Spotting a good real estate investment

The positive thing about real estate is that, even in a bad economy, it is still better than other forms of investment like stocks, mutual funds and other commodities.

Basic accounting states that you do not depreciate land and its valuation will just be a matter of supply and demand.

However, venturing into real estate properties requires more background study since you will be transferring your liquid assets into a very illiquid asset. In the real estate marketing business, we identify two types of clients: the end-user and the investor.

A real-estate investment may be different from your primary home so factors other than personal preferences might come into play. For an investor, it is a question of what are his investment goals—is it buying to hold, sell, or lease the property? To help you in your decision, here’s a quick guide on how to spot a good real estate investment that will work for you.

1 Identify growth areas

We’ve all heard the famous adage that, when it comes to real estate, it’s all about location, location, location.

However, real estate prices in ideal locations like Metro Manila have become very steep that owning a piece of land has become prohibitive.

Fortunately, real estate development in the country has flourished in the past two decades. Developers have changed the former rural landscape and have made centers for urban growth beyond the capital. The influx of commercial developments in provinces created a new wave of migration to areas outside Metro Manila.

If you are currently located in the metro area in the provinces, you might encounter information that there is a new mall to rise or a highway connection is being planned. These indicators will definitely mean land appreciation.

Be on the lookout for reputable developers who will be conducting pre-selling of previously raw lands because you will definitely have the first-mover advantage and prices are relatively lower.

Investment in these types of property can either be a commercial or residential lot that you would want to hold on to until it is ripe to put up for sale.

With the current thrust of the Duterte administration of “Build, Build, Build”, the pieces of property that will be traversed by these proposed infrastructure projects will gain spotlight and will be worthy of consideration.

Nevertheless, knowing where the next Jollibee store will rise is sometimes already a good enough indicator.

2 Your investment should match your financial goals

For real-estate marketers, projects are pitted against who can provide the most affordable monthly amortization. It is then up to you what percentage of your disposable income you would be willing to invest.

The ideal real estate investment is what you can call a “self-liquidating investment”. This is easily applicable in purchasing a condominium that you intend to put up for lease.

The rule of thumb is what real estate finance gurus call as the “2 percent” rule wherein the rental revenue should be at least 2 percent of the total contract price. So you should look into the rental rates in the area where you are looking to purchase. A steady rental income will ensure that you will be able to manage your amortization payments for the property if you plan to finance it through a loan.

Needless to say, you will also have to consider the fair market value of the property to make sure that you are not getting it overpriced. If you have more funds to invest, some properties are geared towards the investor’s market wherein developers offer “no-interest” schemes for as long as five years.

The conservative estimate in property appreciation is at least 10 percent annually, which is definitely higher than what banks offer for your deposits. However, property acquisition involves expenses like property taxes, maintenance due and insurance and later on, if you decide to sell, the seller answers for capital gains tax.

3 Personally go to open houses and site trippings

A real estate investment is a high-ticket purchase and you would not want to make a mistake.

For this, you would want to partner with a trustworthy real-estate broker. You might be able to find one through referral, your Linkedin account or you can meet him for the first time in an open house. It would be best if you can narrow down with your broker the criteria that you are looking for in a real-estate investment so that he can provide you with the best possible offers.

You should identify your desired town and neighborhood, property size and budget. Your real estate broker should be able to discuss with you how to manage your investment and what is the estimated return on investment.

4 Consider a foreclosed property

Forfeiture is the last thing on anyone’s mind, however, it is sometimes unavoidable and another person’s loss can be your gain. But since the property has been acquired by the bank, you are assured that the property is legitimate. Since the bank’s objective is disposal of these acquired assets, prices can be lower than fair market value and terms are most likely negotiable.

These are usually released through classified ads and bank newsletters. Banks also have accredited brokers to handle these properties for them.

5 Look into the quality of property management

The proliferation of high-rise developments has brought into the spotlight one important consideration in purchasing a condominium unit which is the quality of property management. Since buildings depreciate, property managers should ensure the quality of facilities and amenities.

This will also guarantee a high re-sale value of the property thus giving you good returns. Property managers also offer leasing services helping you get tenants for your units.

6 Consider buying a condotel for investment

The Philippine tourism and BPO sectors have been major contributors to the country’s growth and developers have grabbed opportunities to build more hotels and service apartments, thus the rise of condotels.

A condotel unit can be purchased similar to a condominium unit and the investor will be a part of the corporation but will relinquish operations to the hotel management. Income can be realized through dividends based on room occupancy.

Advantages include great location, free use when you are in the area making it ideal for our “balikbayans”, hassle-free property management as your dividends will be net of taxes and maintenance dues.

As what financial advisers say, the best time to invest was yesterday. The fact that you are considering investing is a good move forward. A real estate investment may require due diligence but do not be stumped by analysis paralysis.

The author is a licensed broker and the vice president for marketing services of Royale Homes Marketing Corp., a marketing arm of Sta. Lucia Land Inc.