Investing in Real Estate: Where to Begin
There are a handful of benefits to investing in property. One can start small by purchasing a plot of land in the province or opt for a studio-type condo in Metro Manila instead. Two different types of properties, but still an investment either way.
Property investment allows an individual to enjoy consistent passive income, tax benefits, and a piece of land or infrastructure that likely appreciates in value. It’s not uncommon to have an acquaintance who has done it before. So, you might be wondering, “How do I start investing in real estate?”
Being an OFW and Investing in Real Estate
It’s never an easy thing to be away from loved ones. To provide for one’s family and find happiness in the distance between different time zones is hard to reconcile. However, Overseas Filipino Workers (OFWs) have long been identified as among the nation’s greatest resources for growth in the last thirty years.
Apart from helping their loved ones back home through financial means, it is worth mentioning that OFWs also provide social capital. Their remittances, while serving as a significant source of revenue for the country, directly impact society’s development through social and personal investments. A household, education or schooling, and consumer products are general examples of social investments – they serve to provide security and strengthen the family’s social bond as individuals. But what about creating another income stream?
Among other business ideas, real estate is one way to build a productive investment.
How to Begin Investing in Real Estate
Naturally, finances are the first things that come to mind. For first-time investors, questions like, “How much should I invest in real estate?” is a normal response. The answer to this is that there is no fixed amount. Instead, as a rule of thumb, always seek expert advice, check out the market, and do prior research. It also helps to know that there are four main types of real estate when it comes to property investment’s uses: residential, commercial, industrial, and land.
Residential properties include condominiums, apartments, and townhouses. Commercial properties, meanwhile, include hotels, malls, and business places. Industrial properties, on the other hand, are warehouses and manufacturing sites. And lastly, land real estate are farms, ranches, and vacant lots. Knowing which type of property, you plan to invest in can help manage expectations. That being said, the easiest and most practical kind of property investment for most OFWs are residential types.
The table below presents a ballpark figure of residential properties in the National Capital Region (NCR) as of January 2021:
District | Current Floor Value (PHP/m²) | Current Ceiling Value (PHP/m²) |
|---|---|---|
Makati CBD | 350,000 | 1,000,000 |
Bonifacio Global City | 300,000 | 350,000 |
Ortigas Center | 250,000 | 280,000 |
Alabang | 120,000 | 140,000 |
Bay City | 230,000 | 280,000 |
Knowing how much is a good price for an investment is relative to one’s current financial status. For example; already having the adequate capital to start investing money in real estate can help set certain limitations. This allows one to know how much budget they can allocate into the property or investment, while still staying liquid in case of an emergency.
How to Budget for an Investment Property
If you plan on investing in real estate, but don’t have the budget yet, here’s how to set a ballpark figure that you can target. The One Percent Rule is used by many real estate investors to determine if a property is worth its selling value. By using this rule, you can calculate how much to set aside for your budget, which should also allow for some wiggle room.
The way to check if an investment follows the rule is by multiplying the purchase price of the property by 1 percent. The product should serve as the baseline for monthly rent, and it would make sense if the actual rent were to be more than enough to cover the property’s monthly mortgage. This ensures that the property at least gets to breakeven. If the monthly rent fails the One Percent Rule, check if there are certain conditions that validate the current market price.
As a potential investor, you can plan your monthly savings by setting aside a portion of the budget towards building on this target value, which will eventually become another revenue stream. Restructuring how you manage your cash flow property investment is another way to work around certain budget constraints. Prioritizing a list of the essentials, such as rent, food, and utilities can emphasize that everything else is a want, and not a need.
There are other types of calculations that can help you realize if a potential investment’s value fits your budget. Always remember that once you’ve started putting your money into one property, keep at monitoring and taking care of the budget until you can build another revenue stream. Do this repeatedly until you have enough positive cash flow to sustain a cycle of payments. All things considered, even with the long-term benefits of investing in real estate, only invest if you truly are ready to commit.