Real Estate Investment 101 By Alexis A. Acacio, contributorAug 11, 2004 Inquirer News Service
REAL estate has become an investment tool for profit. Instead of putting money in the bank or maybe even starting a business, many individuals and families invest in real estate. Many have made their fortune in real estate. There are families who bought real estate many years ago at a few hundred pesos per square meter and the value has skyrocketed a thousand fold.
Most of us are enticed into investing in real estate hoping to make a fortune. But only a few people know there are also pitfalls of investing in real estate. In other words, one can also lose money in real estate investments.
After buying the first home, it is but natural that we buy real estate as an investment for profit. We hope that in the future, it will appreciate in value. Most of us win but some of us lose.
Risks and myths
Real estate investing has associated risks and myths that include:• Risking the family home. It is perfectly normal to mortgage the home when we first have it. But after we fully pay it, sometimes we offer it as collateral to buy another property. The important thing to remember is that we have to repay the debt anyway so that we must make sure that we have an adequate source of funds to handle it. When buying an investment property, it is best to only use the same property as collateral and not risk including your personal home.• Expecting immediate returns. Only in a very hot property market can we double our investment within a year or two. But this may not happen during hard economic times. Yes, real estate appreciates in value but it would take several years before a gain is realized.• You can never lose in real estate. If you buy an investment that has legal problems, then you will be in trouble. Even a high value property that gets infiltrated by illegal occupants could make an investor lose money.• If you cannot sell, then rent it out. Buying and selling real estate is different from leasing. Renting out your property has its own set of problems.
Avoiding the pitfalls
Here are a few basic rules to avoid the pitfalls of real estate investing: • Know what you are buying. Now you have your own home and you would like to invest in real estate. Remember that you have many choices and these choices would mainly depend on what type of investment would be useful for you or financially beneficial for you in the long term.It is not wise to buy a property because it is cheap since it has a specific reason for being so. Most of the time, it is better to buy a high value property.• Know where to buy. Knowing where to buy means you should know the location where you would want to invest. It is always good to invest in an area near your home since it may be convenient for you to check on the property from time to time. Try to assess your future needs. If you have a growing business now, maybe it may be wise to invest in a commercial property where you would eventually put up your office or workshop someday. • Know how to buy. There are many things to check out before you buy a property. If you cannot handle buying yourself and you have many doubts and questions, then it may be wise for you to ask for professional help.• Know when to buy. There is such a thing as timing in buying. Prior to looking at a property, do your homework by listing down what you would need in the future.• When in doubt, ask. Buying real estate is a complicated task. For legal matters, ask your legal counsel. For technical matters, ask your engineer. For valuation matters ask your appraiser. You need a team of professionals to be successful in real estate investing.
Final note: Investing in real estate takes knowledge, patience and, most of all, your personal time. Appreciation and great gains occur over a long period of time. It is best that you plan your finances carefully for many investors have been in financial ruin mainly because of poor planning and irresponsible borrowing. These Ls are reminders for undecided buyers By Alexis A. Acacio, contributorFeb 25, 2004 Inquirer News Service
When is it time for them to part with their money and invest in real estate, they tend to retract and not proceed since they feel that they can still get a better deal in the future. Some of them have been looking for pieces of property for years and up to now, they still have not bought the home of their dreams.
Signals to buy soon
Prior to investing in real estate, it is always best to be well informed and comfortable about the property that we are considering. If you have waited too long to buy one, then think of the Ls as signals that you should buy soon. The various Ls are:
• Land prices. Prices of real estate have been gradually increasing with time. Even if it went down during the financial crisis in 1997, it has steadily gone up since then. If you postpone your purchase, you will have to face a higher price by the time you buy. In buying land, it is best that you fully assess your financial capability to ensure that you can really afford what you would want to have. Buying real estate is a big financial decision and takes a lot of planning and preparation.
• Labor costs. Labor costs are continuously on the rise. With increasing prices of fuel, basic commodities, labor and professional fees, the cost of constructing a house is expected to go up. This increase of production would translate to higher selling price of real estate products.
• Lumber costs. While lumber is the commonly used material, especially for houses in the provinces, its cost and that of other construction materials are also increasing. Prices of steel bars have increased tremendously over the past few months. This of course would have an effect on the completed cost of the project. Many builders are now charging additional amounts from their clients due to the escalation of prices.
• Legal costs. Since real estate prices are going up, then the cost of maintaining these pieces of property also is going up. Many local government units increase taxes on real estate on a regular basis. Transaction costs have also gradually increased over the years and it is difficult to imagine a reduction of these costs.
• Lending rates. Lending rates are still very affordable and are still low. But take note that they have gradually increased over the past few years. When the purchasing power of the peso weakens, interest rates tend to inch up. If you think that interest rates for housing loans may go down, it may take some time before they do.
In borrowing money to finance your home, you may want to be protected against any interest rate adjustment over the next few years. It may be a wise idea to fix the interest rate for a fixed period. Although you might get a rate that is higher, the protection will be worth it.
• Leasing costs. The construction of infrastructure requires heavy equipment that is normally leased. Again, with higher fuel prices, lease costs will go up. Higher lease costs translate to higher total costs for real estate products.
Best time to buy
If you keep postponing the purchase of your home, you may have to continually catch up with the increases in real estate prices. Once you have decided on the property that you want and have looked at your finances, then it may be time to go ahead with the purchase.
After looking at all of the Ls of buying real estate, you will be rewarded with another two Ls: the lifestyle and living space of which you have always dreamed.
Strategies for real estate investmentsBy Alexis A. Acacio, contributor January 28, 2004 Inquirer News Service
IF you have a few investments but have never tried real estate, it is best that you know the benefits as well as the possible headaches of this type of investment. Real estate can be a very good investment but depending on your goals and priorities, it may not be as easy as you expect it. It is not as simple as buying low and selling high and there are many factors that may affect its value.
Before investing in real estate, it is best that you know its nature and its economic and physical characteristics. Unlike the basic commodities that we consume every day, you should be aware of its characteristics for it is not as liquid as cash and should you suddenly decide to sell, a ready buyer may not come in as fast as you would expect.
Characteristics
Real estate is different from the other types of investments and has both economic and physical characteristics:
• Limited. The total land supply available is fixed. For an area, you might only have a few remaining choices for pieces of property that are well placed and constructed. As people buy real property, the number of remaining pieces of property available becomes less.
In investing, you should be fast in making a decision. If it takes too long for you to decide on a purchase, an equally interested buyer may suddenly buy the property that you want.
• Permanent. The improvements that you build on the property are permanent. Remember that should you decide to tear these down, you can no longer build these some place else. Make sure that you design well so that you can build well. Once you have the land improved, your capital gets tied up to it.
• Area Specific. The value of real estate can be very area specific. In Metro Manila alone, some areas are experiencing high growth while some areas had been stagnant for long. Many factors affect land value and you should be aware of these.
• Nonmovable. Land and improvements are nonmovable that can also have value implications. If suddenly you would have to relocate because of job and family situations, your investment cannot go with you. You might need the services of a caretaker to look after the property.
• Durable. Land is indestructible. Even if a fire eats up the improvements, it will still be there and remain yours and can still give you adequate investment protection. Protect it however from trespassers that may occupy and vandalize your property.
• Nonhomogeneous. No two pieces of property are exactly alike. Even if it were the same house model in a subdivision, each one is geographically different. This simply means that each piece of property has its own value character.
Look at highest and best use
When investing, always look at the best use for the property.
If it has the potential of a commercial property, using it for residentialpurposes will not give you the highest returns. By this, you will be able to position the property for maximum benefit.
Many potential investors have missed out on very good opportunities because of too much analysis. As soon as you feel comfortable on the investment after doing your analysis and calculations, then proceed with the purchase with due diligence.
If it is a good deal that you are getting into, more often than not, another investor is also aiming at the same property. Haste makes waste but you should also move fast in a hot property market.
Long-term investment
Remember that you will realize your gains after a few years and you might even lose money if you sell within a year because of the high transfer costs involved.
If you are investing money, make sure that you are willing to tie it for a while.
Final note: A profitable real estate investment requires a lot of knowledge about the process. It also asks you to be prudent and most of all, patient. Real estate appreciation takes time and the money that you will use will have to be tied up to the property for a while. When chosen carefully, it can give you returns no other investment can possibly match.
