9.0% Annual Return, 14% IRR for 5 Years. For More Information, Email investments@insight.ph

Investing in properties is a good way to make money and build up your net worth. It is a very safe option of getting rich over the long term, as real estate values generally increase over time. However, returns are not very fast and you have to wait for considerable time before you make substantial money from real estate. To make the most of your investment into real estate, follow the six simple rules below.

1. Use Your Expertise and Knowledge

When purchasing investment property, look into your areas expertise and knowledge. Do you know about vacation homes, single-family homes, multi-family buildings, or commercial properties? You should know how and when to sell the property to earn the highest returns. If you are unaware of all rules and regulations relating to that property type, you may not be able to sell the property at a high profit.

2. Study Your Options

It is not essential to sell an investment property immediately after purchase. You can hold on to your investment until real estate values increase and then sell the property. Sometimes, it is best to bide your time and wait for real estate booms to sell and earn good profits on your investment. Another opportunity is to make suitable renovations and sell the property at an escalated price to earn very good returns. Property values increase over time and net worth of your investment increases. You can invest in real estate to receive a regular income from rent while you are waiting for property values to rise. Read the rest of this entry »

I recently got an email from a reader asking about valuation of a target property and thought this was a good time to recap what we have learned so far. Let me share with you an excerpt from that email…

From: xxxxxxxxxx@yahoo.com.ph
To: moderator@realestateinsight.ph
Sent: Tuesday, June 1, 2010 2:41:17 PM

Subject: Advice with Fort Condo

My husband and I are both working but we feel the money we save will never be enough to cover our retirement. We already have a house in Quezon City and are now looking at buying a ready to occupy condo at the fort. Our agent tells us that it is an excellent investment and is pushing us to close the deal. My question is how do we know if it really is a good buy? Is there a formula we can use? Any advice you can offer will be greatly appreciated.

At the risk of sounding like an advice column, which I don’t mind really, I’d like to respond to this email via this blog post…

I actually have several insights for xxxxxxxxxx@yahoo.com.ph. First, don’t ever let yourself get bullied (pushed) into a deal. Even if it sounds like a good one, it always pays to do the math first before jumping into something as important as real estate investment. That said, let me tell you about a post we did a few weeks back… This was about CapRate (Capitalization Rate). CapRate is a performance ratio that quickly tells you what the Value of a Target Property should be by comparing it with similar properties. Let us look at the example below and see how we can use CapRate to determine if the Value of a property being offered is at par or better than market…

Lets assume we are being offered a 1Br Unit in Serendra for Php 6 Million. We know that CapRates in Serendra (Fort Bonifacio) are at 8%. We also know that rents for 1Br units would give us a Net Operating Income of about Php 600,000 yearly.

So, to determine if Php 6 Million is a good price, let us follow the formula below…

Value = Net Operating Income / Capitalization Rate
Value = 600,000 / 8%
Value = Php 7.5 Million

From the calculation above, we can see that an NOI of 600K and 8% CapRate translates to a Market Value of Php 7.5 Million. This tells us that a purchase price of Php 6 Million is below market and offers a good 20% (Php 1.5 Million) discount.

You can use the same example above to see whether the property being offered is a good deal. Take note that the CapRate for Serendra may be different from the property being offered to you. Its best to ask your agent/ broker what the Property’s CapRate is. If your agent doesn’t know, look for another one. This is basic information that any good Realtor should know.