Good profitability, stability, and security—these are what sets rental properties apart from any other form of investment. As condominium developers give rise to more and more properties in the Philippines, the real estate industry continues to boom, giving great opportunities for future investors to get wealthy.
However, like any other investment, profiting from real estate properties isn’t a walk in the park—on the contrary, it could be like a hike up the fire exit. You have to learn the nooks & crannies in the market before finally sealing the deal. That said, here are some tips that should help you start your new business venture.
Find a Strategic Location
Location is one key in achieving success in the real estate industry not only for condominium developers but also property investors. When deciding on a property to buy in the Philippines, always perform a background check on the area. A busy neighborhood, low crime rate, booming job market, and tons of amenities such as malls, parks, and leisure & entertainment establishments are usually good indicators that the site is good for rental business. Also, choose a strategic location where tourism thrives like the Bay City, Asia’s new tourism capital, as such areas tend to attract more renters, which means more cash flow for you.
Seek the Help of Lending Institutions
Leveraging in real estate gives you more chance of increasing your profit in great folds. Bank and non-bank financing lets you borrow a certain amount of cash with low interest rates that you can use to pay down a property, which you have to pay back overtime. With this strategy, you can purchase multiple properties given you have an initial budget to use. For instance, if you have Php10 million cash on hand, you can purchase three or more cheaper properties thru bank financing instead of purchasing a single property worth the said amount. But you have to bear in mind that leveraging involves risks so be sure to understand how the process works.
Determine the ROI
When you’re eyeing a property, you have to calculate the estimated return on investment (ROI) based on its cost and rental rate. You can compute the ROI by taking the annual rental rate divided by the total cash investment (initial property cost and other fees). For starters, a 6% return is considered a good ROI. As time passes, you can increase your rent as prices go up due to inflation while the mortgage you are paying remains the same.
Factor In Operating Expenses
Of course, when you determine the returns, you also have to consider the expenses associated with owning a rental property. Property taxes, maintenance, repairs, and management services are only a few of the costs you’ll encounter when managing a property. The key is to break them into fixed and variable expenses so you’ll get a better view of the cash outflow of your business.
Learn the Possible Risks
Like any other investment, owning a rental property also poses certain risks that you should be well aware of. For instance, your property could remain vacant for a period of time, lowering your total annual return. You might also incur huge repair costs due to bad renters. Determining the possible risk ahead of time can help you mitigate them, thus, saving you from big trouble in the future.
Rental properties in the Philippines promises a better future if managed correctly. Sure, there are possible risks, but with careful planning, strategizing, and the tips above should ensure your success in the real estate industry. And with condominium developers initiating new and more innovative projects each year, you’ve got more opportunities to better profit from the business.