Introduction
All of us want to get into investing because we have a desire to increase our assets. However, nobody wants to get into a bad investment that will end up eating money instead of yielding profit.
I am aware that a lot of us want to put our hard-earned cash into something that will potentially make us wealthier in the future. The problem is that we are sometimes fearful of where we put our money.
Crippling fear makes us hold on to our cash without making meaningful investments. In worse cases, we spend our savings on things that are not necessary.
Fear is understandable because a wrong financial move can be painful and devastating. There are many horror stories of people trusting their money to an agent or seller and eventually getting scammed.
There are also stories of people who ended up defaulting on their mortgage because they were not able to come up with enough cash to handle the monthly payments. In some instances, it is because of financial mismanagement, failed business, job loss, unexpected medical expenses, or an act of God.
Remember that investing always holds a certain degree of risk. There are many convincing real estate agents out there whose persuasive sales talk get customers to buy condo investments they are not ready to handle in the long run.
The agents are not to blame because, just like anyone else, they are trying to earn a living. Therefore, it is the responsibility of the customer to be as informed as possible.
As long as you are aware of what is involved in this endeavor, you become more confident about whether to put your money in condo investing.
With all that in mind, let us now define what real estate is and what investing is in the first place.
Real Estate
Real estate refers to physical property, land, buildings, air rights, and mineral rights, which are above and below the ground. Unlike personal property, real estate property is immovable.
There are generally four kinds of real estate:
- Residential – includes single-detached homes, duplexes, townhouses, apartment units, condominium units, and vacation homes.
- Commercial – includes shopping centers, educational buildings, hospitals, hotels, and offices. Apartment complexes and condominiums also belong to this category, even though they are used primarily for residential purposes as long as they produce income.
- Industrial – includes warehouses, production facilities, manufacturing buildings, and any other structures used for the research, production, and storage of goods.
- Land – includes vacant lands, agricultural lands, farmlands, subdivisions, ranches, and the like.
What is Real Estate Investment?
A real estate investment is a real estate property that we purchase with the intent to resell or profit at a higher price. Remember that the keyword here is profit. If you do not make money from what you purchase, then it is not an investment. I hope you keep this in mind always.
That means that if you buy a condo for residential purposes, it is not an investment because you do not make any profit from it. However, if you buy a condo unit to lease it or resell it in the future for profit, then it becomes an investment.
In this short report, we will be focusing only on condominiums because it is one of the most lucrative types of properties for investment.
Is Real Estate Investment For You?
Keep in mind that investing in real estate is not only for wealthy people or experienced investors. It is for everyone who wants to:
- Make their dreams a reality
- Diversify their investments
- Create a consistent source of cash flow
- Create enormous wealth
- Achieve financial independence
Investment is for everyone who dreams of financial independence. All of us have a desire to elevate our economic condition. Therefore, real estate investment is for you, as well.
There are many kinds of investments out there. Some examples include cryptocurrency, stocks, savings accounts, and government bonds.
However, real estate is one of the best, if not, the best investments you can have. Take note that in the Philippines, all the billionaires are real estate investors.
Why Should You Invest in Real Estate?
- You do not need to be an expert to start investing
- It provides residual or passive income
- It always appreciates in value
- It protects your money from depreciation
- It involves a low risk
- Land is scarce
- It can make you rich
Buying real estate is an investment strategy that allows you to use leverage to your advantage. What does this mean? Unlike stock investing, prospective real estate investors can acquire a property by paying only a portion of the total cost upfront, and then paying the balance and interest over time.
Bank financing usually requires that you pay off a 20% downpayment before acquiring a loan to pay for the rest of the property. However, there are cases where you only need to pay 10% and as low as 5% downpayment to purchase an entire property.
Having such leverage allows property investors like you to purchase additional properties for their investment portfolios. As soon as you find the right property to buy, the next step is to find a source of funding for the downpayment.
Real Estate Investing is About Being Resourceful
If you want to become financially independent, invest in real estate. It is not about having resources. It is about becoming resourceful.
Today, many condominium developers offer easy payment options for those who want to enter into real estate investing.
Even before a condominium project starts construction, you can already invest. This stage is called pre-selling. At this point, you can start by paying a minimal reservation fee of P15,000 to P50,000.
Then, you pay the downpayment (5-20% of the total value of the condo unit) in spot cash or deferred payments for 12-60 months at 0% interest.
After paying for the downpayment (at this stage, the unit may already be ready for occupancy), you can pay for the remaining balance through bank financing. Depending on your capacity to pay, you can choose a loan term of 5 to 15 years.
Should I Buy RFO or Pre-selling?
If you are not already aware, there are two types of condo options you can buy in terms of availability. The first one is an RFO unit, which means that it is ready for occupancy. As soon as you acquire the condo, you can use it as your residence or rent it out for profit at once.
The other is a pre-selling unit, which means that it is either in the planning stage or under construction. Is it legal to sell at this stage? Definitely. However, you have to do some due diligence to make sure you are buying from a legitimate developer.
Which option to choose depends on your capacity to acquire a property at present. For RFO units, you have to pay the full price at once or pay for at least 20% of the downpayment upfront and get bank financing to handle the 80% balance.
If you are in a hurry to use the condominium unit, then buy an RFO unit. Purchasing a ready-made condo also allows you to get into the rental business as soon as possible.
Of course, not all of us can pay in full, especially when we are still paying for other expenses like child education, car financing, an existing mortgage on our home, and the like. Fortunately, there is another option.
For pre-selling condos, the payment schemes are more flexible. Approximately 80% of buyers purchase at the pre-selling stage because of the following advantages:
- Lower introductory price
- Additional discount offers (5%-15%)
- Longer payment terms for the downpayment (2-5 years)
- More options to choose from
- Better investment opportunity (30% increase in value after construction)
That explains why there are only a few units left after the condominium is ready for occupancy. Most investors take advantage of the pre-selling benefits and cash in on the gains after the condo unit is ready.
Which should you choose? That depends on your capacity to pay and how soon you need to use the condo. Choose wisely.
Should I Pay in Spot Cash or Deferred Payments?
When you have cash on hand to pay for a condo unit, you can take advantage of payment discounts. This discount may amount from 3% to 10% for RFO units and probably higher for pre-selling units.
What if you want to take advantage of leveraging the money from the bank? Instead of paying for one condo unit in full, why not buy two or three condo units at a 20% downpayment, then get the bank to finance the balance.
Using this investment strategy, you can acquire more condo properties to rent out for profit. This strategy is also useful for pre-selling condos. Instead of paying for the downpayment in full to acquire one condo, why not pay for two or more units at deferred payments.
How Entering Into Real Estate Investment Motivates You
Today, a lot of people are spending their money on luxuries they do not need and then complain that they do not make enough money.
If you put your money in investments, you become motivated to earn more money. You start looking for opportunities to increase your monthly cash inflow.
The reason a lot of people procrastinate in business or any other money-making endeavors is that they do not have any motivation to do so.
When you are paying a monthly amortization on your condominium unit, you become better at seeing and grabbing economic opportunities. You become better at solving financial issues and managing your finances.
As long as you have a goal in mind, you can achieve financial success.
Why Should You Invest in a Condo?
- Convenience
- Security
- Amenities
- Low Maintenance
In urban areas, land is scarce, so the only way to provide more homes for the growing population is to construct mid-rise to high-rise buildings.
Owning a condominium provides you or your tenants with convenience. Depending on where the condominium is situated, you have easier access to transportation, shopping areas, schools, hospitals, businesses, and work areas.
Even when you are away or managing your rental property at a distance, you can rest easy and have peace of mind because of the 24/7 security.
Also, you or your tenants enjoy luxurious amenities like swimming pools, fitness gyms, picnic areas, shopping centers, and the like.
Lastly, you have a dedicated team from the condominium corporation to provide building maintenance.
Who is qualified to buy real estate in the Philippines?
- A Filipino citizen
- A foreigner who is married to a Filipino citizen
- A foreigner is entitled to buy condominium units
Factors to Consider Before Buying a Condo
1. Location – Since you are going to profit from the purchase of a condo, make sure you choose the right location. The top areas in the Philippines for condo investing include the following:
a. Metro Manila
b. Baguio City
c. Tagaytay
d. Cebu City
e. Iloilo City
The cities mentioned are suitable locations because they are high traffic areas for business, education, and tourism. That means that you are more likely to profit from a real estate investment.
2. Trusted Developer – There are a lot of real estate developers in the Philippines, but few can produce consistent quality and be trusted to deliver what they promise. Do a background check on the developer first before anything else.
3. Payment Scheme – Check if you can handle the payment terms for the condo offers. If you are not ready to buy RFO condos, remember that pre-selling condos have more affordable payment schemes.
4. Bank Financing Options – Check out available partner banks that can offer bank financing promos. For example, you can get better loan rates at BDO if you buy SMDC condos because both institutions are sister companies.
5. Additional Costs – Do not forget to look into other costs. Some real estate sellers neglect to explain these costs to their clients in fear of losing a sale. These costs include:
a. Miscellaneous fees (approximately 6.5% of condo price) – Refers to the cost of transferring the ownership of the condo to you. Includes the documentary stamp tax, registration fee, transfer tax, notary fee, installation fees, etc.
b. 12% VAT applies to all units above the vatable threshold of P3,199,200.00.
How to Make Money from Your Condo Investment
There are several ways to earn money from a real estate investment, but for a condo unit, the two most commonly used are sales and rentals.
1. Sale
Let us say that you bought a 25sqm 1-bedroom pre-selling condo unit today at P5M and is due for completion in three years.
Usually, a pre-selling unit appreciates about 30% of its value after completion. Also, property values in urban areas tend to rise by around 8% per annum.
Hence, after three years, your condo would have appreciated up to P6.5M after completion. That is P1.5M in profit just by taking advantage of the pre-selling phase.
If you include the 8% per annum appreciation, then you add approximately P1.3M to come up with a potential value of P7.8M. You may increase this value further by furnishing the unit.
If you sell the property after three years, you earn a profit close to P3M. The actual revenue depends on the existing market conditions at the time of the sale.
2. Rental
To earn residual income for the long term, you can put the property up for rent. There are two ways to do this:
a. Short Term Rental
First is through short-term rental or transient rental. You can manage rentals through Airbnb.
In this scenario, a 1-bedroom unit can lodge up to 6 guests at a time. Let us say that you own a transient condo in Quezon City.
The usual minimum rate for one night per 1-2 guests is P1,500. For a maximum of 6 guests, the rate doubles at P3,000 per night.
Occupancy for transient rentals varies depending on the season and the marketing efforts of the owner. Typically, a unit has a 70% occupancy throughout the year or 255 days per annum.
Let us assume that 70% of the time, there are only 1-2 guests per night, and 30% of the time is full. That would add up to approximately P500,000 per year or P5M in ten years.
b. Medium-term Rental
A medium-term rental typically involves a 6-month or 12-month renewable lease contract. Usually, a 25sqm condo unit would cost P25k per month, which would yield P300,000 per year or P3M in ten years.
Not as much as the short-term rental profit, but remember, you still own the condo unit. If you plan to sell the property after ten years, then you can earn even more.
The illustration is just a simple calculation of potential gross income. However, you get a clear picture of how you can turn your real estate investment into a consistent cash flow machine.
Now that we nailed the essential knowledge we need to invest in real estate, let us now look into an example of the best prime properties on the market today.
Sample Prime Condo Investment for You
Gold Residences by SMDC
Why Invest Here:
Metro Manila is one of the hottest locations to invest in prime condos. The highly urbanized center of the Philippines is buzzing with socioeconomic activities. That means that your investment can never go wrong.
LOCATION! LOCATION! LOCATION! is a fundamental principle in real estate investing. Although prime location comes with a higher price, it also comes with higher profitability.
Gold Residences is at the pre-selling stage. If you invest now, you can make a profit from the increase in value after completion.
Property Profile:
Location: Just across NAIA Airport Terminal 1
Stage: PreSelling
Phase 1 – SOLD OUT!
Phase 2 – Now OPEN FOR RESERVATION!
Only Php25,000 to reserve a unit
Gold Residences — An 11.6- hectare master-planned community right across the Ninoy Aquino International Airport. The concept for SMDCs first township is to be the gold standard – a convergence of modernization, dynamism, innovation, and prestige, assured in all its areas.
A Premium World-Class Mixed-Use Development that will provide a Prestigious and Dynamic Lifestyle and serve as a Global Gateway attracting business, tourism, investment, and employment.
GLOBAL AND LOCAL CONNECTIVITY
- Across The Airport
- Near Transport Infrastructures
- A Crossroad to Key Places
WORLD-CLASS MIXED-USE DEVELOPMENT
- Urban Design
- Internation Design Firm
- Walkable Community
PREMIER COMMUNITY LIFESTYLE
- Prime Location
- Iconic Landmark
- Hotel-Like Lobbies
- Luxurious Amenities
- Luxurious Service
Available units:
1 Bedroom Unit (25.42sqm-32.87sqm)
1 Bedroom End Unit (29.73sqm-35.87sqm)
2 Bedroom End Unit (50.71sqm-54.53sqm)
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Summary
“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” – Marshall Field
I hope that this short report opened your eyes to the possibility of creating wealth through real estate investment. All of us desire to increase our wealth. Not only for our sake but for those we love.
According to Napoleon Hill, the famous author of Think and Grow Rich, desire is the starting point of all achievement. I, too, prefer to increase my riches, but desiring is only the starting point. We also need to take action.
Fortunately, we can create passive income and achieve financial independence through a keystone action. This keystone is investing in real estate, specifically in prime condos.
If you are ready to start investing, I can help you obtain your very own condo unit. If you are not yet ready, remember that the way is become resourceful. And when you become ready, remember that you can always count on me for assistance.