The Philippines' real estate market is extremely profitable and contributes significantly to the gross domestic product of the nation. With the real estate investment industry in the Philippines striving in 2023 and is still anticipated to continue on for the next year, knowing which good investment strategy to adopt is something essential for every future investor for the year 2024.
Now, what would be the best strategy? There are a variety of real estate strategies that investors can profit from, each with its own set of pros and cons, and we’ll explore some of the top strategies in this article.
Investing in the Real Estate Industry: Emerging Trends in Real Estate
One of the best kinds of investment is real estate investment; it has long been a popular means to generate income, accumulate wealth, generate passive revenue, and ensure long-term financial security. However, just as there are numerous types of real estate assets—like commercial real estate, single-family, apartment and condo buildings, real estate debt, and other types—there are also many types of real estate investing. Investing in real estate encompasses a wide range of investing strategies, and knowing the emerging trends and projections in the real estate markets that will impact the Philippine real estate market in the near future is crucial and helpful information that would be of great advantage to homebuyers and real estate investors.
Real estate investment strategies to adopt for real estate investors
In this big umbrella of real estate investing, here are a few of the top investment strategies to adopt in Philippine real estate in 2024.
Buy and Hold Residential Rentals
Making use of buy-and-hold residential rentals is one of the most popular ways to profit from real estate.
When you buy and hold, you rent out the property to tenants who are unable or unwilling to purchase their own home. This investing strategy is commonly used because it enables investors to steadily increase their equity in the property while simultaneously creating passive income from rental income since the idea is to hold onto the property long enough for its value to increase before turning a profit on an actual sale. As long as the property is leased to trustworthy tenants, this technique has the advantage of offering a consistent cash flow because of passive income. In addition, investors who stay on a property for a long time—typically several years or even decades—can experience large gains in its value because real estate assets tend to rise with time.
However, in order to buy a property and pay for mortgage payments, taxes, and upkeep costs until the property increases in value, this approach requires a sizeable amount of capital. Not to mention, renting out a property has additional risks, like challenging tenants, property damage, and inconsistent periods of vacancy.
REITs
Another common way for real estate investors to invest in real estate without really owning physical property is through real estate investment trusts, or REITs. You can crowdfund your money with other investors.
A REIT is formed when a corporation or trust utilizes money from investors to buy and operate income properties. Like any other stock, they are bought and traded on the main exchanges. REITs are companies that own and run income-generating real estate establishments such as residential properties, offices, and shopping centers. It allows investors to purchase shares in exchange for a share of the rental income the buildings provide, and since REITs are openly traded, you have greater investing options because your money is more liquid and you can buy and sell assets on the market. To put it another way, you can cash out your investment without the assistance of a real estate agent or a title transfer.
There are some risks associated with investing in REITs, though. Both the market and the dividends paid to REITs are prone to fluctuations. Additionally, compared to when they owned physical assets, investors have less authority over the properties held by a REIT.
Flipping
Flipping is the process of buying a property with the goal of remodeling it and turning a profit on the sale. It has the potential to earn a significant income in a relatively short period of time.
The main advantage of flipping is that it can yield profits quickly—sometimes in as little as a few months. It also gives investors the chance to pitch their design and remodeling skills. However, like buy and hold, house flipping also requires a large amount of funds, especially because you need to purchase the home and execute the renovations. Plus, the renovation process also carries certain hazards, like unforeseen costs, delays, and changes in the market.
You also need to have a sharp eye to spot undervalued homes in real estate that may be repaired at a reasonable cost and then sold for a greater price. This investment strategy is ideal for real estate agents who are already familiar with the current real estate market or buyers who have previously flipped homes.
Wholesaling
For investors with a target market to sell to and the ability to locate real estate investment opportunities, wholesaling is a good option for them to choose.
When you wholesale, you purchase properties for less than their market value and strategically resell them for a higher price. This method does not entail actually owning the property or making any changes to it; rather, you need to be able to identify properties that are substantially underpriced and then find buyers willing to pay for them at a significantly higher price. With this, profits can be made quickly with little upfront investment. The challenge, however, is that you need to be very keen on spotting undervalued properties as well as buyers who are willing to pay a high price.
House Hacking
To put it simply, house hacking means purchasing a home with the goal of living in one part of it and renting out the rest.
It can be an excellent option for new investors to begin their real estate investing career. Living expenses can be drastically cut, and in certain cases, the whole mortgage payment can be covered. You can utilize this supposed passive income in any way you want! You can use it to expand your real estate investment portfolio by saving for a second property or making an expensive purchase. One more advantage of this is that you can study the landlord business while living in your rental, and you are free to leave whenever and turn the house into a long-term rental property if you want.
But like any other strategy, there's a con: managing the property and handling tenant concerns also takes a lot of time and work when you do house hacking. Also, you might have to give up some personal space and privacy as you have tenants on the same property as where you stay.
Commercial real estate
A wise investment can also be made in commercial real estate, such as office buildings, shopping malls, and industrial factories. While they require a larger initial investment, these properties usually generate more rental revenue than residential ones.
Investing in commercial real estate is one of the best ways to make a significant amount of money in real estate, as it can result in larger rental revenue and less reliance on fluctuations in the market. Developers of commercial real estate concentrate not just on flipping rental properties but also on building and enhancing the properties to raise their net income through upgrades and renovations. Furthermore, compared to residential leases, business contracts are typically longer, giving investors more stability and security.
As for its disadvantages, commercial real estate is typically more expensive to buy and upkeep; that's why investing in commercial property also implies a higher amount of risk. Plus, managing commercial properties can be more challenging, and it probably demands certain skills and knowledge to maintain.
Tax Liens
Property tax lien investing is a method of investing in real estate that is done indirectly by purchasing tax lien certificates. Tax liens are a sort of real estate investment that involves obtaining the right to collect unpaid taxes on property.
A tax lien is a legal claim made on a property when the owner fails to pay property taxes. It is imposed by the municipality in which the residence is located. It serves as a legitimate claim to the property for the unpaid sum. These liens can be bought by investors, who will then be entitled to any overdue taxes, fines, and interest. It is a very passive investment that doesn't need any property management and can yield relatively significant profits with a small initial outlay of funds.
However, there is no assurance that the property owners will pay the past-due taxes, and that would mean that investors may have to foreclose on the property to be able to collect the debt. In addition to that, tax liens need specific expertise and experience and may involve legal issues, so it's not something that we should be getting into out of a whim.
Takeaway: The Future of the Real Estate Market in the Philippines
The real estate market in the Philippines is going through a remarkable change. The future for the Philippine real estate industry is said to be positive through 2024 if the government's backing, investor interest, and economic conditions hold out as predicted by real estate specialists and analysts.
It’s time to be a smart real estate investor in 2024 and start adopting the most suitable investment strategy for you. There is no approach that is 100 percent guaranteed—not because this worked for one person means it will surely work for everyone else. Each of them has its own benefits and drawbacks, so remember to carefully assess your own goals, risk tolerance, and financial resources before choosing the right real estate investment.
What do you think works best for you? We wish you luck and prosperous real estate investment stability in 2024!
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