There are many ways to invest in real estate and yet, you will be surprised that there are still many Filipinos who are clueless on how to go about it.
I started off my career in the real estate industry. Fortunately, it was with Ayala Land, where I had my 1st job – at that time, Ayala Land was and still is, the premier real estate company, the leader and the most diversified real estate developer in the country. Back then, it was only Ayala Land as a company that exists that caters to the middle and upper market based on the pricing of their properties. The other Ayala companies are still unheard of (Alveo, Avida, Amaia, etc.). And being exposed to these types of market – I only know 2 types of buyers: 1. end users – buyers who buy and live; 2. investors – buyers who buy and sell for a profit.
This piece will elaborate further on how to make money from real estate. Here are some of the ways from the investor’s standpoint:
1. Buy and Live in it. These are the type of buyers we categorize as end-users. As soon as the property is livable or in real estate term, ready-for-occupancy, the buyers move in. So how do you make money if you’re using it as your dwelling place or home? You make money by capital appreciation. While it’s only on paper, your net worth increases as the property values go up esp. if you bought it from an established developer like Ayala Land whose projects do appreciate beyond than double, but a thousand times (Think of Forbes Park!).
2. Buy and Sell. The easiest way to bet on this is to buy the property while on a pre-selling stage. Take note that not all pre-selling properties are sure to make money when sold as soon as it is turned over. You have to look at the whole picture when buying for investment – factors like 1. location; 2. developer; 3. amenities; 4. concept; 5. dues. These things will contribute a lot to the marketability of the project. Some call this flipping. By flipping, you don’t have to wait for the property to be fully paid. You can start selling the property once a downpayment or equity has been paid giving you the rights to transfer ownership to your prospective buyer. This can be done via transfer of rights.
Bottomline, those who started investing in properties eons ago are now reaping huge payoffs. Consider Ayala Alabang Village. Those who invested and kept their properties to this day have earned on paper, more than 1000% from their original investment. Consider the price in the late seventies which started at approximately P150/sqm more or less. If you are in the market these days, the average selling price is at P30,000/sqm. Lesson? Just like in any investing, time is of the essence. The earlier you start investing, the better.
3. Buy and Hold. We now come to the Leasing aspect in real estate. This requires patience, lots of it. Consider the time frame when you will break even but also in dealing with your prospective tenants. A thorough background check is ideal but if not possible, as it usually comes out once a deal is done, you need to have a fool-proof document to protect you from any kind of violation against the rules set on the terms of the lease.
A much faster way to recover and earn from your investment is to allow for transient stay which commands a relatively higher rental fee (daily basis instead of monthly) but the owner has to ensure that there is a steady or regular flow of prospective tenants.
You can also command a higher rental fee by furnishing your home or property and factor in the cost of the furnishings to the rental price to recover the investment cost. Usually, you negotiate for a fixed amount to be deposited which may be refunded at the end of the contract. During the term of the lease, you can now use these deposits to invest in short term investment instruments like mutual funds or stocks or just park in a time deposit account, or even a unit-linked investment to ensure that you profited from it on a fixed date no matter how little the interest.
A rental business is a good way of earning income on a regular basis barring any collection problems. You also enjoy the privilege of escalating rental prices on the renewal year.
A new approach of real estate investing in this category is to buy a serviced-apartment from the developer and let the developer lease it for you. Some developers take this approach and guarantee the investor a fixed interest every year whether the unit gets leased or not. The developer will take care of furnishing the unit. In other words, you don’t worry on the aftersales and yet you are promised a return on your investment. Note, however, that the price of serviced-unit apartment is usually much higher than the average, since it is usually fully furnished when turned over.
4. Buy, Fix, and Sell (or Lease). There’s money in foreclosed properties if you know how to go about this properly. The thing is, you need lots of patience and a keen eye for the “gold”. Ideally, you need to “partner” with a bank that is disposing their idle assets. If you’re a regular investor, there’s a probability that the banks can give you first access or leads. Ideally, when you get into foreclosed properties, you also need to have a contractor in your team if you are not yet a contractor or don’t have the time or capacity to be one since this entail some form of renovation on the property. More often than not, you cannot find a livable foreclosed property. You really have to do some repair or fixing o make it attractive to your prospective client. Once fixed, you can “collect and collect” so you will have passive income by way of rent or you may opt to “flip” it right away for a good return on your investment.
But how would you know if the property that you will bid has the potential? You need to make a thorough study on the property. For one, you have to consider the potential returns if you will lease it out based on the location, marketability, repair costs, etc. Coming up with a very attractive payment scheme is also a good marketing strategy while enjoying a low amortization payment with the bank which make the excess payment as your net profit. This excludes the down payment that you require to recover the equities that you paid to the bank; If you have a ready buyer; do the bidding for your client and negotiate a rent-to-own deal with your client. Some known real estate investors took this route and turned this into source of income by holding seminars on how to make money from foreclosed properties.
Real estate investing requires lots of patience and work, and of course capital, and a good strategy as well to buy a good find. While it may look expensive to buy these days, time and again, it has been proven that you can reap a good return in real estate investing if you 1. Start early; 2. Pick a good find; 3. Do the math.
Knowing how to crunch numbers is essential as in any type of investment. What more in Real Estate Investing.
Aside from being a Financial Advisor, Ronnie Reyes is also a practicing Professional Licensed Real Estate Broker in the Philippines. You may contact him via his email address: firstname.lastname@example.org.