TAKE CHARGE OF YOUR MONEY
Investing all your savings in a condo?
INQUIRER.net
First Posted 11:08:00 01/29/2008
Question: I am an OFW based in Italy. I have been working here for 10 years now and I have been regularly sending money to my parents back in Manila to help them with their daily expenses. But I have also been saving for my future, keeping it in money market accounts. With the nice condominium projects being built now in Manila, I’m deciding between putting my savings in a condo unit or just continuing to invest my money in the money market. Which one do you think would be better? – Rommel
Answer: We are very happy, Rommel, to learn that you have been saving. Many OFWs hardly have savings with most of their remittances spent for daily expenses of their families back home. Then when their contracts have ended or when they retire, they go back to the Philippines and find that they have nothing saved up for the future.
Saving is very important in ensuring one’s financial stability. We can’t always work for the rest of our lives, so it’s wise to save for future expenses such as health care and retirement. Some people reason out that with their meager income, they can’t afford to save. But the reality is, no one can afford not to save.
We don’t know how old you are, or how many years you have been saving, or how many years you have until retirement. Regardless of those, continue your savings habit. It will be your safety net in the future.
Diversification is the name of the game
As to your question: which one is better — condo or cash?
A key principle in investment is diversification. Over the years, successful investors have built up their wealth by observing this key principle.
Diversification is making sure that your wealth is not tied up in any one kind of asset. That means it is not all in money market placements. It’s not all in stocks or bonds. It’s not all in jewelry or classic cars. Diversification means your assets are spread out in a number of wisely chosen investments that you are comfortable with in terms of the risk involved so that when one asset class is down or is losing, you still have some assets that are earning money for you.
The real estate industry in the country is on the upswing. Condominiums and housing projects are being aggressively built and sold. Real estate companies have also been actively pursuing the OFW market, going on marketing and sales blitzes abroad.
But this has not always been the case. Back in the late 90s, the real estate industry suffered greatly as a result of the Asian financial crisis. Real estate properties are also subject to market ups and downs, like any other asset class.
This is why we advise you to not put all your savings in a condominium unit. You may, of course, invest in a condominium unit, but make sure that you also have other investments in other kinds of assets, such as money market placements, and bond funds or stock funds. With this strategy, your financial future will be better preserved and protected in the long run.
Investing in real estate
If you decide to purchase a condominium unit while still investing your savings in other asset classes, you will soon realize that you're spoiled for choice. Real estate companies are now offering good deals, such as affordable payment schemes and easy payment options even for OFWs based abroad.
There are also a lot of good projects being built on good locations within Metro Manila and key cities in the provinces. Do your research first on location, pricing, quality, and suitability to your needs and aesthetic tastes.
Along with purchasing a condominium unit come other costs: monthly condominium and association dues, annual real estate taxes, and annual fire and property insurance. Take these things into consideration in evaluating whether you’d really want to buy a condominium unit, as these may drive up the cost of purchase.
Deal only with reputable companies. You want to make sure that the condominium project will be finished as scheduled and will be built well following safety guidelines. Ask around for the developer’s reputation.
Investing in other assets
As to your other investment options, don’t limit yourself to money market placements. Look into bonds or stocks for higher potential income. If you don’t have enough funds to meet the minimum investment required in these assets, then join a fund investing in these assets.
Again, look into the financial company offering these funds first to see how they have been faring. Compare funds before investing.
Bonds or stocks or pooled funds investing in these are good investments because they are liquid. That means they can be turned to cash easily should you need it. That’s also one other reason why you have to diversify your assets. Just think: if all your money is tied up in a condo unit, what happens now if you suddenly need some cash to tide you over a job loss or illness in the family? It’s not easy to convert property into cash right away since you still need to find an interested buyer. Whereas if you have some investment in property, and some in liquid assets such as stocks, you can have the stocks sold today if necessary.
So remember the key: diversification. We wish you the best!
(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts)
*Disclaimer: Readers are solely responsible for their own investment decisions and should thus conduct their own research and due diligence and obtain professional advice. INQUIRER.net will not be liable for any loss or damage caused by a reader's reliance on information obtained from our web site. INQUIRER.net receives no compensation of any kind from companies or industries or funds that are mentioned here.
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