Philippine Daily Inquirer
By Michelle V. Remo
August 25, 2012
With interest rates at historic lows and supply being abundant, the time is ripe for investing in real properties.
Contrary to common notion that it is fit only for big enterprises and the extremely rich, the property business is also something the young professionals and the not-so-rich can engage in.
â€œWhile an individual is young, that is the best time to start building oneâ€™s property portfolio,â€ Carl Dy, Property sales coach and Ayala Land Premier sales director tells SundayBiz.
Ayala Land Premier is the developer of the groupâ€™s most expensive projects.
At 34, Carl already has several properties in his portfolio from which he earns extra income, mostly from rent.
The property sector in the Philippines has continually grown over the past three years as evidenced by the growing number of condominium buildings among other real assets.
Because Asia is seen to continue driving global economic growth in the years to come, emerging markets in the region like the Philippines are expected to be keeping a robust growth as well.
Carl says that at a time of economic boom, the property sector is one of those that benefit the most. As incomes rise, he says, demand for properties grows as well.
Given this backdrop, he says, business-minded individuals should easily see the income opportunity over the medium to long term from investing in real properties.
â€œStars are aligned right now. Because of the economic boom in Asia, the benefits are trickling down to the Philippines. Almost all sectors are enjoying good business, and the property sector is not exempted,â€ Carl says.
Carl, who grew up in Binondo in Manila seeing his parents run a hardware, says even a young professional like himself can engage in the property business. The business is actually much easier than other types, he opines, as it requires less management effort compared to, say, running a restaurant.
Medium to long-term return
However, Carl says, running a property business requires patience as far as generating income is concerned. Unlike other businesses that could generate profits within the short term, the property business is meant for those who have the patience to wait over the medium to long term to generate significant income.
For instance, one way to earn from the property business is to buy a piece of land, let its value appreciate over the years, and then sell it. He says the increase in the price of land can be significant over the years. Such a strategy does not entail too much management effort, but requires the skill of waiting, he says.
Another way to earn from the property business is to buy an assetâ€”be it a house and lot, a townhouse, or a condominiumâ€”and have it rented.
A young, self-supporting professional may not be able to buy a property in cash, and so what he can do is pay for the property in installment basis.
He may not earn significant income in the initial years, Carl says, especially since monthly amortization is still being paid. The income generated from rental of the property will mostly be used to pay for the amortization, he adds.
But once the years of amortization are over, Carl says, the owner may fully enjoy passive income from his property, the value of which will have already increased significantly over the years.
â€œOne just needs patience. Instead of thinking of not being able to generate profit in the initial years, one should think that he is able to fully pay for a real property at almost no cost (because the one renting is the one effectively paying the amortization),â€ he says.
Depending on appetite and financial capacity, Carl says, an individual may opt to buy a few properties and rent those out to generate much more income in the years to come.
Carl says there is an option for property owners to rent their assets as fully furnished ones. Furnishing a residential property gives it much more value and allows owners to impose higher rent and thus generate better income.
The property expert also says owners must learn the value of taking care of tenants. If tenants have requests, say household repairs, the owners should agree as long as those are reasonable. It could be regretful if a tenant, especially one who religiously pays rent, leaves because of dissatisfaction, he says. Having no rental income for a month or two because a tenant has left and because a replacement has yet to be found could be much costlier than having granted the old tenantâ€™s minor request, Carl adds.
The cheapest is not always the one that gives the best value for money
On choice of property to invest in, Carl says one should not solely consider price of an asset. Not all cheap properties give the best value for money. He says a property that is of good quality and is comfortable to stay in could easily attract potential tenants and could give better income opportunity in the future.
â€œA cheap property is not always the one with good value,â€ he says. He says this is the reason a buyer should also take into account quality of the property because one that has good quality also appreciates faster in value over the years.
Carl, who is an architect by education, says another important thing to remember in being in the property business is the need to know a product before buying and investing in it. Knowing the product means knowing the developer, the profile of its location and of the people living in the area, and the cost of living in the location of the property, among others. Knowledge of said information helps better determine accurate pricing for a property, he says.
Properties vs Portfolio assets
The beauty of buying properties instead of liquid assets, such as securities, is that real assets are difficult to lose and waste, Carl says. Because selling a property takes much more time than withdrawing cash from a bank or selling a stock, the investor is forced to be engaged in an investment for the long term.
â€œUnlike in the case of cash or portfolio assets, one does not have the urge to sell a real property just so he could buy stuff he wants but does not really need. Investing in real property forces one to become a long-term investor,â€ Carl says.
Investing for the long term can generate significant income that could help secure oneâ€™s future, he says. Since the property business is a long-term venture, starting out young gives one an edge over the others, the property guru adds.