QUESTION: Is a condo unit a good investment??Mia Eugenio Marinez via Facebook
Answer: It depends. If you ask real estate brokers, they will tell you that investing in condominium units is the greatest thing since sliced bread. However, many investment experts seem unimpressed with returns from condominium investments and for a good reason.
The bigger question to ask is why are you considering purchasing a condominium unit? Is your purpose purely for capital gain or do you intend to live in that condo? I always say that when we select our investment options, we need to take a closer look at our investment objective, risk tolerance and time frame.
In this case, are you already certain as to the three I mentioned?
Assuming that you already have those questions answered, is investing in a condo a good idea then? The question is rather difficult to answer with utmost objectivity.
Firstly, it is difficult to ascertain the actual rate of return for condominiums. It can be very good for some projects and very dismal for others. Location and developer play a big role in determining the growth rate for condos, but these do not guarantee high returns. There are very good developers who develop condominium units that do not appreciate as much as expected. However, there are some developments that register substantial growth in just a few years.
Condo units are real estate and are an asset class. Real estate remains one of the most preferred investments of Filipinos. It will always be a good part of your investment portfolio because it gives the investor peace of mind and it is a simplified asset preservation tool.
When properly selected and the purchase is done in a prudent manner as to cost, condo units like other real estate properties can provide asset appreciation while income at the same time?like having your cake and eating it, too. Quid pro quo: capital appreciation and rental income potential will largely depend on purchase price, quality of the property, location and maintenance of the building.
Some factors regarding condo investing (or real estate investing) should always be considered especially in cost assumptions like real estate taxes, association dues and capital gains taxes. Such costs can be substantial and can largely dilute the appreciation of the property.
Further, a condominium unit is not always easy to sell, so be prepared to lower selling price if you are in a rush to liquidate your asset?or wait until there is a buyer, which can take many months, even years.
Reading my answer probably made you more confused right? Well, there are no perfect answers to questions like ?best investment,? as money issues are always relative. Investing in a condo can be part of your asset class in your diversified portfolio.
As to a condo appreciating in value, well, only time can tell. In the end, you will make many investments and the returns will vary?some might even cause you to lose money but hey, that?s life.
Buying the condo unit on credit will make the scenario very different as you now have to contend with interest that can actually dilute your investment.
I hope my answer helped instead of confused you. Always remember to be prudent and don?t forget to diversify. No investment is perfect, better have many options.
?But divide your investments among many places, for you do not know what risks might lie ahead.??Ecclesiastes 11:2 (NLT).
(Randell Tiongson, RFP, is an advocate of Life & Personal Finance. He is a director of the Registered Financial Planner Institute Phils. To know more about RFP program, visit www.rfp.ph or e-mail firstname.lastname@example.org.)