EPAL SERIES - Real EstateI started the EPAL Series last year which is a series inspired by the movie “Dumb and Dumber”.  One guy is a clueless but interested investor and the other guy is the EPAL friend (a know it all type who wants to give advice even if he doesn’t know anything about that particular topic).  Last EPAL Series, I touched on investing in Mutual Funds.  This time we will be covering real estate investment.

Follow the journey of Peter and John who are very good friends.

John is a clueless investor wannabe.  He is thinking of investing in a real estate property but he does not know how to go about it, worse he does not know why he wants to do it.

Peter invests in blue chips in the Philippine Stock Market.   He is also very arrogant know-it-all guy who wants to give unsolicited advice even when he knows nothing about it.  Recently, he bought a condo property but he is also unsure what he will do with it.  He just felt that is it the “in” thing to do.

John: Peter, you know I feel like my money is not going anywhere?  Maybe I should buy a property.  What do you think?

Peter: John, that’s a good idea.  You should buy this property that I also bought and I’m sure in the future you can rent it out if you want.

What is wrong with this scenario?  What would you advice the two friends?  Below is my advice but feel free to give me your own thoughts so I could also learn about a different perspective:

Assess your objective why you are buying the property.  Is it because you want to live in it, rent it out or you want to re-sell the property?  Investing in real estate is more complicated than investing in mutual funds or stocks.

Assess also your financial capability.  As real estate investment is long term, it can be as short as 5 years (which will require a lot of sacrifice in your part) to as long as 20-25 years (for Pag-Ibig housing loans).  Please ensure you have insurance, emergency fund, and paper assets.  What you don’t want to happen is that you need to sell your property at a big loss as you want to dispose of it due to a family emergency.

If you want to live in it, do you want to buy a condo or a house or a townhouse?  Do you want to buy a new property or an existing property that is for sale?  Do you want to buy just a lot and construct your own house or do you want to buy a house and lot?

How many people are going to live in it?  Do you want somewhere in the city or in the outskirts (like South or North of Manila)?  Do you want to live near your workplace or near to an MRT station or near to the school of your children?

Make sure you also know the target market of the subdivision or the property being developed because you may end up with neighbors who are not so pleasant and will just give you headache.  I remember this was the case for one of my friends whose neighbors were not to their expectations.  They just bought it for the low price but in the end they bought a new property as they didn’t like the “ambience” in the neighborhood.

If you want to rent it out make sure you consider location, location and location.  This is not a typo error.  Location is extremely important.

The most common option of renting it out is finding on your own or via an agent or broker a tenant for your condo or house.   You can also take the option to spread by word of mouth to your friends who are based in overseas who would want to rent a place to stay while in Manila or advertise via Facebook and Airbnb or create your own website that you are looking to rent out your property for short term stay.

There are other options like condotel and condormitel which are less of a hassle because they are managed by a 3rd party  for a minimal fee and they will be the ones to take care of your unit, find tenants and just deposit the rent to your account on a monthly basis.  The minimal fee is equivalent to avoiding the hassle of getting tenants, doing repair and maintenance.   Just remember to research on the additional cost for furnishing the unit (as all the units should have the same furnishing).  An example of a condotel is Ascott in Ayala.

Do note to research on the tax exempt property cost which is usually not advertised when Brokers or Agents promote the property.  Refer to the link for more details: ftp://ftp.bir.gov.ph/webadmin1/pdf/60762RR%2016-2011.pdf

Salve Duplito, of ANC on the Money, said: “Invest in property that can generate income which can later on help you buy your own home.”

For myself, I took Salve’s statement to heart and I invested in a condormitel.  I started paying for the down payment last year.  The target market are students in University Belt.  Potential net income is 13,000Php and target turnover date is end 2016.  The potential net income is not big but this will definitely support my plans of creating Multiple Sources of Income (MSI) and paves the way of making my plans of early retirement a reality.  Who knows, maybe my next project will be buying my own house to live in?

Disclaimer:  This is a work of fiction. Names, characters, places and incidents either are products of the author’s imagination or are used fictitiously. Any resemblance to actual events or locales or persons, living or dead, is entirely coincidental.

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