Is It Your First Time Investing In Real Estate?
Getting involved in the world of property buy and sell can feel overwhelming, especially among first-time investors. To many, the challenge is in the many things that need to be learned: different requirements, strategies, and legalese. Participating in real estate calls for a commitment to the business, but those who do take part in it find themselves in a thriving scene.
The Philippines, according to the 2017 Lamudi Real Estate Marketing Report, is on the road to becoming a “real estate investment hotspot.” The country’s growing economy attracts a lot of business, and with a 6.7% GDP—the highest in the region—Philippine real estate is expected to soar.A lot of this economic development can be credited to OFW remittances and tourism, and the market that can take advantage of this growth are OFWs and millennials. In December 2016, OFWs set a new record high of $2.56 billion in remittances as per the 2017 Lamudi Real Estate Marketing Report. Meanwhile, an Inquire.net article on Real Estate Trends and Outlook for 2017 pegs millennials as the key influencers in retail spending: they have high disposable incomes, and are the largest age demographic. One thing OFWs and millennials have in common is, while they are likely more financially stable, they are often first-time real estate buyers.
As far as first impressions go, real estate can seem tricky to navigate—but first impressions aren’t always true. Whether you’re an OFW, a millennial, or simply wondering whether you shouldstart investing in real estate, here are 5 common misconceptions that first-time investors should be aware of:
Investing in real estate is expensive.
EXPECTATIONS: If you’re in the market for property, you must be wealthy.
REALITY: Yes, before you can begin to invest, you need to at least be financially stable—but there are workarounds and options available.
It’s important to make sure you find the best option before you commit. When it comes to browsing, founders of ForeclosurePhilippines.com, Jay and Cherry Castillo, recommend the “100-10-3-1 Rule”: shortlist 100 properties, visit 10, bid on 3, and buy 1. That way, you’re sure that you’ve looked at all the available options that you can afford.
Consider more affordable developments that are farther from the business districts, such as properties near schools and in the provinces. Some developers also offer a range of properties, like low-cost housing, house-and-lot packages with smaller monthly amortization, and properties will fewer amenities.
Payment options are also flexible. It’s advisable to work alongside banks: they often give better interests compared to the PAG-IBIG Fund as they use market rates, they can recommend a payment scheme that works for you, and they can finance your purchase with long payment terms and low interest rates. Keep in mind that your maximum amortization should only be 40% of your take home pay, so you still have funds allotted for other personal expenses.
Investing in real estate is all about the perfect timing.
EXPECTATIONS: The best time to buy property is when the prices are low. Otherwise, you don’t get your money’s worth.
REALITY: The general rule of dealing with real estate is that you buy low, and sell high—but when should you buy? Take this into consideration: in 2004, the average price per square meter of a 3-bedroom condominium in Makati’s business district was priced at only P65,000. In 2015, the same property skyrocketed to P150,000 per square meter. It’s true that people who invested 10 years ago get more profit than someone who starts now—butsince you can’t go back in time, the best time to take action is always now. According to Mr. JJ Atencio, President and CEO of 8990 Holdings Inc., you only need two things: the financial capability, and the decision to buy real estate property. When you have both, now is as good a time as any.
It’s difficult to breakeven, or get your money’s worth, when investing in real estate.
EXPECTATIONS: You spend a lot of money to buy property, and it’s difficult to earn back the money you spend.
REALITY: Owning and dealing with properties provides you with various sources of income. First is through “real estate appreciation,”or when a property increases value due to commercial or residential developments in nearby areas, or when the property undergoes improvements in amenities, structure, etc. Second, investors earn “cash flow income” when they purchase properties, rent them out, and collect from their tenants. Third, “real estate-related income” is made through buying and selling property. Lastly, there is “ancillary real estate investment income,” which refers to additional amenities your property offers for a small fee, like vending machines, laundry facilities, etc.
Castillo recommends understanding how to compute for Return on Investment (ROI), so you know how to plan your next move. To make it easier, he advices buying an income-generating asset as your first purchase so it can cover amortization and monthly rates, and the money you earn from that can be used to buy another property.
As with any big purchase, availing of a life insurance and a mortgage redemption insurance (MRI) is also valuable so you’re safe, whatever happens in the future.
Investing in real estate is only for professionals.
EXPECTATION: You need to have a degree to be able to manage real estate.
REALITY: Formally studying a course is definitely helpful, but anyone with the right resources and determination can excel in real estate. You can get started with basic courses and materials online, and join real estate seminars and financial literacy classes. If you’re well connected, it’s also good to work with people who are already in the business so you can have better insights about the work involved. If no one comes to mind, you can also opt for a licensed broker—they can facilitate the transaction, documentation, coordination with the developer, and after-sales support if needed. A broker can also answer any questions you may have when it comes to making the most strategic move for your real estate goals.
Investing in real estate is too risky.
EXPECTATIONS: You can never predict the economy, so when it comes to money, it’s wiser not to spend it in real estate.
REALITY:It’s true that real estate comes with a lot of risks—but they’re never without reward. Your assets can earn you a lot of passive income, capital gains, and time freedom that you have full control over.
Real estate is a business that is always on demand, and 2018 forecasts say it’s going to be even better with office, retail, residential, and industrial sectors on a continuous rise. With this happening in all parts of the country,there is aneed for more developments. If you join the real estate market, plan each move strategically, surround yourself with respectable people, and ultimately keep at it, eventually, the rewards will outweigh the risks by a landslide.