Just finished reading "The Utimate Guide to Property Investing" by Moneysense Magazine. It compiles useful articles whether you plan to buy a real estate property to live in or to lease out, apply for a housing loan, build a house, buy a foreclosed property, get a home insurance - customized for the Philippine market. Resources are from various sectors of the Philippine real estate industry - experts, brokers, developers, architects, bankers, consultants, researchers, buyers, etc. Very educational and easy-to-read.
Sharing with you some of my key takeaways from Moneysense:
Should you invest in a small condo or big condo?
The smallest apartments in each segment earn the highest yields. According to Cruz of Global Property Guide, studios are great investments because for end users, additional space and other luxuries are secondary importance. This is why smaller units close or within CBDs have the highest rental yields. A 30sqm studio has an ave yield of 13-15% p.a. versus a larger studio (40 sqm) which earns slightly lower at 12.9%. Raymundo of Colliers Intl says that this is also true for 1 to 2 bedroom units. He says a 3 bedroom unit in Rockwell may have a higher yield than a 3-bedroom at the Fort, even if it's smaller per sqm.
What to consider when you're buying a property to rent out:
- property condition
- seller motivation
And most importantly, it should give you immediate positive cashflow - meaning, (1) the property is priced below market value so you can earn a profit should you decide to flip it immediately and (2) the monthly rental income is more than the amortization payments to the bank.
What you need to do before buying a property:
1. Legal aspect - Are there any tax arrears? Does the Transfer Certificate Title (TCT) or Condominium Certificate of Title (CCT) have any annotations, restrictions, pending cases or problem in the techinical description? Is the tax declaration under the name of the seller?
2. Financial Aspect - Are there arrears in utilities bills, association dues? What are the costs for repairs? What are the payment terms, amortization payments, interest rates? What's the property's market value (compare it with similar or comparable properties in the market)? What are the rental rates in the area? What is the zonal value so you can determine the taxes? Which taxes will be for the account of the buyer?
3. Physical aspect - Accessibility to roads, PUVs, office, supermarket, school, church, etc. Age and condition of the Property. Neighborhood - is it safe and secure? Feng shui - you may not believe in it but you might have a difficult time selling it to those who believe in feng shui. Is the area flood-prone or near an earthquake fault line? Check the place both during the day and night because some of the things you need to watch out for can only be observed in the night e.g. it's near where garbage trucks park. Check if telco signal is strong, if there's good internet, water and electricity connection.
Steps and requirements when building a home or renovating a condo:
Stage 1: Planning. This is when you talk to an architect or interior designer. Architects normally charge 5 to 10% of the project cost and interior designers about 10%. But some also accept flat fees depending on your negotiation.
Stage 2: Organizing. Meet and choose a contractor. The Moneysense resource recommends to get a contractor that is not related to the architect to have check and balance. Contractor charges are usually 10% of the project cost.
Stage 3. Securing Permits. Before construction, you need to secure building, electrical, plumbing permits from the municipal hall. For houses, you also need to obtain subdivision permit and barangay clearance. For condos, additional approval from the admin and you may be asked to put up a bond.
Stags 4. Construction
Stage 5. Obtain more permits. At the end of construction, you need to secure occupancy, fire and electrical permits.
Though these are tips from industry experts, always keep in mind that as with any purchase or investment, you should use your best judgment, exercise caution and be mindful of any changes in market conditions.
Photo source: foreclosurephilippines.com