How do you calculate the ROI of your condo investment?
Return on investment (ROI) is defined as “a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments”. By computing the ROI of your investment, you try to measure the amount of money you project to receive relative to the investment cost.
Knowing how to calculate the return on an investment venture can help you make an informed decision. This can guide you in choosing between good and not-so-good investments.
If you’re planning to invest in a condo, it’s highly recommended that you assess your options well. Know the potential ROI, the “recovery period” or when you’ll likely recoup the amount you’ve invested, the recurring expenses in maintaining your investment, if any, and other factors that could affect your condo investment.
This article will share tips on how to compute the ROI on a condo investment to help you decide if it’s all worth it.
What is an ROI?
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ROI is a popular profitability metric that evaluates how well an investment has performed. It is calculated by dividing the net profit or loss of an investment by the investment cost, expressed in percentage.
You may use ROI to compare the earning potential of your condo against other condos or other real estate investments.
A positive ROI is a sign of a good investment as it suggests earnings while a negative ROI implies a net loss.
One limitation of using ROI is that it doesn’t consider the period of time an investment is held. You may compute positive ROIs on several investment options, but the calculation won’t give you the info on how long you’d need to hold before receiving earnings.
Ways of calculating ROI
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By knowing the potential ROI of your investment, you will have valuable information on whether it’s within your financial means and if it matches your investment goal. A venture is within your means if you’re able to cover the costs. It matches your goal if the ROI hits your target.
Here’s a simple ROI formula you may use the know the earning potentials of your condo investment:
ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment
Where,
The current value of investment is referred to as the money you get from the sale of the investment of interest. For condo investments, this may be the fair market value of the property.
The cost of investment includes the price of the condo, the taxes and fees, and other expenses you incurred in acquiring the property. If you’re leasing the condo fully furnished, you should include the cost of furnishings, appliances and furniture.
The cost method
You may use the Cost Method in computing your ROI by dividing the investment gain in your condo by your initial costs.
ROI = Investment gain / initial costs
This method is usually used when a property is bought in cash since you’re able to compute all initial expenses including the price of the property, taxes and charges, repairs and rehabilitation, furnishings, etc.
The out-of-pocket method
Another way of computing ROI is through the out-of-pocket method where you divide the current equity of your condo by the current market value.
ROI = Current equity / current market value
This method considers the downpayment and interests due if the property is bought with loaned money. You add these to the investment cost to come up with your current equity.
What is a good return on investment for real estate investors?
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A good return would depend on a number of factors such as your target earnings and your risk profile. You may aspire for a 10-15% ROI on your condo investment, but others may want more. Also, if you’re willing to take more risks, you might expect a higher ROI. Risk-averse investors are happy with even lower returns as long as they don’t need to take on as many risks.
One thing you should consider, however, is the purchasing power of your money. It’s advisable that you opt for investments that could provide returns that beat the inflation rate. Inflation is the increase in prices of goods and services.
If the current inflation rate is 8.7%, choose an investment that has the potential of returning more than this rate.
Condo investing tips newbie investors should note
A condo is a good real estate investment especially with the rising popularity of vertical housing, lifestyle amenities and staycation.
You may buy a DMCI Homes condo at a pre-selling price and resell it at the higher market rate. You may also lease out your condo for a steady stream of rental income.
Here are condo investing tips you should keep in mind:
1. Know the costs involved
Aside from the price of the condo unit, there are other costs you need to consider when buying a condo such as the documentary stamp tax, transfer fees, registration fees, Assurance fund, administrative and processing fees and real property tax.
If you’re taking out a loan to buy a condo, you should also take into account the associated interest expenses.
There may also be additional costs on your type of investment venture. For instance, if you’re renting out your condo, you may have leasing service expenses.
2. Review your overall finances
It’s important to assess your financial position before venturing into any type of investment. This is to ensure that you will not use your emergency funds and savings to pay for your condo investment.
If you’re getting financing, make sure you’re financially able to pay your amortizations on time to avoid costly penalties or worse, default.
3. Assess your financing options well
You may buy a condo in cash, through in-house, bank or PAG-IBIG financing, or via a rent-to-own program.
It’s recommended that you study the pros and cons of each option before choosing your financing method. Know the interest rates, the fees, the documentary requirements, etc.
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4. Decide if you’re reselling or leasing the unit
To earn passive income from your condo, you either resell the unit or lease it out. Condo are sold at a lower rate during the pre-selling period. This is your chance to snap up “discounted” units that you may sell at a higher price in the near future.
You may also rent out your condo for rental income. In DMCI Homes, you may enroll your unit in DMCI Homes Leasing where a team of leasing specialists could handle all your business needs from marketing your condo unit to collecting rent from your tenant.
5. Choose the right location
If you’re getting a condo for investment purposes, it’s important to choose an ideal location attractive to your target buyers or renters. Key cities in Metro Manila are top choices for young professionals and families with kids studying in colleges and universities. Meanwhile, if your target market are vacationers or transient renters, you may opt for condos in tourist destinations like Boracay and Baguio City.
6. Select the type of condo unit
You may choose a studio, two- or three-bedroom condo unit for your property investment. A studio unit is ideal for young professionals and students looking for accessible accommodation. A two- or three-bedroom condo home fits the needs of small families who need a safe, secure and healthful community.
The bigger the unit, the higher the price. Choose the one that matches your budget and needs.
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7. Identify your target market
In any investment venture, it’s essential to clearly identify your target market. Know their demographics, motivations and pain points.
If you plan on reselling your condo unit, who are the people with the financial means to buy homes? If you will venture into a leasing business, who are potential renters of your condo?
Know who are selling to so you could devise your marketing plans well.
8. Prepare the unit to fit your target market
You may resell or rent out your condo bare, semi-furnished or fully furnished. The more furnishings you add, the higher the price you could resell or rental rate you could charge.
If you’re planning on leasing your unit to transient or short-term renters, it’s recommended that you provide everything needed – furnishing the unit with home essentials, appliances and furniture pieces. A bare or semi-furnished unit is preferred by long-term renters to give them the flexibility to design the space.
You have a wide range of condo options in the Philippines. However, there are only a few that could truly help you earn investment income. Choose a condo developer that’s reputable, reliable and delivers only quality homes.
DMCI Homes Condos you can invest in
DMCI Homes, one of the leading property developers in the Philippines, has a wide selection of premier condo projects in key cities nationwide. You may go for a cozy condo home in the backwoods of Baguio or a unit in a resort-style condo community in Quezon City.
Here are some of selections for your condo investment:
1. The Calinea Tower - Caloocan City
Photo courtesy of DMCI Homes
Location: M.H. Del Pilar Street, Grace Park, Caloocan City
Development Type: High Rise Condos
Architectural theme: Modern Contemporary
General facilities: 24-hour Security, Convenience Store,
Entertainment Room, Game Area, Landscaped Gardens, Laundry Station, Open Lawn/Picnic Grove, Perimeter Fence, Pool Deck,
Pool Shower Area, Provision for CCTV Cameras, Sky Park, Standby Electric Generator, Water Station, Internet in Units and Common Areas
Site Progress: Under Construction
2. East Ortigas Mansions - Pasig City
Photo courtesy of DMCI Homes
Location: Ortigas Avenue, Pasig City
Development Type: High Rise and Mid Rise Condos
Architectural theme: Asian Boutique
General facilities: 24-hour Security, Convenience Store,
Landscaped Gardens, Laundry Station, Perimeter Fence, Kiddie Pool, Lap Pool, Children's Playground, Clubhouse,
Pool Shower Area, Provision for CCTV Cameras, Standby Electric Generator, Water Station, Internet in Units and Common Areas
Site Progress: Ready for Occupancy
3. The Celandine - Quezon City
Photo courtesy of DMCI Homes
Location: A. Bonifacio Avenue, Quezon City
Development Type: High Rise Condos
Architectural theme: Modern Contemporary
General facilities: 24-hour Security, Arrival Court, Convenience Store, Entertainment Room, Fitness Gym, Function Hall, Game Room, Gazebo/ Cabana, Jogging/ Biking Path, Laundry Station, Leisure Pool, Lounge Area, Open Lawn/Picnic Grove, Perimeter Fence, Pool Deck, Pool Shower Area, Provision for CCTV Cameras, Roof Deck, Water Station, WiFi Access
Site Progress: Ready for Occupancy
4. Alder Residences – Taguig City
Photo courtesy of DMCI Homes
Location: Banyan Road, Acacia Estates, Taguig City
Development Type: High Rise Condos
Architectural theme: Modern Artisanal
General facilities: 24-hour Security, Convenience Store, Entertainment Room, Fitness Gym, Game Room, Gazebo/ Cabana, Grill Pits, Jogging/ Biking Path, Landscaped Gardens, Laundry Station, Lounge Area, Perimeter Fence, Pool Deck, Pool Shower Area, Pool Water Slides, Provision for CCTV Cameras, Standby Electric Generator, Co-working Space, Tree Court, Van Shuttle Service, Water Feature, Water Station
Site Progress: Under Construction
5. Allegra Garden Place – Pasig City
Photo courtesy of DMCI Homes
Location: Pasig Boulevard, Barangay Bagong Ilog, Pasig City
Development Type: High Rise Condos
Architectural theme: Modern with Moroccan Inspiration
General facilities: 24-hour Security, Arrival Court, Convenience Store, Entertainment Room, Fitness Gym, Function Hall, Game Room, Gazebo/ Cabana, Grill Pits, Landscaped Gardens, Laundry Station, Main Entrance Gate, Open Lawn/Picnic Grove, Perimeter Fence, Pool Deck, Pool Shower Area, Pool Water Slides, Provision for CCTV Cameras, View Deck, Standby Electric Generator, Water Station, WiFi Access, Sky Promenade
Site Progress: Under Construction
6. Cameron Residences - Quezon City
Photo courtesy of DMCI Homes
Location: Mapalad Street, Barangay Mariblo, Roosevelt Avenue, Quezon City
Development Type: High Rise Condos
Architectural theme: Modern Tropical
General facilities: 24-hour Security, Arrival Court, Children's Playground, Convenience Store, Entertainment Room, Fitness Gym, Gazebo/ Cabana, Landscaped Gardens, Laundry Station, Lounge Area, Main Entrance Gate, Perimeter Fence, Pool Deck, Pool Shower Area, Pool Water Slides, Provision for CCTV Cameras, Roof Deck, Standby Electric Generator, Water Station, WiFi Access
Site Progress: Under Construction
Key takeaways
Investing can be overwhelming for newbies. There’s a lot of opportunities that choosing the right one can be a real challenge. You may invest in stocks, bonds, mutual funds, jewelry and real estate properties. For real estate, you may explore investing in a condo unit. To help you make an informed decision in condo investing, keep in mind these tips:
- Compute the ROI of your condo investment. Use the formula that will give you the information you need. This will help you visualize where your current investment is at.
- Consider all necessary costs associated with your investing plan. It’s no secret that investments require a certain amount of money. That's why being aware of the necessary costs can prepare you and your finances.
- Do your own research in choosing the right condo unit for you. Ensure that the condo you want is not only within your budget but also one that caters to your current lifestyle.
Visit the DMCI Leasing website today to know how to start with your condo investment. To stay up-to-date on DMCI Homes Leasing condo options, remember to check out our social media accounts too: Facebook, Twitter, Instagram, and YouTube.
