Given today's low interest rates, your money in the bank could be losing value from inflation costs alone. But there's another way to look at low interest rates - coupled with the large supply of affordable housing, why not consider investing in property instead?
There's good reason to invest in property. Land has good potential to appreciate in value, allowing you to possibly gain from this rise. Land is a tangible asset that you can earn from. You can have it leased, or you can build a business on it. Of course, you can also build or buy your own house and live in it.
However, not all properties are right for you though. A property that is ideal for your friend may not be suitable for you. Plus, investing in property is not the same as leaving your money in the bank. Don't expect to 'withdraw' it when the need arises. So before you invest in property, here are five things to consider:
1. Your finances. Although there are several financing options available to property buyers and investors, you have to get a property that you can afford, or one which will not put your finances in peril. Look at your cash flows so that you know how much you can afford in amortization payments. Have a budget and be sure to stay within your budget. You can also look at which investments you have that you may want to convert. For instance, you can sell off some stocks then invest the proceeds in property.
2. Financing terms. Find out what financing terms are available for the property you are looking at. Some developers offer various types of financing. Some require no downpayment, while others call for downpayment to be paid in terms. Others may entail a balloon payment in the beginning, midway, or towards the end of your amortization schedule. Since a balloon payment could be quite substantial, you have to be prepared for this. Some developers also offer properties purely for lease over a 25- to 50-year period. You have to check which one is right for you, depending on your goals.
3. Location. This is one of the most important factors to consider, since a property’s location can make a difference in its valuation. Look at its accessibility to transportation routes, schools, hospitals, and the like. Look at classification (agricultural, residential or commercial) too. Is it a flood-prone area? Does it sit on an earthquake fault? Don’t think that you should be limited to properties in business districts, though. A lot of things can change over time, and what looks like a modern city today could be traffic choked and decaying in the future. Similarly, a dead area now could be tomorrow’s most promising address.
4. Appreciation potential. When buying a property, think of how it will be in the future. Properties that are near planned projects such as roads, malls, or a mass rail transport system may increase in value in the future. Some residential zones may be reclassified as commercial zones, which can bring up values. Also look for reasons that put a downward pressure on its value – the presence of illegal settlers close by, security problems in the area, and signs of urban decay. If you are buying a condominium unit, check how its developer maintains other projects it owns as this will affect the future value of your property.
5. Titles and taxes. Take time out to check the property’s documents for any potential liens or encumbrances. Even if the title is physically clean, you have to check with the Registry of Deeds to know if the property has problems – unpaid loans, or claims. These are the hidden costs that potential buyers don’t often know about. You should also make sure that all property taxes are paid, since failure to pay may mean that the government can take over the property. There are also fees that have to be settled with subdivision owners and condominium property managers. All these should be up to date so that you do not run into potential problems once the property is transferred to you.
This is just a partial list of what you have to check out. Find out as much as you can about the property itself as well as the seller before you sign the contract. In the years ahead, your property will be an important part of your list of assets, so you would want to make sure that you get the one that matches your needs, gives you the most appreciation potential, and causes you no legal or financial problems.
Keep in mind that the property you buy is an investment for the future, so don’t expect a quick return on your investment as the value of your property appreciates over a certain of period of time. At the same time, buy property which you know will not be too difficult to sell (whether because of its location or if the developer is well known), when the time comes.
Grow Your Money is an editorial partnership between News.abs-cbn.com and Citi Philippines to promote financial education and provide helpful information to Filipinos on how to better manage their personal finances.
Visit www.citibank.com.ph for more information.