It’s never too early to start investing in a condo. Most people in their twenties don’t realize how much financial power they have. They have a steady source of income, few financial obligations, and the benefit of time. With years of earning ahead of them, they can afford to take larger loans to take advantage of a good pre-selling rate and “sit out” the waiting period before they can earn on the unit from rentals or resale.
Thirty-one-year-old Fred Arcenas, an advertising executive, says, “My condo payments do take a big part of my monthly income, but I’m young! I have the energy to accept sidelines and put in the work hours to pay off my house loan. When I’m older, burnt out from the biz, I can count on my condo as an extra source of income when I want to slow down and take it easier.”
Condos can also serve as a “first home” for couples who are planning to get married. While Greg Evangelista and his girlfriend don’t plan to tie the knot for years, they’ve already invested in one of the units at Megaworld at The Fort. The money-savvy young executive says that too many of his peers obsess over saving for the wedding, but don’t think about setting money aside for a home. “We decided we would invest in the condo together, since the pre-selling rates were so good, so it would be ready for occupancy by the time we’re married. We’ll live there for the first few years and then rent it out when we’re ready to move to a bigger place.”
Rhea Chua, currently working in Singapore, sees investing in a condo as a way of rewarding herself for her hard work. “It’s a sacrifice for me to work abroad, away from my friends and family. However, I’m making good money and I want to take full advantage of my high income now! It won’t earn much sitting in a bank account, and I don’t want to waste it on shopping sprees or drinking at expensive clubs every night. My monthly amortizations force me to be financially disciplined, and I feel good knowing that my money is going to a good form of investment.”
These smart young investors were also careful to choose the right property. “We always get handed these condo brochures, or get ‘invited’ to listen to a sales pitch, but it’s important not to fall for flashy marketing,” says Greg Evangelista. Here are some things they learned firsthand in their search for finding the right development.
Do background research on the developer and the location
Fred Arcenas had been cautioned against buying condos from small developers. “An officemate was amazed by the low prices and thought he was getting a good deal. But the developer didn’t seem to have the funds to complete the building. Construction stalled for a long time, and when the unit was turned over, it was obvious the small company had scrimped on materials and quality of labor. My friend ended up paying so much more to fix the bad plumbing, painting, etc. just to make the unit presentable enough to rent out,” he says.
Greg also advises looking at other properties that the developer has completed. For example, he was quite impressed by Megaworld’s township concept and what it had done for Eastwood and McKinley Hill. This prompted him to invest in the real estate giant’s newest township development at Bonifacio Global City. “It is a premium location from a well-known developer, so I was expecting a premium price for the units. However, I feel it is a smarter investment because the property value will be much greater, because of the improvements that will be made in the location. Residential units that are near commercial and business establishments can command good rent, as anyone who’s ever lived in Makati knows! Furthermore, I know that Megaworld can deliver on its plans, given its history. I would be more skeptical about a smaller developer that has no experience in large-scale projects.”
Talk to a financial expert
When Rhea first thought about investing, she consulted a financial advisor who asked very concrete questions that helped her clarify what she wanted and expected from her investment. “He asked me if I was going to manage the property myself, what I planned to do with it, and walked me through the difference between capital appreciation and the income approach. He also spelled out little details, like capital gains taxes and costs of maintenance, etc. I had a much clearer idea of what was at stake, and was able to make a more informed decision.”
Talk to someone you trust who has experience and knowhow in investing in property. That expert can give you good, solid advice given your specific financial situation and goals. Other condo buyers can also tell you about costs, personal experiences on renting or selling their earlier investments, and other tried-and-tested tips. “My friend in real estate told me that condos located within CBDs (commercial business district) are easier to rent out and sell than properties outside of Manila. Since I was investing in the condo as a source of income rather than a place to retire in, she suggested buying in the business area rather than in the quieter provinces.”
Do the math
Rhea got invaluable advice on how to compute profitability of a condo. She was told to get a copy of the homeowner’s association agreement, also called the covenants, conditions and restrictions, or CC&Rs. “The document has clauses on owner responsibilities and management responsibilities. Calculate how owner responsibilities will affect costs. One example is the annual allowable dues increase, and whether or not this based on square footage. She also researched on annual rent figure, and subtracted five percent of the annual rent to cover possible repair and vacancy expenses.
Greg, who was buying the condo for personal use, took a different approach: calculating cost of buying a condo in Makati or a home in an area outside Manila. “Once we considered cost of transportation, decorating and maintaining a larger home, and the resale value in 10 years, we saw the condo unit as a better deal.”