I often heard the word "INVEST" with my co-employees back when I was still an Engineer in San Miguel Corporation at Ortigas.
But every time I hear that word, I just ignore it because I know that it is a word for the "rich" people who have so much money because at that time, I'm only earning enough to buy whatever I want.
Later on, when I decided to start selling properties, I'm introduced to the world of investing.
My friends invite me to several investments in social media.
I always come across to people who are already investing especially in Facebook groups.
It does not only cover one field but several fields of investments.
I'm introduced to franchising, stocks, bonds, mutual funds, forex, businesses, and real estate as among the investment vehicles I came across over the course of 8 years in my entrepreneurial journey.
But so far, I'm still magnetized to the idea of real estate investing.
You know why?
It's because of the 5 Main Reasons to Invest in Real Estate I listed below.
To know them, just read on.
Starting off with...
WHAT IS LEVERAGE?
LEVERAGE is an investment strategy of using borrowed money to increase the potential return of an investment.
What do I mean by that?
It means that you BORROW money to MAKE money.
Ever heard of the phrase, “It takes money to make money”?
That is one of the old saying about how to be a millionaire.
You’ve heard it from your parents, your relatives or your friends. Right?
Question: So, if you need money to make money, borrow it, right?
Yes, it is possible to do so.
Let’s say you borrowed money from your father, used it to buy a Samsung mobile phone worth P 35,000, and sold it by P 40,000.
In this example, you LEVERAGED your father’s money to make P 10,000.
In real estate, it’s the same thing.
The only difference is the amount you borrow, thanks to financial institutions we have like banks (BDO, BPI Family Savings Bank, Metrobank) and Government agencies (Pag-IBIG Fund and SSS).
HOW DO YOU UTILIZE LEVERAGE ON YOUR PROPERTY?
I’ll discuss financial institutions in another FREE report but for now, let’s continue asking, “How do you LEVERAGE in real estate?”
The answer is, you LEVERAGE by paying only a down payment and you can already use the property as if it is fully paid.
You pay 20% of the total contract price, the seller will give you the keys to the property, so you can use it already. The remaining 80% will be paid monthly after the down payment.
NOTE: 20% is the usual down payment in properties. Down payment differs from seller, financing institution or agreement.
If you compare it to stocks / franchise, you must pay the full amount before the seller gives you the rights to utilize them. It means that these assets have NO LEVERAGE.
Let’s say you have P 100,000 invested both stocks / franchise and real estate, and you gained a 5% growth.
In stocks / franchise, because there is NO LEVERAGE, your ASSET is the same with your invested money, P 100,000. Your ROI will be P 100,000 x 5% = P 5,000.
In real estate, because there is LEVERAGE, your ASSET is usually times five (5) of your invested money, P 1,000,000. Your ROI will be P 1,000,000 x 5% = P 50,000.
WHY IS LEVERAGE ONE OF THE REASON TO INVEST IN REAL ESTATE?
Just the mere fact that you only need to pay a portion of the total price to utilize the property is a very good reason to invest in real estate.
Just imagine that you only have to shell out 20% of the total price then use it however you wanted.
And the bigger news here is, there are sellers who are willing and open to receive only 5% of the total price then you can already use it!!
Can you do it in other investment vehicles?
I think you'll have a difficult time to search for that.
2. RENTAL INCOME
WHAT IS RENTAL INCOME?
Income comes in different forms and ways.
You can get it by working in a corporate job, by selling a product, by providing a service.
But the best income is the income you get with very minimal effort on your part. Right?
And how do you do that?
By purchasing a property and then renting it out.
Buying an ASSET, especially properties, can give you a consistent income regularly by renting it out to other people who need it right now.
Kiyosaki defined an ASSET as "A thing that puts money into your pocket" whereas LIABILITY as "A thing that takes away money out of your pocket".
A property can be both an ASSET and a LIABILITY. The difference would be the person who is paying it.
A property can be an ASSET if it is paid by other people. In our example above, the TENANT is the one paying.
A property can be a LIABILITY if it is paid by you, the owner itself.
Because the property "Takes away money out of your pocket" as defined by Mr. Kiyosaki.
NOTE: Just don't be confused with the definition of ASSET and LIABILITY when it comes to financing. A property is "always" an ASSET in the finance world.
When your property becomes an ASSET, meaning the property "Puts money into your pocket", other people pays for it and not you.
This is called RENTAL INCOME.
RENTAL INCOME is the income that comes from the payment of your TENANT to you, the INVESTOR.
WHY IS IT ONE OF THE REASONS TO INVEST IN REAL ESTATE?
RENTAL INCOME is one of the reasons to invest in real estate simply because it "Puts money into your pocket".
Not only that, your TENANT is the one paying for the property if you are still in the amortization stage.
Imagine you bought a property, i.e. Amaia Skies Shaw - Studio Unit (18.6 sqm) worth P1,807,000.
You paid the required down payment of P 197,641.53, 5% of the P 1,807,000.
When you pay the required down payment, the seller gives you the keys so that you can use/maximize the property.
And the remaining balance is amortized in the bank with P 12,744 per month payment.
Assuming the rent in the area is P 850 per sqm per month, the rental rate is P 15,810.
Just imagine that the TENANT is paying the remaining balance worth P 1,778,774!!
How much more if you paid the property in cash? You've paid the property without any interest whatsoever!
That is why RENTAL INCOME is one of the main reasons why you should invest in real estate.
HOW DO YOU MAKE YOUR PROPERTY A RENTAL INCOME?
In a property, all you have to do is prepare a Rental Agreement, the clean / arrange the property and search for a TENANT.
You can search for a TENANT through different ways like posting a rental sign on the property itself, posting to different social media accounts and websites or just list it down in Airbnb, the most famous rental mobile application out there.
In Airbnb, you can lease out your property on a daily or monthly basis depending on your preference, but many are profiting in the daily rates.
NOTE: Hire a Property Manager to manage your property/ies if you are leasing out your property daily. It may reduce your income because you'll have to pay the person-in-charge, but it will give you Time Freedom to check other properties to invest in.
3. CASH FLOW
WHAT IS CASH FLOW?
CASH FLOW is the remaining money after you subtract expenditures to the income.
It was a finance term, but I heard it from Rich Dad Poor Dad's best-selling author, Mr. Robert Kiyosaki.
I discussed earlier that RENTAL INCOME is one of the reasons why you should invest in real estate.
In real estate, CASH FLOW comes from RENTAL INCOME.
And you'll be happy hearing how you'll get it and why.
HOW DO YOU GET CASH FLOW ON YOUR PROPERTY?
Based on the diagram, TENANT pays RENT.
The RENT becomes the INCOME of the INVESTOR.
INVESTOR pays EXPENSES.
EXPENSES include taxes, insurance, management, maintenance, and mortgage of the property.
INVESTOR receives CASH FLOW after EXPENSES.
In short, you get CASH FLOW through the formula:
CASH FLOW = RENTAL INCOME - EXPENSES
WHY IS CASH FLOW ONE OF THE REASONS TO INVEST IN REAL ESTATE?
CASH FLOW is one of the reasons to invest in real estate because it gives off income that you enjoy freely.
This is what they call PASSIVE INCOME.
PASSIVE INCOME is the income you receive monthly less all the EXPENSES on the property.
And you get it without any hard work after the TENANT rents out the unit.
When you buy a property, lease it out, receive rental income, subtract expenses and enjoy passive income, you are already starting the journey to financial freedom.
Because if you repeat the process, until such time that PASSIVE INCOME is greater than your monthly personal EXPENSES, you already have achieved the level of FINANCIAL FREEDOM!
When you finally achieved FINANCIAL FREEDOM, you don't have to worry about your monthly expenditure and you'll be able to do what you are passionate about!
4. CAPITAL GAINS
WHAT IS CAPITAL GAINS?
CAPITAL GAINS is increasing in the value of the CAPITAL ASSET (which is the property).
CAPITAL GAINS is the difference between SELLING PRICE and ORIGINAL PRICE.
ORIGINAL PRICE is the price when you bought the property.
SELLING PRICE is the price you want to enjoy.
And the formula for getting the CAPITAL GAINS is:
CAPITAL GAINS = SELLING PRICE - ORIGINAL PRICE
HOW DO YOU ENJOY CAPITAL GAINS ON YOUR PROPERTY?
You enjoy CAPITAL GAINS when you spot a property in an area where developments are still going on, especially if the area is being eyed on becoming a Central Business District (CBD) like Mall of Asia Complex (MOA) and Bonifacio Global City (BGC).
The Philippines is being categorized by Mr. Raymond Lim as a country where the real estate economy is in "Summer" season only.
Raymond Lim is a high-impact personality development coach from Singapore with plenty of units both in Singapore and in the Philippines.
Mr. Lim said that there are 4 seasons in real estate.
Autumn, Summer, Fall, and Winter.
Sample: (Shine Residences) January 2017 Price : P 2,850,657 March 2018 Price : P 3,323,221
Possible CAPITAL GAINS: = January 2017 Price - March 2018 Price = P 3,323,221 - P 2,850,657 = P 472,564
Enjoy a P 472,564 just by using or renting out your studio unit here in Shine Residences.
How much will more increase it go when you hold on to the unit for 3 years? or even 5 years? or even 7 years?
WHY IS CAPITAL GAINS ONE OF THE REASONS TO INVEST IN REAL ESTATE?
CAPITAL GAINS is one of the reasons to invest in real estate because of the property's increasing value over time even if you don't do anything about it.
You'll just realize one day that the value of your property has increased twofold or threefold over time due to the developments around the area and the Philippines is still in raw form when it comes to development.
WHAT DO I MEAN WHEN A PROPERTY IS UPGRADE-ABLE?
Ever added additional lighting for your car? Or added RAM and cooling fans to your desktop computer?
Properties are just like that too.
You can change the tiles in the living area, install artistic wallpapers, lower your ceiling, purchase antique furniture or just install a bathtub can literally upgrade your unit just like your car and desktop computer.
These are just a few of the things you can do to upgrade your unit.
But the difference is what you can charge for it if you'll lease it out or sell it out.
WHY UPGRADE-ABLE ONE OF THE REASON TO INVEST IN REAL ESTATE?
When you are already familiar with real estate, you know that just leaving a property over time, just with proper cleanliness and maintenance, its value increases over time.
The ability of a property to be upgraded is one of the reasons to invest in real estate because it can give the owner added value for him and his client.
When people see beauty and art as an upgrade, it can give so much value not just the owner but also the neighborhood.
Your property becomes a role model for other properties to emulate from.
It gives off a vibe that gives positive emotions to the tenant or buyer where they can enjoy personally or with their family.
Moreover, the owner can double or even triple what it can charge just by upgrading it.
And the reason will never be about the money, but because the energy it can give off.
That is where properties can be above all the other investment vehicles out there.
HOW DO YOU ENJOY UPGRADE-ABILITY ON YOUR PROPERTY?
There are numerous ways to enjoy this ability and reap its benefits.
You can do what has been mentioned earlier.
There are three categories for the upgrade.
The first one is to remove old and install new finishing on the property.
As stated in http://encyclopedia2.thefreedictionary.com, Finishing materials are those materials and items used to improve the service and decorative qualities of building and structures.
Some of them are made of wood, paper, glass, plastic, metals, paints and varnishes.
The second one is to buy furniture that will accentuate the interior of your home.
According to www.dictionary.com, furniture is large movable equipment, such as tables and chairs, small accessories or fittings for a particular use or piece of equipment.
The third one is to buy a rare piece of artwork or artifact like sculpture, painting or antique equipment.
For me, the 5 reasons stated are what makes a property make you want to invest into.
There may be other investment vehicles out there competing for our attention, promising us to give us very big returns, but I think the classic and tested real estate still beats the other ones.
And the good news is, the Philippine real estate is still booming because the demand is still high.
And you can count that these 5 reasons will still be the reasons in the coming years to come.