You will be forgiven to say that Philippine real estate has finally turned the corner, and that now is the time to get on the investment property bandwagon. But hold your horses! Heed what master investor Warren Buffet uttered not too long ago:
Be fearful when others are greedy and be greedy when others are fearful.
Well that’s just encouraging. Does this mean you shouldn’t be bullish, drop all plans to finally become an entrepreneur, and go back to your day job? Not necessarily, according to experts. Every cycle presents its own opportunities as it has risks. All it takes is carefully planning your move. This what separates savvy investors from inexperienced ones.
Although there is no quick way of earning good bucks from real estate, treading the market very carefully can lead to handsome returns. But like any business venture, you need plenty of research and patience. Most importantly, you must be willing to wait.
So how does one succeed? Where does one start? Given the many options out there, everybody seems to have an opinion or two. To start, ask yourself these 8 questions, which we believe all would-be investors need to get their head around before getting into the game.
1. What Do You Want to Achieve?
Financial freedom? Maybe money for retirement? Remember that the structure you’re buying is not really the end goal but just the vehicle to enable you to get there. Hence, it should be important to identify your goal before getting into real estate investment, then formulate a plan on how you will get there in a timeframe that works for you. As with any other journey, property investment requires you to know where you’re heading and how you intend to get there.
2. What Type of Investment Property?
Once you have determined your goal, it’s time to decide on which type of investment property you’re taking. Preferably it should be one that will be in strong continuous demand from both buyers and tenants—the former will push up market prices while the latter will help you pay your mortgage.
In addition, know your market very well. Is there a huge demand for condos near the CBDs from young urban professionals, or for suburban houses from small families? A basic research on the market will help you determine which type of investment property you should go for.
3. Pre-sell or Resell?
Pre-selling properties are usually apartments in high-rise monoliths or house and lots in gated communities sold pre-construction. When one is buying one, he or she is actually purchasing a non-existing one, save a model or a plan (hence, they’re also called off-plan properties).
Investors like purchasing property in this way in the hope of making substantial capital gains, partly because developers offer such properties at a discount to entice buyers. Also, as the development cycle of a pre-selling project usually lasts 24–36 months, there may be ample opportunity for capital growth.
Reselling properties, on the other hand, are ready for occupancy; that is, the buyer can immediately move in upon payment. This type of properties has advantages, one of which is the fact that the buyer is buying what he or she is seeing. However, they are almost always more expensive. This is the reason many seasoned investors go for pre-selling.
4. Where Should You Buy?
Location is perhaps the single most important factor that will drive the performance of your investment. This is owed to economics’ age-old tenet — the ones located at the most sought-after addresses are the ones that cost a lot. Hence, apartments within central business districts are more expensive on a per-square-meter basis than houses in the suburbs.
However, this doesn’t mean that investing in suburban houses is not profitable. There are many factors that come to play, such as presence of good transport links, proximity to amenities, and your chosen area’s demographic composition. Most often young families prefer houses with yards tucked away in quieter nooks than in apartments within the bustle of the city, in which case there’s more opportunity for you to earn more rental income from the former.
5. How Much Can You Afford?
Wise investors know that before they go out on a property-shopping spree, they first need to determine what they can afford by getting a loan or financing pre-approved. They also make sure to have extra funds set aside for acquisition costs and financial buffer for a rainy day. After all, they don’t only buy properties, they also buy time by having financial cushion in place to see them through the down times.
6. Do I Need Help?
Say you’re in the best possible scenario: you’re a licensed valuator and broker, a meticulous property manager, a certified public accountant, a lawyer, and you’ve got spare cash to spare. You could be the world’s best property investor. Unfortunately, you’re not all of these persons. In fact, none of us is.
So what do you do? You seek help. According to Australian property expert Michael Yardney, if you’re the smartest person in the room, then you’re in deep trouble. The people around you must have some expertise that you don’t possess — be it the eagle-eye sharpness of an accountant, the meticulous nature of an effective property manager, or a great deal of knowledge about real estate. Real estate is like a team sport that requires expert input from its members.
7. Should I Fall in Love with a Property?
Often people make the wrong decisions because they get too attached to a property. They buy close to where they live, where they holiday, or where they want to retire. In short, they make emotional purchases in locations that are familiar to them.
People who plan to make money from real estate shouldn’t make any of these. According to Yardney, investors should only have three good reasons to “fall in love” with a property: it fits your investment strategy and goals, the numbers work, and it has upside potential. In short, investors shouldn’t let their emotions drive their investment decision.
8. Should I Be Worried about Risks?
Many people don’t understand the risks associated with property investment and, therefore, don’t manage them correctly. According to Carl Dy of property giant Ayala Land Premier, if one is looking to investing in property, he or she must at least have a steady flow of income. This is because property investment is long term, and having financial buffers in place will not only cover negative gearing but will see one through the down times.
Another way smart property investors protect their assets is to buy in the correct ownership structures so that their assets will have sound legal foundation they need.
According to Yardney, if investing in real estate were easy, everybody would be successful at it. Unfortunately it’s not. Like any business venture, it requires a lot of research, a good deal of planning, plenty of patience, and keen entrepreneurial sense. But the good thing is, these traits can be cultivated, which makes a successful real estate investing strategy achievable.
