November 20, 2018

What is Real Estate Investment and How to be an Investor

By: Melecio Martin G. Arranz IV

Real estate investment is one of the three time-tested ways to build wealth, along with stock trading and small business ventures. Real estate investment is defined as acquiring, developing and managing properties to generate income, rather than owning a property to be a personal residence of the investor. Generally, investors own multiple properties, one of which serves as their personal residence while the rest are used to generate rental income or profit in value appreciation.
Simply put, real estate investment is putting your money to work today for it to increase tomorrow.

With the current construction boom in the country, more people are attracted to invest in real estate now more than ever. This gives plenty of good investment opportunities in condominiums, office and commercial space in the city. But before you join in with the bandwagon, remember that investing in real estate is capital intensive and any miscalculations can make it a risky investment. Here is a quick overview of what you need to know for a successful start in real estate investment.

How Do Investors Make Money in Real Estate?

Primarily, there are two ways to make money in real estate: appreciation and rental income. While there are ways to make money in the real estate industry such as specializing in complex areas like Real Estate Investment Trust and Fix and Flip, these two items account for the good fortunes of the majority of investors.

Real Estate Appreciation

The most common way to profit from real estate investment is buying a property and holding it until it increases in value due to changes in the market.
How does a property increases in value?

It is through supply and demand. The supply of land in the city is limited, but the demand for residential, office and commercial space is increasing, especially with the current construction boom in the country. As an investor, you will know your property increases in value when your surrounding area becomes busier. For instance, a shopping mall or office building built next door will make your property more attractive to potential buyers and fetch you a good profit. That said, real estate appreciation is a long-term game. There will be dips in the market, but remember, it always goes back up.

Rental Income

Renting is the best way to generate a consistent cash flow every month by charging people to use your property for a specific time.

For instance, if you own a house or condominium unit, you can lease out your property to a family, students or young professionals, depending on your location. Or if you own an office building or strip mall, you can lease out to established businesses, professional offices, franchises and startups.

As the property owner, you have the option to hire a property management company to deal with the day to day administration. Or if you have the time and willingness, you can be the landlord and manage the rental property. Remember that in the rental business, you have to put in some actual work.

How To Start Investing In Real Estate?

Since most investors start their real estate investment career with rental properties, here are six steps to start your rental real estate investment.

1. Establish the specifics

Determine how the investment property will be used before you decide the type and location most suitable for your plans. Will you rent it to students, office workers, or tourists? Do you prefer to invest in house and lot units, condo units or parking space? Establishing the specifics will also help you consider the renovations and furnishings you will be willing to spend on the property you are eyeing.

For instance, you have decided to cater to office workers. You will then look to invest in condominiums for sale near the central business districts. Consider taking advantage of pre-selling rates of Palm Beach West – Baler Tower located within the Entertainment City in Pasay to cash in on the growing Chinese market of offshore gaming firms.

2. Acknowledge your financial capacity

When investing in real estate, you will need a sizable capital. After all, quality properties do not come cheap. You will have to be realistic in what kind of property your savings can afford right now, in five years’ time, and in 10 years’ time. Can you pay cash upfront or do you need a bank loan?

If you are going the route of the housing loan, you should know how much a bank can lend you. Check online for the home loan calculator of reputable banks like Metrobank and PSBank. Though the result is not legally binding, it will give you an understanding of how much you can loan from the bank and will guide your search for the property suited to your budget.

3. Choose a developer

As a new investor, you will need all the help you can get. While the internet is ripe with real estate investment literature and guides to help you get started, choosing the right real estate developer will take your investment five steps forward. Acquiring a property from a reputable developer with a solid track record like Federal Land ensures that the property has topnotch quality and convenient location that can fetch a good price in reselling or rental.

Moreover, a real estate developer has appointed brokers and agents that will assist you in every step of property acquisition. These brokers and agents will set site visits, facilitate sale negotiations, handle the pre-sale to post-sale requirements, and furnish legal documents. They can recommend other properties for sale that are relevant to your criteria for your next investment.

4. Write that Check

Depending on your financial capacity, there are various payment plans available such as in-house financing and bank financing. Request a sample computation and determine which among payment plans is the most practical for you. Carefully consider the pros and cons of each plan before deciding.

If you choose to pay in installments through in-house financing, you may be required to issue a complete set of post-dated checks to cover the payments. In case you do not have a checking account yet, set up one. Just make sure to fund it sufficiently for the monthly amortizations.

Take note that before signing the contract or writing the check, that the property matches your criteria. It is also important to make sure that the Transfer Certificate of Title, Deed of Sale, Contract of Sale and other relevant documents on the property are filed on the Register of Deeds.

5. Shape up the Property

For your property to attract the right tenants, it should be in proper condition. This means fixing up any cracks on the walls, any leaks on the pipes, cleaning up any stains, and if you are furnishing the property, providing furniture relevant to the needs of your target market.

A rental property should be as presentable as possible will tell prospective tenants that you are looking out for their needs and might lead to a good landlord-tenant relationship.

6. Manage the Tenants

Once you have the property ready for your tenants, you have to ready yourself to be the landlord. Set clear terms and get it all in a proper lease contract to protect you, your investment and your tenant. Make sure to include in the lease contract the rent price, security deposit, mode of payment, payment schedule, length of lease, provisions on what can or cannot be done with your property, and the rules and regulations tenants need to abide to avoid eviction.

Also, remember to screen your potential tenants before signing with them. Conduct a background check into your prospective tenant’s employment status, financial capacity and criminal record. This is to protect your investment form dubious characters and delinquent payer.

Quick Tips for New Investors

1. Invest ASAP

You have done your research and ready to venture into real estate investment, but waiting for the perfect time? Well, there is no better time than when you are financially capable. Remember, real estate investment is a waiting game: you do not wait to buy, you buy then wait. Do not worry, the market always surges again.

2. Apply for a home loan

Real estate investment is capital intensive. Don’t let the huge price tag hinder you. You as an investor can still acquire property through a mortgage or home loan. Just prepare enough funds to cover down payment, notary fees, taxes and others miscellaneous payments.

3. Be patient

The first few month or years of rental investment will be financially challenging, especially when you are paying the home loan and only have a few renters. But as time goes and renters come, you can increase rent and generate a better cash flow.

4. Read the news

Keep up with the news and market trends to know when is the right time to resell or increase rent. For instance, you have seen in the news about the flood control plans of your local government, you can then plan for a rent increase in the near future.

5. Add value

Although you are a new investor, you may have some good ideas on how you can make your property more valuable. You can add granite or marble countertops to your kitchen; install bathtub to the bathroom, or create a stunning garden to your backyard.

6. Consider a modest venture

Choosing a mid-range investment for your first venture is like playing the “easy mode” in a new video game. A mid-range investment is ideal for first-time investors as these properties come in conservative price tag and in good structure quality that you can sell or rent to a wide market like starting families, students and young professionals. This allows you to test the waters in the real estate industry with less risk and learn some best practices only experience will teach you.

This year, top real estate philippines company Federal Land launched numerous condominium projects you can try your hand at including the Valencia Hills in Quezon City; Palm Beach West in Bay Area Pasay; Peninsula Garden Midtown Homes in Paco Manila; Florida Sun Estate in General Trias, Cavite; and Quantum Residences in Taft, Manila. These condominium developments are in their pre-selling stage. Pre-selling condo units are sold before and during the construction phase, hence, offered at a lower price and flexible payment plans. Acquiring a property in its pre-selling stage can be advantageous for first-time investors as the property is offered at its lowest possible rate. And while the property is built, you can polish your real estate investment game plan.

Investing in real estate may sound tricky and starting a career out of it may be overwhelming. But what is a couple of months’ stress for an asset that will make you money for years?