KW: Know What
4 Most important things to consider in Real estate investing
By: Alejandro Mañalac, REALTOR, CIPS
Keller Williams Manila Bay Area
Most of us may have forgotten a lot of things that we have done in the past but almost everyone remembers even the smallest detail when we made our very first real estate purchase. Whether we made a good decision or otherwise, based on whatever information we gathered or provided to us by our agents or brokers, we will never forget that decision making process that we went through. The reason for this is that the decision to buy or invest in a first home is one of the biggest if not the biggest decision that a person will make in his or her life. It will be a long- term commitment, not only in terms of paying off the mortgage but the fact that their lives and lifestyles will revolve around that property. The comfort and convenience inside their homes, the security, safety and reputation of the neighborhood, the proximity to the children’s schools, the daily travel time to the workplace, the development of the area and many more. As an investment wherein, we expect returns either from recurring rental income or profit from reselling the property in the future, there are even more things to consider. Thus, we suggest that you remember these 4 important points:
Know What property suits your investment objectives.
How much can you afford for equity and how much can you commit to settle the balance for a given period. What returns are you expecting? Is there a healthy market for long or short-term rentals? Will the rental income still provide a positive cash flow for you after considering the monthly amortization and other related expenses? Are there developments in the immediate vicinity, on-going or planned, that will positively affect the property prices for possible future resale?
Know Where to invest.
Location, location, location. It was true then and still very true now. However, what really gives the investors the edge is the advance information that they have regarding the location of properties. A bustling city maybe very good but one has to consider that there is also such a thing as a ‘matured market’ where upward price movements will not be as active and promising as in an emerging market. A certain location may look either too bare or too depressed right now but the government or a giant developer may already have plans for development or redevelopment of the area to make it a new progressive and vibrant township project that is complete with world class facilities.
Know When to come in and also when to get out.
The element that would complete the Investment Trinity of real estate is TIMING. Thus, to make LOCATION and INFORMATION work, one has to know when to invest in a certain location or in a certain project. While pre-selling is the most common option, as this is the one that is pushed hard every day by the agents handing out flyers, messaging you via SMS or sending you emails, there are now even better options that a lot of people still do not know. In pre-selling projects, you have to pay a certain percentage over a number of years (usually co-terminous with the construction period) then pay the balance, either by cash or through Bank Financing once the unit (usually not necessarily the entire project) is turned over. Now, there are RFO (Ready for Occupancy) units that can be acquired with very small equity, which is almost the same as your deposit in a rent-to-own unit, then the balance can be through bank financing. In some cases, the rental rates in those areas or projects are much higher than your monthly amortization which gives you a positive cash flow. In this set-up, you already enjoy monthly rental income right after the bank releases your loan to the developer instead of making those monthly payments for 4-5 years while the project is under construction. There are actually more very interesting options that you can explore, but that is if your agent or Broker really knows the industry, the market and are not just selling exclusively for their developers.
Know Who to get your advice from.
If you have a serious illness, will you be consulting an intern, an unlicensed practitioner, or worse, a quack doctor? They may have been practicing discreetly for a long time, but they are not governed by any regulating body and thus do not comply with any rules, laws or ethical codes. They do not have licenses or reputations to lose, and has no accountability to anyone. Moreover, they have no organizations or associations to police them. The license is a proof that a practitioner has undergone the required training to provide you with the necessary information about your best investment options and the protection of your rights as well as your obligations are property owners. But just having a license is not enough. Active professional experience and a firm grasp on the market really adds to a Broker’s capability to provide more factual information to help you, as the investor, decide on the best options. Equally important is a Brokers wide network of both clients and agents. This is the best evidence of your Broker’s trustworthiness and reliability since everyone is eager to deal with him. His network will also play a very important role when that time comes that you decide to sell your unit.
What you need is a very well trained licensed professional who is a local expert that is globally connected to guide you in your very important decision in making your real estate investment.