Updated: May 16, 2020
Before I got into real estate, I always thought that it is the least flexible type of investment because of its relative high value and long-term commitment. However, what I quickly discovered and what I love most about investing in property is that it offers different options in terms of what you can do with your assets to maximize its utility and its potential earning, something unique compared to other investments. In addition, property investment doesn’t require a significant amount of effort but you can earn millions by using any of the following strategies.
1. Straight-up Flipping
This is a strategy is used by more active investors in the real estate market. Flipping refers to the practice of buying a property and quickly reselling it, usually within 1 to 2 years, for a profit. Realizing your profits from capital appreciation and then reinvesting your earnings into new and highly promising project or projects is a great way to multiply your gains. This strategy applies whether a property is fully paid or partially paid.
a. Fully paid. Let’s take an example based on actual data. Assume you invested in a Pasig City DMCI property, a mid-market level property 3 years ago, in 2016, when the price of a 2-bedroom unit was around Php3.5 million. Today, the price of a similar DMCI property in the area is now Php7 million, double of your initial investment. When you sell it at that market value, then you have a capital gain of 3.5 million pesos (i.e. the difference of the selling price and the acquisition price).
b. Partially paid. You can also implement this strategy on a pro-rated basis for pre-selling properties or properties under bank loan, where you have only paid a portion of the total. Using the same example above, let’s say you have just paid 40% of the property, or Php1.4 million, and you decided to sell your property now to realize your gains sooner. You can ask for as much as Php4.9 million, which is equivalent to the Php1.4 million you have already paid plus the Php3.5 million capital appreciation of the property. Then the buyer will assume the Php2.1 million balance you still have with the developer or the bank.
2. Renovate then Flip
If you want to add more value to the property before offering it for sale, you may want the option to renovate the place first. This makes your property more attractive as potential buyers will pay a premium to save time and effort from renovating the property themselves. The increase in your property value could be as much as double the cost of renovation. Assume that instead of just straight up flipping the property, you decide to renovate it first at the cost of Php500,000. Now you can sell the property for as much as Php8 million instead of Php7 million, an additional Php500,000 net gain for your efforts. Just make sure to not over-renovate and that the changes you make are in line with your target market’s needs and wants.
3. Long-term lease
Leasing out your property under a long-term contract (1 year or more) is a great source of stable cash inflow with minimal to no effort on your part. For DMCI properties in Pasig, the going annual lease is around Php480,000 to Php540,000, and will only go up. So you can earn a million in just two years from rental alone, on top of the capital appreciation as you hold the property. Here, you can see, month after month, how your money is working as hard as you do.
4. Short-term lease
If you have the time to do a little bit more management of your property, offering it on a short-term lease, such as Airbnb, is a great idea. It requires a bit more work compared to a long-term lease, as you would have to arrange new tenants every so often, but the financial rewards, sometimes double of what you will earn in a long-term lease, is definitely worth it.
Using our example again, you could earn as much as Php900,000 a year for offering your property as an Airbnb at a going rate of P2,500 per night. Just make sure your Property Management Office allows short-term leasing.
There is no “one-size fits all” strategy on what to do with your property. It depends on several factors such as your financial objective, how much effort and risk you are willing to assume, and the type of property.
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ABOUT THE AUTHOR
Edric Maguan is a successful real estate investor, an experienced and accredited Real Estate Broker of several top developers, and a Certified Public Accountant from University of the Philippines - Diliman. He found his passion in inspiring and empowering people to make the most out of their hard-earned money through real estate investment. Read full biography here.