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Condo Investing: 5 Factors to Consider in Real Estate Investing

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More and more people are now recognizing the potential financial rewards that they could attain from real estate investing. It goes without saying that there are many benefits of investing in properties like condominiums that outweigh the costs and if you are a real estate investor, you could be earning a steady flow of income that would help you attain your financial freedom in the long run.

You might have already thought about quitting your 9-5 job and just focus on becoming a full-time real estate investor or save up for your retirement. Whatever your reason is in investing in real estate, think that you are on the right path to fulfil your financial goals. As they say, real estate is the most stable and lucrative investment that you could ever have.

It takes one rental property to establish your real estate business and get yourself a reliable source of passive income. Any appreciation in the market value of the property comes only as an additional benefit from holding the investment over time.

If you have extra money and the property prices in your area are low or rent rates seem profitable, you may choose to purchase a property to flip or acquire a rental property to help generate a monthly income. It’s important to stay within the average rental rate for your area that is appropriate to the quality and features of the property.

Most people purchase a condo to be a personal residence, vacation home, or a solid investment. Condominiums are especially attractive for beginner investors or people who want turnkey properties. This is because condominiums tend to require lesser repairs, often have maintenance included, offer a range of modern amenities, and can be cheaper than single-family homes in the same market.

There are a lot of benefits in investing in real estate especially in condominiums. A condominium is a good investment because the higher the rental income the condo generates, the higher the prospective value appreciation in the future. Aside from the rental opportunities, condominiums or any other property in that matter, has high resale value. With your property investment, you can easily make millions when you decide to sell the condo several years after buying it. Simply put, investing in real estate is like finding one of the ways to multiply your money without the need to work too hard.

There are a lot of people who like to buy real estate property because of fewer maintenance costs. With condominiums, since residents live in a community, most of the costs are shared, so you will end up paying only a fraction of what you would have paid if you invested in a different type of property. Aside from this, investing in a condo gives you exclusive access to amenities that only the residents can enjoy.

Most condominiums have fitness gym, swimming pool, function room, and study hall for use of the residents. With the recent pandemic, condo developers are now seeing the value of having more outdoor spaces, garden, roof deck, and larger common areas for co-working as well as virtual meetings and classes.

Condos tend to be found in places with high property values like crowded cities, university areas, and vacation spots – where real estate is scarce and it makes sense for people to pool their money together to maximize resources.

But, just like any other investment, there are always risks involved, risks that the rental property may not generate the returns you expected. That is why it is important for you to have a good understanding of the condo and the rewards versus potential risks before jumping in with both your feet.

With all the preselling condo projects available in the market, you might be eyeing one to invest in. You could buy a condo project during pre-construction and see the value appreciate before it gets built, but if the market dips as happens in any investment cycle from time to time, the flip side is that you may have to wait until the market comes back to get the property value appreciation you were anticipating. Aside from this, you should also take into consideration the acts of nature or construction issues that could delay your project’s completion date, tying up your money for longer that you have expected.

Most condo developers are offering low reservation fees. A lot of first-time investors get lured into reserving a property. The risk is that after committing to a purchase, reserving the property, and putting up non-refundable reservation payment, you might have a change of plans. If you don’t close the deal, you will lose the reservation payment.

Another thing to consider is once the construction is complete and the property is operational, your condo unit could generate less revenue that what you have anticipated. This might be because of the new competition in the market or the tourism in the area might be down. These will definitely have an effect on your condo’s rental opportunity.

While it is nice to think that buying a rental property provides an alternative source of income, it takes effort on your part to spend some time studying the area. You have to remember that the property that you are eyeing will be yours for the next five to twenty five years. The condo property will eventually become part of your life so you really have to take some time to research about the property, location, and the community and learn about real estate investing.

If you buy the right property, there will never be a problem when you want to sell it later, but if you buy the wrong one, it would be hard for you to sell it at the price you want. So, before you even set forth with buying your first rental property, you have to make sure to do market research and consult a real estate professional to guide you.

If you want to reap the financial rewards from investing, you have to make wise and calculated real estate investment decisions in order to grow and diversify your portfolio. Real estate investing is all about studying your potential investment before closing any deal.

Do you think condo living and investment is right for you? You need to consider your personal goals and financial situation to determine if the potential benefits outweigh the possible risks.

We have enlisted 5 things that you must consider before buying and investing in a condominium.

1. Research about the property and know your market

The most important thing to consider in selecting an investment property is the location, location, location, where you can identify your potential market. For example, if you are investing in a condo unit in Taft, Manila, your target market may university students and healthcare professionals, but if you are investing in a condo in Quezon City, your target market may be young professionals.

The location of your condo property will affect the sustainability of your rental income as well as your ability to negotiate for a higher monthly rent. A good property location is one that offers convenient access to basic needs of your tenants such as a convenience store, coffee shop, good restaurants, public transportation, hospitals and schools.

2. Check on your budget

Once you have determined the location of the property and your target market, your next step is to assess how much money you are willing to invest. As a general rule, the bigger the amount you spend, the higher the return on investment you should expect.

You have to remember that your budget extends beyond the cost of the condo unit. You also have to consider allotting budget for the possible renovation of the condo unit, as well as the costs of the furniture that you will be needing.

As a first-time investor, you need to manage your budget against your expected rental income.  It is always beneficial if you can manage to lower your investment budget. The lower your investment cash out, the higher the chances that you will get a good return on investment.

3. Assess the Return on Investment

Before purchasing a condo property, ask yourself - if you are going to take out your savings from the bank and invest in a condo rental property, you should make at least higher than what you are currently earning from the bank.

If you are buying a brand new condominium, the first thing you need to assess is your expected return on investment (ROI). How much return on investment would the property generate based on the selling price and rental rate in the area? Will the return maximize your investment considering all the risks?

The key to achieving high return is when you have low investment outlays. If buying a brand new condo is too high for you, you may also consider buying a secondhand condo unit in a very good location, where you have room to negotiate for lower costs.

4. Check on your options to leverage

There is nothing wrong with investing using your cash, but if you can borrow to buy a condo rental property, you can maximize your cash investment.

With financial leverage, you can possibly buy two or three condo properties for the budget of one condo unit. For example, if your budget is P2 million to buy a single condo unit that you plan to rent out, you can buy two condo units by paying P1 million for each as 50 percent down payment and borrow the balance from the bank.

You can also buy three condo units by paying one-third of the price as down payment and borrowing the rest from the bank. When you borrow to finance a condo unit, the bank actually helps you do extra due diligence to make sure that the title of the property you are acquiring is clean. This is also especially helpful when you are buying a secondhand property, where you need to validate the history of ownership.

5. Know the loan terms

When you decide to finance your condo investment by borrowing money from the bank, check and compare the different bank deals. The ideal loan deal that you want to get is the one that can give you the lowest monthly amortization possible.

Of course, you want your monthly rental to be at least equal to your monthly amortization so you do not have to cash out anything, but it would be better if your monthly rental is higher than your amortization so that the extra cash will be your income.

Your monthly amortization is a function of the term of the loan and the interest rate. The longer the number of years that you need to pay the loan and the lower the interest rate, the lower the amortization will be.

Banks usually give a maximum of 15 years for a condo unit and an interest rate that can be subject to annual re-pricing or fixed for a number of years.

You will need the bank to compute for you the monthly amortization based on the terms offered and you can evaluate if it is financially feasible for you to start investing in a condo.

There is no doubt that the housing market is a lucrative business for many investors. Many realize the benefits of condo investing that definitely reap financial rewards and security in the long period of time. If you made up your mind after reading about the things to consider in condo investing, check out Vista Residences condominium properties that are worth investing.

Vista Residences, the condominium arm of the country’s largest homebuilder Vista Land & Lifescapes, Inc. has ready for occupancy and pre-selling condominium projects that are strategically located within inner-city areas, in close proximity to developed business districts and prestigious universities.

What will further prime Vista Residences condominium projects aside from their centrality and proximity to major transport hubs, educational institutions, medical and business establishments, restaurants, and shopping malls are the infrastructure improvements that would make these properties more accessible from neighboring cities.

For more information on Vista Residences, visit www.vistaresidences.com.ph, follow @VistaResidencesOfficial on Facebook, email [email protected], or call the Marketing Office at 0908-9148457.