COVID-19 has reshaped the world. It taught us to check our priorities and for those who have managed to survive, it pushed us to prepare for a more secure future as many global leaders have found that it is just the start of challenging times.
Discussions on condo investment and the calculated risks for prospects of properties are also one of the important points that we can glean from as we continue to live through this global pandemic. Real estate capital rates have already changed globally, in India it yields at 7% to 9%.
Photo courtesy of Mike Kononov via Unsplash
For those of you who are considering investing in a property, especially one that is targeted towards security, you would have already asked yourself if it is practical to buy a condo still after all that you’ve spent during the period of the community quarantines.
Throughout the years, and even more so during this global crisis when the economy is in a trench, it is necessary for shelters to be spaces conducive for being a home and an office, but also financially safe enough that you can afford it thus the need for calculating risk management.
Photo courtesy of Sean Pollock via Unsplash
Real Estate Over the Years
Property investment leads discussions that compare its financial risks against the stock market. However, since the late '60s and even more so now when the global economy has gone through a new Great Depression, real estate funds have come through to show that it is better than the stock market. Though there are periods that bring in expansions and contractions, as the economy usually goes, those who invest in real estate still manage to receive dividend income and capital gains from the portfolio of sales coming from appreciated properties.
In addition, small investors get to work with large-scale enterprises that usually wouldn’t be made possible for them to reach. Time and time again, those who invest in the long-term commitment through real estate have found ways to come through obtaining far greater returns along with competitive dividend income. The real question left is what then are the pros and cons of buying a condo in the Philippines now?
1. Predictable Cash Flow with Lower-Risk Investment
The best condo investments result in predictable cash flow because the possibilities of utilizing this venture are endless. You can rent them out for residential or business purposes or you can gain from them by liquidating them after a few years. All investments are risks, indeed, but condos are still lower than most.
Photo courtesy of Austin Distel via Unsplash
2. Real Estate Can Be Leveraged as It Appreciates in Value
A strategy you can use to secure your prospect is through leverage, which uses borrowed capital and later on, increases its possible return of investment. This is a strength to your advantage especially when real estate values rise.
3. Provides Equity Buildup
Most often than not, condos are bought not just with money but through loans. The more you pay off your loan, the higher the equity builds up. This is a win for the owner at present and even in the long run as the property increases in value as well.
4. Real Estate Coincides with Retirement
Much like any long-term investment such as education and relationships, real estate is a sound prospect when it comes to retirement plans. This end in mind is even one of the most looked over yet essential steps in buying a condo in the Philippines.
Photo courtesy of Josh Hild via Unsplash
5. Real Estate Has Lower Tax Rate While Developers Offer Huge Discounts
Between a house and a condo, there is definitely a lower tax rate on the latter. What’s even more budget-friendly is that condo developers offer huge discounts especially during their pre-selling period. Scouting during this period is great as a condo investment strategy.
Photo courtesy of Nadine Shaabana via Unsplash
How Do You Go About the Investment?
There are pros and cons of buying a condo in the Philippines, truly, but the advantages weigh heavier especially after the coronavirus crisis. To further ease your worry about the risks of owning a condo, below are tips on how to go about this investment and where to go from here:
1. Look to purchase assets at below replacement cost
As an investor, you need to count the cost of buying land as well as the cost of building the property from the ground-up. Is a condo a good investment when so much budgeting is required? Yes, still, but only if you budget right. This entails properly pricing rents which shouldn’t be lower as additional buildings will take higher costs to be developed.
2. Look for leases which have longer lock-ins
Condo investment in the Philippines can be more seamless if you look for ones that require longer lock-ins. Condos, where tenants have already invested in the fit-outs, commit them to it and will, therefore, have lower projections of vacating it.
Photo courtesy of John Matthew Flores via Unsplash
3. Try signing leases with yearly escalations of 5%
You need to be smart about your real estate ventures. Leases usually require a yearly escalation of 15% every 3 years which can seem intimidating to possible tenants. Instead, have them sign leases with annual escalations of 5% so that it can be more gradual and doable for both.
4. Look for Grade-A multinational tenants
A tenant should be trustworthy inasmuch as the developer you’re investing in. COVID-19 has changed even how banks remind us to be safe and secure with our real estate investments. Grade A tenants will look at the rental costs as a small fraction of their total revenues and will, therefore, have the perspective of seeing these as assets more than merely another cost center.
Photo courtesy of Michael Buillerey via Unsplash
5. Purchase only completed lease assets
The biggest possible harm that may befall you is investing in a rogue developer or worrying about looking for a new tenant. To alleviate these leasing and development risks, purchase only completed lease assets.
Photo courtesy of Wengang Zhai via Unsplash
Now that you’re looking into investing in a condo, is it worth the investment? Definitely. There are even top locations all over Metro Manila for investments on real estate. It would benefit you greatly to prepare for the next season of your life and to flesh out your safety and security through long-term investments that you can benefit from.
