Investment Methodology

For a residential property to be considered an Opportunity, the following conditions must be true in all cases.

1. The Net Present Value must be higher than ₦0
2. The Internal Rate of Return must be greater than the discount rate
3. The Internal Rate of Return cannot exceed the maximum threshold of 60%
4. The Equity Multiple must be equal to or greater than 1.10
5. The Average Cash on Cash Return must be a positive figure
6. The property must be located within an identifiable neighbourhood

Below are the assumptions used in our DCF models. These are continuously being updated as the market changes.

1. Equity Requirement (% of Investment) = 100%
2. Survey Plan = ₦350,000
3. Certificate of Occupancy = ₦450,000
4. Agent Fees (% of Purchase Price) = 5%
5. Legal Fees (% of Purchase Price) = 2.5%
6. Tenant Improvements (% of Purchase Price) = 2.5%
7. Sales Costs (% of Terminal Property Value) = 5%
8. Cash Offer Discount (% of Purchase Price) = 15%
9. Vacancy Loss Rate (% of Estimated Rental Value) = 5%
10. Operating Expenses (% of Estimated Rental Value) = 0%
11. Inflation Rate = Based on National Bureau of Statistics figures (https://www.nigerianstat.gov.ng)
12. Equity Risk Premium = 3%
13. Discount Rate = Inflation Rate plus Equity Risk Premium
14. Investment Period (Years) = 3
15. Minimum Comparables (Sales and Rentals) = 3
16. Maximum Growth Rate Threshold (Sales and Rentals) = 20%

We want to ensure that you have complete confidence in the accuracy and reliability of our valuations. To achieve this, we have implemented several rigorous professional governance measures that thoroughly scrutinize the data and processes involved in valuing properties. These measures are designed to eliminate potential errors, flag outliers, and provide you with the most realistic and credible property valuations.

1. Data Validation: Our data validation process checks every property submission for completeness, consistency, and correctness. For example, if a property is missing essential details like square footage, number of bedrooms, or location, the algorithm will request the necessary information before proceeding with the valuation. This ensures that all necessary data points are available for accurate analysis.
2. Outlier Detection: Our algorithm employs sophisticated outlier detection techniques to identify and flag any extreme or unusual data points. For instance, if an internal rate of return (IRR) seems unusually high or low compared to similar properties in the area, the algorithm will alert our team for further investigation. This helps maintain the integrity of the valuations by identifying and handling potential anomalies.
3. Cross-Validation: Cross-validation is used to assess the performance of our algorithm on different subsets of data. By splitting the dataset into multiple parts and evaluating the algorithm’s accuracy on each subset, we can determine how well it generalizes to new data. This approach provides robustness and minimizes the risk of overfitting, ensuring consistent and reliable valuations.
4. Sensitivity Analysis: Sensitivity analysis involves testing the algorithm’s response to variations in input variables. For example, we may analyze how changes in market conditions, interest rates, or property attributes affect the final valuation. By understanding the impact of different factors, we can provide you with more comprehensive insights into your property’s value.
5. Expert Review: Our valuation algorithm is regularly reviewed by real estate experts who validate its accuracy and align it with real-world market dynamics. These experts provide valuable feedback, which helps us fine-tune the algorithm to meet the industry’s best practices and standards.
6. Model Comparison: To ensure the validity of our output, we continuously compare the results generated by our algorithm with those of other well-established valuation models and industry benchmarks. This process helps us validate our approach and identify opportunities for improvement.
7. Scenario Testing: Scenario testing allows us to evaluate how our algorithm performs under various market conditions and property scenarios. For instance, we might assess the valuation of a property in a highly competitive market versus a less competitive one. This enables us to provide you with accurate valuations that align with different real-life scenarios.
8. Regular Updates: We regularly update our valuation algorithm to incorporate the latest data, market trends, and industry insights. By staying up-to-date with the ever-changing real estate landscape, our algorithm can maintain its relevance and accuracy over time.
9. Transparent Reporting: We are committed to providing you with transparent and detailed valuation reports that outline the factors considered, methodology used, and any assumptions made during the valuation process. This ensures complete clarity and helps you understand the basis of the final valuation.

By employing these comprehensive professional governance measures, we strive to provide you with a reliable, accurate, and trustworthy valuation service. We believe that transparency, attention to detail, and continuous improvement are vital in delivering the best possible experience to our valued users like you.

Geospatial analysis is a powerful method that we utilize to provide you with comprehensive insights into a  property’s attractiveness. Through this technology, we evaluate properties based on their precise location in relation to important amenities such as schools, healthcare facilities, shopping centres, and transportation options. We look for over 600 different types of points of interests within a one mile radius of the target property. These are then grouped  into six essential categories and then weights are assigned to each.

1.  Healthcare (25%): Access to healthcare services is an essential factor in property’s desirability. Properties located near hospitals, clinics, and healthcare facilities tend to be more valuable because they offer convenience and peace of mind to residents. Healthcare amenities are especially important for older individuals and those with medical needs.
2. Education (20%): Proximity to quality educational institutions is often considered one of the most critical factors influencing property values. Families with children are willing to pay a premium for homes located near good schools, colleges, and universities. Additionally, access to educational facilities can attract students and faculty members and families, potentially increasing demand for rental properties.
3. Public Services (15%): Access to public services such as public transportation (bus stations, ferry terminals), safety services (police and fire stations), and government services (courthouses and town halls) can influence a property’s desirability. These amenities contribute to the overall infrastructure and functionality of a neighborhood, making it more attractive to potential buyers or renters.
4. Shopping Services (15%): Proximity to shopping centers, supermarkets, and essential services like banks and post offices is crucial for daily convenience. Homes located in areas with easy access to these amenities are typically more desirable and may command higher prices. Convenience and lifestyle factors play a significant role in property values.
5. Public Transport (15%): Buyers value easy access to public transportation, as it can reduce commuting time and expenses. Properties near public transport hubs or stations may have higher demand.
6. Entertainment (10%): While entertainment amenities like clubs, bars, and beaches can add to the appeal of a neighborhood, they are typically considered less critical factors compared to the other categories. Entertainment options are important for quality of life but may not have as direct an impact on property desirability as education, healthcare, and daily conveniences

We have simplified the process of evaluating and showcasing properties to empower real estate stakeholders with accurate information. Here’s a step-by-step guide on how it works:

1. User Submission: Users submit their residential property or land details to Clearilytics.
2. Data Validation: The submitted information undergoes a rigorous cleansing, standardization, and validation process to identify and rectify any potential data errors or inconsistencies.
3. Land Submissions: All land submissions are automatically published to our platform, providing users with immediate visibility.
4. Residential Property Analysis: For residential properties, we conduct a comprehensive comparable market analysis. This analysis involves using neural networks to evaluate similar properties in the neighbourhood to determine the market median price and estimated rental value.
5. Historical Trend Analysis: We perform a meticulous examination of the property’s historical data over a 3 to 5-year period. This analysis enables us to identify average annual growth rates in property value and rental rates.
6. Cash Flow Forecast: Utilizing a 3-year discounted cash flow forecast, we project the property’s potential investment performance.
7. Property Categorization: Based on our evaluation criteria, properties that meet the investment criteria are grouped under Opportunity. Properties for which we are unable to evaluate due to insufficient data are grouped under Listing.
8. Publication and Accessibility: Residential property valuations are published on our platform, and users can conveniently access them through the Valuation Summary section.

The valuation process for determining the residual value of a piece of land, as carried out by Clearilytics, involves several key steps to assess the feasibility of development quickly. Here’s an overview of the process:

1. Initial Data Input: The agent provides the square footage of the land under consideration.
2. Assumption of Usable Area: Clearilytics assumes that 90% of this land area is suitable for development, recognizing that not the entire area will be used for constructing properties.
3. Market Median Assessment: We then determine the market median for all property types in the specific neighborhood where the land is located. This market median serves as a reference point for property values in that area.
4. Normalization by Average Size: To compare properties, the system divides the market median by the average size of properties, which is typically 500 square meters. This normalization helps to standardize property values based on size.
5. Selling Price per Square Meter: Clearilytics calculates the selling price per square meter in the same neighborhood, providing insight into the current property market conditions.
6. Development Cost Estimation: It’s assumed that the development cost per square meter is 65% of the selling price per square meter. This estimation accounts for the expenses associated with developing the land.
7. Gross Development Value: The system calculates the Gross Development Value by multiplying the selling price per square meter by the usable development area. This figure represents the total value of the potential development.
8. Total Development Costs: Similarly, Clearilytics calculates the total development costs by multiplying the development cost per square meter by the development area. This represents the total expenses associated with the development.
9. Developer’s Profit: A developer’s profit margin of 20% is assumed on the Gross Development Value, reflecting the potential return on investment for a developer taking on the project.
10. Residual Land Value: The final step calculates the Residual Land Value by subtracting the total development costs and the developer’s profit from the Gross Development Value. This figure represents the estimated value of the land once development costs and the developer’s profit have been accounted for.

It’s important to note that this analysis is conducted at a high level, providing a quick assessment of development feasibility. Users are advised that the assumptions made in this process may not fit all scenarios or specific project requirements. Therefore, you are encouraged to use your own assumptions and conduct more detailed analyses to make informed decisions regarding property development. This process serves as a valuable initial evaluation tool but should be complemented with a thorough and customized analysis for a comprehensive understanding of the project’s viability to help you arrive at an appropriate offer price.