Investing in real estate comes with a myriad of benefits. And while such an idea makes people think of buying and selling commercial and residential properties and houses and lots for sale, the topic of real estate investment is a broad one; however, this shouldn’t discourage you. If you’re looking for a brief comprehensive guide for general information on real estate investment Philippines, then this blog was made for you.
What Is Real Estate?
Information on real estate property investment comes with a lot of technical terminologies, so it’s important to remember the differences in the definitions of key concepts. First and foremost, it’s significant to remember the differences between land, real property, and real estate.
Land
Land specifically refers to the earth itself and the atmosphere directly above it. Land comes with natural resources such as water, trees and vegetation, and minerals. Moreover, the characteristics of land revolve around its “indestructibility, immobility, and the geographical uniqueness between each parcel of land.”
Real Property
Real property specifically refers to a parcel of land and “any additions that are permanently attached to the land.” And this includes the “rights inherent to their ownership and usage.” Furthermore, the owner of a particular real property has “all of the rights of ownership,” as well as the “right to lease, enjoy, possess, and sell the land in discussion.”
Real Estate
Real estate is defined as land with any and every permanent improvement or structure – such as houses, lots for sale or buildings – that is installed to such land. The changes or additions made to the land which affect the value of the property are called improvements; and an improvement can range from installed houses, roads or sewage systems.
The following are the different main kinds of real estate:
- Special Purpose These refer to public property that inhabitants of the community use, such as “schools, parks, libraries, cemeteries, places of worship, etc.”
- Land These specifically refer to vacant land and underdeveloped property. These also include “agricultural lands such as farms, ranches, etc.”
- Industrial Real Estate These refer to property purposed for “storage, distribution, production and manufacturing, and the like.”
- Commercial Real Estate These refer to property purposed for business and commercial activities. Examples of these include “restaurants, malls, offices, gas stations, grocery stores and supermarkets, theaters, and the like.”
- Residential Real Estate These refer to property primarily used for residential purposes, such as “duplexes, multifamily residences, condos, etc.”
Why Invest in Real Estate?
Allotting resources into real estate investment Philippines is a terrific idea because of the numerous benefits that come with such investments. Good examples of such benefits are steady cash flow, passive income, leverage to be able to acquire more properties to bolster the benefits, and portfolio diversification of the real estate properties you own. In fact, real estate investment trusts (REITs) – which are defined in more detail in the latter part of this blog – even offer “ways to be able to invest in real estate without owning, financing, or operating properties of your own.”
To be more specific, however, the following are key benefits of investing in real estate:
1. The payment terms now have flexibility.
The payment terms for investing in real estate were initially restricted to down payments when it came to purchasing property assets. However, because of the changes brought by the pandemic, real estate developers responded to the need to adapt to the changes by now offering various alternatives for payments. This means that real estate investors at present can now use payment options that are online, convenient, and flexible.
2. There is appreciation (value increase) over time.
Items such as electronic devices or automobiles decrease in value continuously at the very moment that you purchase them. However, it works the opposite way for real estate. Once you purchase real estate property, its value increases over time.
This is mainly because the land itself is limited and further improvements to the land of a real estate property only increase the real estate property’s value (i.e., appreciation). Furthermore, real estate investors can also earn money through “property-dependent business activity” or by selling the property itself.
3. Your investments are within your full control.
When purchasing real estate property, you as the owner have complete ownership and control over the physical assets that comprise the real estate property. There are many approaches on how you can maximize the control you have over the property, such as “using it for storage, selling the property at a greater price, or converting the property into passive income.
4. Wealth and equity are built via safe investments.
Getting into real estate investment is not an area that requires overly extensive business expertise, rather all individuals – especially with guidance and assistance from reputable real estate investment Philippines firms – can earn from such investments. Furthermore, paying off property mortgages (which is discussed in a later section of this blog) are key to building equity and wealth.
How to Invest in Real Estate?
When it comes to investing in real estate, there is mainly a direct and indirect way. Direct investments typically center around the purchase of land, a home, and rental property/rental properties. On the other hand, indirect investments in real estate are made through REITs or via “pooled real estate investments.”
Indirect Investments Through Real Estate Investment Trusts (REITs)
A REIT or Real Estate Investment Trust is specifically defined as a “company that holds a portfolio of income-producing real estate” in which there are different types of REITs. The types of REITs include “mortgage REITs, equity REITs, and hybrid REITs,” which are classified “based on how their shares are bought and sold.” Given this, there are “private REITs, public non-traded REITs, and publicly -traded REITs.”
How Does a Real Estate Investor Earn Money in Real Estate?
Earning via Investing in a REIT
There are many ways of earning from indirect investments through REITs. The most popular way of investing in a REIT however is to “buy shares that are publicly traded on an exchange.” Particularly, income from REITs is earned via “dividend payments and appreciation of shares.” The shares in question are traded just like the shares on the stock market, which makes REITs “very liquid and transparent.”
Paying Off Property Mortgages
The benefits of investing become apparent when you pay down property mortgages. A mortgage is an agreement between you and a lender wherein you borrow money from the lender (i.e., a loan) when you don’t have the money needed to purchase a particular property, specifically a home, at present. If you fail to pay the money you owe – plus the interest you also have to pay that has accumulated over time – then the lender is able to take ownership of the property from you.
Given this, once you pay down a property mortgage, you are able to build equity, and equity is essentially the amount of money that would be returned to you if your property were to be converted into cash. Therefore, paying off your mortgages leads to you fully owning the property you had a mortgage on, thereby building equity, hence building your wealth.
Which Investment Is Best in Real Estate?
Knowing which investments are best in real estate requires awareness of information regarding the factors that influence “real estate availability, investment potential, and prices.”
The following are the factors that significantly impact the value of an investment in real estate in investment Philippines:
1. Interest Rates
Interest rates will help you discern how much money you would need to pay when it comes to taking loans that are related to investing in real estate property. This is especially relevant when purchasing a house and lot for sale that has a mortgage. When interest rates go lower, then the cost of paying down the mortgage that comes with purchasing a house is much lower. This results in an increase in demand for real estate, which makes the interest rates rise again. Hence, knowing such information is beneficial to research.
2. The Economy and its Cycles
The health and state of the economy directly affect the real estate market. This means that economic indicators like “prices of goods, employment data, GDP, and the like” all influence the value of real estate property. An example of this is how renting a hotel room is technically a short-term lease – wherein a lease is a contract where one party “conveys land, services, etc. to another party only for a specific time in return for payment” – in which if the economy is doing poorly, there are usually fewer hotel customers.
3. Demographics of the Area
Data revolving around a population such as race, gender, age, income, population growth, and the like comprise demographics. And being aware of the demographics of the area in which the real estate property is situated in will inform you what investments are best. This is because of the lifestyles of the people in a particular community influence the real estate property available.
4. Government Policies
Real estate property value will of course be affected by government policies, such as “deductions, tax credits, subsidies and the like.” It is through these that the government is also able to increase demand for real estate. More importantly, however, awareness of government policies can help you know about technicalities with the law in real estate.
How Can I Make Money in the Philippines with Real Estate Investing?
In real estate investment Philippines, there are numerous ways of earning money. The following are only a few out of many:
1. Rent out your property for activities and events.
Renting out property is one of the most well-known ways of earning money from real estate. And this doesn’t have to be restricted to renting out property for the purpose of being used as living spaces. Property can be rented out for activities such as filming projects, particularly if the property is located in busy subdivisions and lively cities. Moreover, the property can be rented out for holding gatherings such as parties. As such, earning money from rental income is also a form of passive income which means that you don’t have to do anything besides owning the property.
2. Offer Airbnb services using your property.
Having your investment property listed on Airbnb or any bed and breakfast hosting site is an excellent approach to earning money in real estate if you personally don’t like having long-term tenants in your property. By offering BNB services using your property, becoming a host is profitable in real estate investment Philippines because customers looking for better alternatives for motels and hotels. Furthermore, verified identification is mandatory for Airbnb users, ensuring security in these transactions.
3. Build and improve the property to sell later on.
Another way to earn from real estate is to do what property developers do: build and sell a property. It is important to be aware of the risks and costs that come with this approach, however. This approach particularly involves researching the demographics of the area or land you are planning to build property on, hiring and working with a team of professionals (e.g., contractors, engineers, architects, etc.), securing all the necessary permits, and the like.
4. “Buying and holding” residential property.
This approach is deemed “the most secure form of real estate investment” given that it simply centers around buying property, holding onto it, and gaining benefits from such as the property’s value appreciates or increases over time. Most of the research you’d need to do is regarding the factors impacting the appreciation of the property you’re buying and holding onto, and these factors were discussed in the earlier parts of this blog.
Conclusion
With all the information that comprises this blog, it should be decent enough to serve as background information for getting into real estate investment Philippines. It is important to remember, however, that gathering more information to learn, and most especially gaining experience by doing the actual investing, is best.
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