In the Philippines, real estate is often seen as a stable and lucrative investment. The allure of owning property is strong, with many Filipinos viewing it as a symbol of success and security. However, there’s a significant risk attached to over-investing in real estate: becoming property rich but cash poor. This term refers to a situation where most of an individual’s wealth is tied up in real estate, leaving little cash for other necessary expenses or investments. This imbalance can cause financial strain, especially in emergencies or retirement.
To ensure a healthy financial status while still investing in property, Filipinos can adopt several strategies:
1. Smart Financial Planning
The foundation of avoiding financial pitfalls is sound financial planning. For potential property buyers, it’s essential to assess one’s financial situation comprehensively. This means looking beyond the ability to make down payments to considering ongoing costs such as mortgage payments, property maintenance, taxes, and insurance. Financial planning should include both short-term and long-term objectives, ensuring that current property investments do not compromise future financial needs.
2. Maintaining Liquidity
Liquidity refers to the amount of cash readily available for immediate needs. It’s crucial to have liquid assets to cover at least six months to a year of living expenses. This emergency fund can cushion unforeseen financial shocks, preventing the need to sell property hastily, which could result in losses or unfavorable terms. Besides an emergency fund, it’s wise to allocate funds for regular property-related expenses, ensuring these do not eat into your emergency reserves.
3. Diversifying Investments
While real estate can be a valuable part of an investment portfolio, diversification is key to reducing risk. Mixing different types of investments—stocks, bonds, mutual funds, and real estate—can protect against market fluctuations and provide multiple income streams. For instance, if the real estate market faces a downturn, having investments in other sectors could mitigate financial losses.
4. Understanding and Managing Mortgage Debt
Choosing the right mortgage product is essential. Fixed-rate mortgages can offer predictability in payments, while variable rates might initially be lower but pose a risk if interest rates rise. It’s also vital to avoid borrowing against home equity excessively. While refinancing can make sense under certain conditions, continually increasing mortgage debt to cover other expenses can lead to financial instability.
5. Generating Income from Property
For those owning multiple properties or large homes, generating income from these assets can significantly aid financial health. Renting out part or the entire property can provide a regular income stream, helping to cover the mortgage and maintenance costs. This approach not only utilizes the property efficiently but also enhances cash flow, alleviating the pressure of being cash strapped.
6. Regular Portfolio Review
Just like any investment, real estate holdings should be reviewed regularly. This evaluation should consider the performance of the property (in terms of appreciation and income generation), its proportion in the overall portfolio, and its impact on financial liquidity. If too much wealth is concentrated in property, it might be prudent to rebalance by investing more in liquid assets or even selling some real estate.
7. Timing the Market for Selling
Knowing when to sell property is as crucial as knowing when to buy. Market timing can significantly affect the returns on real estate investments. Selling property during a market high can free up substantial cash, reducing maintenance costs, and providing an opportunity to reinvest in more liquid, high-yield assets. Conversely, holding onto property during market lows can tie up capital unnecessarily.
8. Planning for Life Changes
Life events such as marriage, the birth of children, retirement, or health issues can significantly alter one’s financial needs and capabilities. It’s essential to adapt investment strategies in response to these changes. For example, as retirement approaches, reducing reliance on property and increasing liquid savings can ensure more accessible funds during non-working years.
Being property rich but cash poor is a common issue that many Filipinos face due to the cultural prestige associated with property ownership. However, by being strategic, we can enjoy the benefits of real estate investment without compromising their financial flexibility and security. These strategies not only ensure a balanced investment portfolio but also safeguard against the financial uncertainties of life.
Here’s How You Can Spot a Good Real Estate Deal in the Philippines
By Randell Tiongson on October 23rd, 2017
Every great investment starts with a great deal. Investors looking to start their real estate portfolio or even a bachelor planning to buy his first condominium unit must learn how to spot a great deal to make sure that their hard-earned money will turn into a valuable investment.
Here are some tips to remember if you want to spot a good real estate deal.
It’s a numbers game.
According to real estate blogger Brandon Turner, property hunters have to understand that snapping up good deals is largely a numbers game. You have to check out tons of listings in a specific area and narrow the leads down according to your preference.
For instance, if you are looking for a good deal in Mandaluyong, try to determine your own pre-qualifications. Should the property be near major throughways? Should it be below PHP 2 million? Should you consider foreclosed properties?
Once you have narrowed your choices, you have to analyze the value of the properties. Which among them do you think would appreciate in a reasonable amount of time and for what reasons?
Location, location, location!
Getting a good real estate deal all boils down to the location of the property. This does not necessarily mean that it should be at the heart of a business district or even along its peripheries. After all, location is also about connectivity and accessibility.
The key is to identify areas where it is easy to travel to and from major places of interest. For example, if you want a property that is accessible from Metro Manila, then you should consider scouring nearby provinces where costs are lower and there are plenty of options.
Always check out deals in these lower-priced markets as they possess potential returns especially when space demands in city centers become too saturated, pushing home seekers to look for alternative locations.
Why it’s wise to invest in foreclosed properties
Great deals may sometimes come in unexpected forms—in this case, in foreclosed properties. According to MyProperty.ph, a foreclosed property is a good money-saving option for its below-market-value price. The reason foreclosed properties have relatively low selling price is that banks are often swift in disposing these assets. You can expect them, therefore, to offer surprising discounts.
There are a few things you need to consider, however, as not all foreclosures are worth the money. First, inspect the condition of the property. Does it need a lot of repairs? Where is it located? Can you flip the property to make it marketable again? Additionally, you also have to know the terms in which the bank would sell the said property.
Try searching social media for leads.
Most people are now on Facebook, so it is easier to connect to potential property buyers. Indeed, some of the greatest deals can already be found via social media. You may not land the perfect deal at first try, but posts by individuals looking to sell their properties or marketing campaigns of real estate listing services would definitely give you an idea where to look further.
Consult listing sites.
There are a lot of listing sites out there that let sellers connect easily to potential property buyers. MyProperty.ph and Lamudi.ph are some of these listing sites that provide property owners with a platform where they can reach their prospective buyers.
Since these listing sites have their own gatekeeping system, the deals posted on the platform are all legitimate. It is a matter now of analyzing the merits and risks of acquiring a particular property viewed on the platform.
Should properties be at their prime condition?
It was already mentioned that when looking for foreclosed properties, the quality of the asset must be checked. In some cases, you might find diamonds in the rough that just need a little bit of flipping to turn into a true gem.
However, there are still considerations to ponder on such as location, accessibility, and price tag. If the slightly debilitated property is in a major city, check if it has an attractive neighborhood. You should also make an effort to see if the location is easily accessible. Regarding the price tag, you would have to discuss with the seller and bargain if you must.
Early birds get the best deals.
If you spot a listing you believe has potential, you better grab it quickly before the demand swells together with the selling price. More often than not, the one who calls and locks in the property first gets the ideal price.
In times when the seller already entertains multiple buyers, you should still act fast. Your offer must meet or even exceed the seller’s expectation of the value of the property for you to emerge victorious.
Do your research.
To land a great deal, it pays to do your assignment. Before looking through listing sites, you have to do your part and get to know the market in general. Learn as much as you can about the current trends and make yourself well-versed with the concepts that surround the market.
Finding a great deal is not a talent—it is just a combination of the knowledge you have of the market, the practical mindset, and the creativity and ability to see things in another perspective.
What to consider in buying an investment property?
By Randell Tiongson on March 28th, 2016
1 in 6 Filipinos owns real property other than the primary home. This is according to the 2012 Consumer Finance Survey of the Bangko Sentral ng Pilipinas (BSP). While others may use the second or third properties either as a halfway or vacation home or for the rich a ‘pamana’, others use additional real estate as an investment opportunity.
Especially in school and central business districts (CBD), there’s no shortage of rental properties. This is because continuous demand directly relates to the flow of income. If your property is near a university, every four or five years, there’s always a new batch of students looking for a place to stay. You can expect there’s always an individual eyeing a home near one’s workplace if your rental property is in a CBD.
Are you thinking of buying an investment property? Here are four questions to ask when buying an investment property. If you answer ‘yes’ to the following questions, you’re on the right track in becoming a real estate investor.
Is the property location strategic?
Easy access to malls, parks, hospitals, and accessibility to public transportation increase the profitability of university towns and central business districts.
Quezon City, Makati City, and Paranaque City are the three most searched cities in the Philippines according to Lamudi’s 2015 white paper report. Why?
Quezon City has many universities and colleges, research institutes, and commercial developments.
Makati City is the financial center of the country with the highest concentration of local corporations and multinational companies.
Paranaque is close to Makati City and Pasay City but offers more affordable housing options.
Ask yourself how close is the area from schools, offices, hospitals, malls, and main roadways and public transport if you are planning to buy a property investment.
Will the area develop and grow in the coming years?
The search traffic for properties in CALABARZON, Central Luzon, and Central Visayas continues to increase in the same Lamudi white paper report. Search traffic in CALABARZON surged 130% from the 4th quarter of 2014 to the 1st of 2015. The reason for this is current and future developments in the region, namely in Cavite and Laguna.
The developments in these two areas show no signs of stopping. Nuvali, in Sta. Rosa, Laguna, has easy access to numerous commercial establishments, schools, leisure areas such as a wakeboarding park, and residential properties where the price per square meter is starting to match Metro Manila’s. Ayala Land, Inc.’s vision for Nuvali is to make it the next financial district south of Makati. This area will continue to grow and thus makes it a strategic location to invest in.
The area is a good investment opportunity if the area is situated in a less developed area that is primed to grow and progress in the future. Don’t join the race when it has already started; invest in properties in the early stages of development.
Can you handle the monthly amortization?
Having enough to make the downpayment is one thing, paying your monthly amortization is another. Your payment terms, interest rate, and timeframe varies on your personal preferences. The only thing that stays permanent is the necessity to keep up with the monthly payments. Avoid late payments as this leads to paying more in interest. Do the math first and ensure you can afford the monthly amortization before you decide to invest in real estate.
As the landlord, you are liable to cover for unnecessary situations that may arise (unless otherwise stated in the contract). You should shoulder expenses for water leaks, roof repairs, and floor re-tiling among many other repairs. You’ll also be covering for utility bills and the homeowner’s association fees f your property is left vacant for several months.
The importance of having savings or an emergency fund is to cover for emergency situations in relation to your rental property.
You’re on the right track in buying a profitable property if you find yourself saying ‘yes’ to the questions above. Remember that when you invest in real estate, your intention is to earn and make money because you are investing. Make sure that the property you’re eyeing is profitable before you make a down payment.
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Learn from the experts at iCon2016 this May 28, 2016. Hear the country’s leading experts: BSP Deputy Gov. Diwa Guinigundo, Rex Mendoza, Marvin Germo, Paulo Tibig, Dodong Cacanando and Reina Pama.
