Are condos a good investment?

Are condos a good investment?

Eastwood City, Once an Industrial Area, turned into a Office and Condo Complex with Malls

 

 
There is a balance between risk and return

 

 

What makes a good investment?

Before answering the question “Are condos a good investment?” we have to first define what makes any investment good. For the typical investor a good investment is one that yields the best return on investment (ROI). This means that he wants to find the investment instruments which provide the highest percentage of return for the capital he invests in it. This makes the most intuitive case for how an investment might be considered good, and nobody wants to invest in things that can cause you to lose money!

 

 

The problem with any investment is that you can lose money.

Any investments you make, whether the return on investment is higher or lower, carry with it an amount of risk. There is no such thing as a completely riskless investment. The rule of thumb basically is that the higher the risk, the higher the returns. This means that if you are looking to find the best returns on your investment, you consequently find also the riskiest investments.

 

 

Are good investments always more risky?

No. As you read through this hub you should find out for yourself that the first definition I gave you about a good investment is very incomplete, and as you grow savvy in investing your money you will find out that investing does not always mean you should always find the best return on investment. Although this is your guiding principle, this is not necessarily always true. Another rule of investing is diversifying your portfolio and any experienced investor with enough capital knows that without diversity, you expose yourself to a lot of risk.

 

 

 
Makati, a truly world class city

 

 

So you mean to say I have to own a lot of different investment instruments?

Yes this is exactly what I mean. Portfolio diversity means you are reducing your risk. Let us say you want to invest in stocks there are two companies in the pharmaceutical industry:

  • Company A, a relatively small but entrepreneurial company whose product is a brand new cure for a rare disease, it is still in clinical trial stages, but the reports say this might be the next big thing. They just conducted an IPO last month.
  • Company B, a global conglomerate of different brands of medicine that sell to all continents in the world. They have offices in almost all the major cities, and employ thousands of employees. Their product margins are slowly thinning these past several years, but they are also expanding to other countries. They offer with their stocks one of the best dividends in the pharmaceutical industry.

If you put all your money in Company A, you will gain the best returns since their new drug might start the tipping point that will give their company the break to go global and sell their miracle drug to all corners of the world. However, there is also a chance that their drug does not work, or needs more research and development that might also affect stock prices = your bottom line. Company B on the other hand gives you a stable income but you must expect only tepid stock price growth in years to come since they have saturated most markets already, and you see the trend forming early on.

How do you approach this? Of course, intelligent investing is not simply picking black or white, much like how a casino would work in placing your bets. Unlike gambling, investing means you can diversify your portfolio and expect risk and possible losses in the long term. Obviously, Company A and Company B are not the only stocks available in the market right now. There are numerous industries, businesses both old and new that are there to be invested in. Any experience investor is wise enough to pick a position and hedge their risks depending upon the market and business situations he is faced with.

Why invest in condominiums?

 

 

Investing in condos for sale is my favorite real-estate investment because of their relative affordability, ability to acquire income through rents, and high price appreciation. In this hub I discuss these and my opinions about investing in condos over other investment instruments.

If you compare owning real estate to other investment instruments, we can agree that real estate satisfies a human need—the need for shelter. Stocks, bonds, and the accumulation of cash for bank savings mean only that you own a certain amount or value that is only based on the value prescribed by the financial market. You cannot actually “use” in the strictest sense or satisfy your human needs, using these investment needs. On the other hand, gold, precious metals and gems, and antiques and collectibles are certainly tangible and in certain respects can be used—to decorate your home, or your human faculties. But these tangible investments are as useless as “paper” investments when it comes to satisfying human needs compared to real estate.

 

 

 

It comes to no surprise that owning real estate has been traditionally a means for accumulating more wealth, and several of the Forbes 400 billionaires founded their business empires on real estate. Here in the Philippines, the most prominent billionaires all have a huge stake in real estate here in the country. Thus, owning this investment instrument is a tried and tested means of accumulating wealth.

Affordability for a new investor

However, for the new investor, real estate may seem to be out of reach or too expensive. This first time I talked to a real estate agent, I was dumbfounded by the terms he used while pitching his developer’s condos as an investment opportunity. However, compared to other investment vehicles, investing in condominiums is actually very affordable for you to acquire an assured profit.

 

 

 

The secret lies in the investment of studio units. Studio units give you the option to have the lowest monthly amortization and downpayment, while getting the best return of investment. Studio units right now, located in high demand locations such as BGC (Bonifacio Global City) and Makati costs usually around 12,000 to 15,000 pesos monthly amortization, especially if you invest early in the pre-selling term. Stable fixed rates from banks will also give you a low monthly rate. This is good especially for higher middle income investors who already have a home and would like to start putting something away for their retirement.

It is all about rental income

Something unique about investing in condominiums is that it can gain monthly rental income. There is significant demand for rentable condominiums especially for young professionals, expats, and businessmen in the central business districts. Most of them are typically single and without a family, and usually with a significant amount of disposable income for renting.

For example, if you invested in a studio unit in Makati, the minimum rental income you are likely to expect is 15,000 pesos a month. If you invested in one 2 million studio unit (which is still achievable in given today’s inventory) you would have an annual return on investment of 9% less taxes. This makes it a very good investment and you can use your rental income to add more condo units to your assets, giving you more opportunities to earn more each month.

Of course, this rental income is an added bonus as your property acts as a hedge against inflation. Historically, the real value of real estate goes up at least proportional to the rate of inflation which means your money is secure. Properties however have the propensity to perform better, particularly in prime locations. This is where price appreciation comes into play.

 

 

 

Prime locations mean higher price appreciation

Every developer seeks to establish that the location of their development is a prime location. This is the goal of most real estate investors, to invest in areas where there is a high chance that people will live there, due to a lot of different reasons: being an accessible location, near their places of work, near shops, malls, and other retail, being near good schools and churches, and so on. Your job is to do your homework, and analyze the offers laid out by different real estate developers. Usually, the law of momentum is at work in developing real estate, and therefore, if you see the presence of three or more developers in one area, then there is a higher chance of price appreciation.

Your typical price appreciation for a condo today in the Philippines is roughly 7-8% annually, and that is a very conservative estimate. By the time the unit is turned over to you, you would roughly have a 30-40% price increase in your property. Thus in a span of four to five years, you can actually net a significant profit, and let another buyer assume the balance (in case you opted in for bank financing to pay for your unit). This amount can significantly be higher if you invest in very high demand luxury condos (like in BGC), though the time for most of the previous developments have passed, there are still some new developments—like North of the city that I predict would be extremely profitable in the next half a decade.

These are just some of the reasons why one should invest in a condo. Of course, if you are still unsure, I hope you consult your broker for more details and up to date information.

 

 

Reference: HubPages.com

 

 

7 Responses to “Are condos a good investment?”

  • TJ:

    Hello

    I'm interested in investing condominium. I'm currently living in the US but planning to visit Manila in the near future. Could you recommend some condos price range around Php 1.5M-2M? 

  • Arca:

    Great post! I have the idea on why I should I invest in a condo someday. Interesting points by the way. I am looking forward to read more of your post here.

  • Dave:

    Thanks a lot for this. Appreciated. :)

  • Hello Tina,

    Great post! :)  I just have one question, please. There are developers who actually offer condominium with perpetual ownership. What does it mean? Thanks! 

    Jason

     

     

  • Hello Tina,

    Great post!   I just have one question, please. There are developers who actually offer condominium with perpetual ownership. What does it mean? Thanks! 

    Jason

    • tinaydeluna:

      Hi Jason! There are 2 types of ownership: Freehold or Perpetual ownership and Leasehold ownership.
      Freehold or Perpetual ownership, you own your unit and you can pass it to your heirs, so it would be good to look for projects that offers Freehold type of ownership.

      Leasehold is the type of ownership wherein after a specified period like 50-99 years, the ownership will revert back to the developer. So in effect, it’s like a long term lease.

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