5 Condo Investment Strategies and Tips for Buyers

5 Condo Investment Strategies and Tips for Buyers

Condominiums are sprouting from everywhere in the Metro. Thanks to the developers who are capitalizing from the low interest rate, and from the cash flows of Overseas Filipino Workers (OFWs) abroad and the employees of the Business Process Outsourcing (BPO) sector.

As a newbie condo buyer, it maybe easy for you to join the bandwagon and buy seemingly desirable condo property that is offered to you. Whether buying a condo is primarily for the purpose of residence or as a mean to generate passive income by renting it out, having a good condo strategy would give you a well-defined course of action. Below are some of the best condo investment strategies that you can apply if you are thinking of buying a condo.

condo investing strategies

Location is the key. The main advantage of a condo over house and lot is location. You’re investing in a condo because of it’s location, bringing you into a more convenient lifestyle. It may be near from your place of work or located in a prime location where you can cater to a lot of potential tenants. Since condos are mostly located near commercial areas, go there during rush hour traffic. Chances are, the estimated travel time in the marketing brochure you have seen will not take into account heavy traffic. Remember that you will need to travel during rush hour and travel time to and from your condo should be an important consideration.

Apart from the issue of traffic, try to pass by the location during heavy rains and check if flooding is an issue. In addition, aside from the location of the condo building itself, you should also consider the location of your unit within the building. If you work on the graveyard shift and need to sleep through the day, pick a unit on the upper floors so you can isolate yourself from the street noise. Units which are near the elevator or the garbage chute are cheaper for a reason – elevators opening and garbage plummeting down the chute make a lot of noise. Choose wisely not only the location of the building but your unit in the condo building as well.

Financing your condo. How are you going to pay your condo that you intend to buy? Are you going to pay in cash or borrow money for it? In answering this question, take note of your cash reserve and cash flow. Buying in cash can help you get a much better price because most developers offer significant discounts as an incentive for you to do so. However, make sure that you have enough cash reserve to fund your expenses in cases of emergency. Unlike paper assets such as stocks and mutual funds, a condo is not easy to sell and requires time to liquidate.

Meanwhile, if you are considering borrowing money from the bank to buy your condo, make sure that you have strong cash flow to pay for the monthly amortization. For those who are buying it for the purpose of renting it out for passive income, check the amortization amount versus the potential rental income. You may want to buy a condo with a significantly lesser monthly amortization amount than the potential monthly rental income for it to be a self-liquidating investment.

That being said, you should also consider the lower end of your average monthly cash flow before taking on a loan.  A good gauge would be to have a surplus of about 10% to 20% of your average monthly cash outflows after subtracting the monthly amortization on the condo. Why? Not at all times, your condo unit is guaranteed to have a tenant as there may be times when your unit will be vacant.  If you are able to save about 10% to 20% after subtracting the monthly amortization, you’ll have enough funds to cover for amortization during vacant times and to provide for you and your family’s needs.

There are other costs. You should be concerned not only to your monthly amortization but also to other expenses associated in owning a condo. Condominium buildings will also charge you monthly or annual condo dues for the maintenance of common areas of the building. This cost will vary depending on the size of your condo unit, and the type of services and amenities available to unit owners. Aside from condo dues, as a real estate property owner, you will also need to pay for annual real property taxes and insurance.

In addition to the monthly or annual costs, there maybe one-time payments needed that must also be considered when buying a condo. Most contract to sell will normally state that you will have to shoulder the costs of transfer tax and the registration of the condo title in your name. This should amount to no more than an additional 4% of your purchase price.

Read the fine print. For the common good of all unit owners, your condo will be governed by a deed of restrictions. The restrictions will dictate what you can and cannot do when you move in to your condo. Ask for a copy of the master deed and restrictions of the condo project and read through it. If you are a pet lover, you should know if the building will restrict or even prohibit pet ownership. Some condominium buildings may also prohibit the use of LPG.

The numbers don’t lie. When it comes to return on investment or ROI especially for those looking to rent out their condos for passive rental income, the numbers don’t lie. With a lot of condo projects that are on sale nowadays, given location as being equal, you might be asking yourself, shall I buy a brand new or a second hand condo unit? Let’s run the numbers.

If you want to ensure minimal vacancies for your unit, the best price to offer potential tenants is the lowest possible rate, inclusive of condo dues.  For example, say you have the cash and you are thinking of buying a Php 1.5 million second hand unit versus a Php 2.5 million brand new unit.

If you rent out a second hand condo unit at Php 10,000 per month, inclusive of condo dues, at an average acquisition price of Php 1.5 million, your estimated annual ROI would be:

Annual ROI = Annual Rental Income ÷ Acquisition Cost

Annual ROI = [Monthly Rental x 12] ÷ Acquisition Cost

Annual ROI = [Php 10,000 x 12 months] ÷ Php 1,500,000.

Annual ROI = 8%.

However, if you bought a brand new condo unit at an average price of Php 2.5 million and you would like to earn at least the same ROI as the second-hand unit, you’ll need to rent it out at:

Monthly Rent = [Acquisition Cost x Annual ROI] ÷ 12 months

Monthly Rent = [Php 2,500,000.00 x 0.08] ÷ 12 months

Monthly Rent = Php 200,000 ÷ 12 months

Monthly Rent = Php 16,666 (inclusive of condo dues)

Now, put yourself in the shoes of ordinary office worker who would like to rent it to save on time and effort on commuting, which one will you choose? Chances are, you’ll go for the second hand because you will just basically use it as a shelter to eat, sleep and go to work.

Condominium investing is truly a good source of passive income. However, before you plunge your hard-earned money into it, make sure you are armed with your strategy so as to become a successful condo investor.

Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

7 responses on “5 Condo Investment Strategies and Tips for Buyers

  1. Hi sir Tyrone. ive started to read your posts and watch your videos in KMJS. Your website has an interesting topics. I just want to remind you that last month google updated their algorythm for mobile. your site might not included in terms of mobile friendliness.

  2. Good summary. Same approach I used, and agree with your methodology. If one is going to be strictly looking into condo as an investment – it can be achieved in 2 ways: 1) the monthly additional cashflow from rentals (assuming positive cashflow when all expenses are summed up); 2) capital gains, which can only be realised once the unit is sold. At present time, I think condo prices will plateau, so CapGains is not something that one can look to for returns.

  3. hi. i’m wondering why dmci’s CLOSING fees have shoot up to 10.5% of the TCP. is this legal, considering that the processing cost of the title should be the same for all units (administratively speaking).. why base it on the contract cost? i bought a dmci unit from a previous owner with a 4.5% closing fee when they bought it in 2011… now, their closing fee is already at 10.5% for a preselling condo located in taguig… is the 10.5% closing fee reasonable/legal? note that it’s not even inclusive of the turn-over fees such as meralco and maynilad fees which in actual costs around P50k for a studio unit (28sqm).

    i’m raising this concern because i read in your article above that “In addition to the monthly or annual costs, there maybe one-time payments needed that must also be considered when buying a condo. Most contract to sell will normally state that you will have to shoulder the costs of transfer tax and the registration of the condo title in your name. This should amount to no more than an additional 4% of your purchase price.”, and i feel that the 10.5% closing fees is just too much.

    hope you can enlighten me. thank you

  4. I would just like to ask advice on what to do if your developer, with whom you agreed to use PAG-IBIG 3 years ago, when they were in the preselling phase, to finance the monthly amortization, tells you this year that this is no longer possible and is advising you to get a bank loan instead. They are supposedly going to complete the project this November. You actually don’t need to get a PAG-IBIG or bank loan coz you have the cash anyway to pay the whole thing. You have told them this but now they are making life difficult by turning a blind eye to this and insisting that you get a loan. What is the best thing thing to do?

  5. Thank you so much for letting us know more about buying a condo. This post is very useful for everyone, i appreciate your post. I also want others to know more about a condo, and i’ll give them some tips too.

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