos at NGN 1,790,000,000, with expected rent of NGN 9,039,000 per month. That puts the headline gross yield near 6.1%.

My model allows for vacancy, management, routine maintenance and a separate reserve for one larger repair. Financing could materially change the cash flow. Which Lagos costs should I investigate more closely—service charges, insurance, property-related taxes or something else—and what net yield would justify the risk for you?
 
Start with the building’s service charge and exactly what it covers. In a new-build block, common-area power, security, lifts or other shared services can make the gap between gross and net much wider than expected. Also establish whether the tenant pays that charge separately or whether your NGN 9,039,000 figure is effectively inclusive. I would not choose a target net yield until those two numbers are separated.
 
Is NGN 9,039,000 an asking rent or supported by completed leases for comparable 4-bed flats? Also, is the unit furnished? Those details affect both the initial outlay and turnover costs. A conservative vacancy percentage is useful, but it can still understate the impact if each tenant change involves an empty period, refresh work and another management or letting expense.
 
I would prefer to see this property stand on its own before considering debt, but the incomplete operating-cost picture makes that difficult. Financing can certainly damage cash flow, although it should not be asked to rescue a weak underlying return.

The stated rent produces NGN 108,468,000 a year before deductions. I would set every owner-paid service charge, insurance cost, tax or levy, vacancy allowance and maintenance item against that amount, then measure the result against the full NGN 1.79bn price.

What loan terms are being assumed? If the unlevered yield is already inadequate, I would stop there. If it remains acceptable after verified costs, the next branch is to test how the cash flow behaves under less favourable financing rather than relying on the base payment.
 
Before deciding, ask for an itemised service-charge budget, evidence behind the rent estimate, likely insurance cost and a clear account of any property-related taxes or levies. Because it is a new build, also allow for snagging and confirm what the developer will remedy rather than assuming every early defect is covered. Then run vacancy and financing stress cases rather than relying on one base forecast.
 
One more distinction: report both net operating yield and cash-on-cash return after financing. Otherwise a weak loan structure can make a reasonable property look bad, or optimistic leverage can disguise a mediocre asset. I would compare the base case with lower rent, a longer turnover gap, higher service charges and a major repair occurring earlier than planned. The acceptable yield is personal, but it should still leave positive cash flow under a plausible combined downside.
 
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