PROPERTY TIPS FOR OVERSEAS FILIPINOS
by Carl Dy
Many Filipinos make the choice to work abroad in order to help their families. They want to earn more money so they can send their children to school, so they can build their dream house, so they can buy a family car. But beyond these goals, many overseas Filipino workers (OFWs) have no idea how they can increase their wealth. Stocks are mysterious and complicated. Starting a business can be a risky venture. So what can OFWs do with their money?
Here’s an option: Invest in real estate. Here are my thoughts on why—and how—OFWs can start working on their real estate portfolio.
What are the pros and cons of investing in properties?
Property is a great product for many reasons, like capital appreciation and monthly recurring cash flow. It’s also one of the best means of funding your retirement. How does this work? A financial strategy I often recommend is this: accumulate rental properties while you are between the ages of 25 to 55, and rent them out to good tenants.
If you are able to do this consistently, you can have up to 30 years of strategic investing. The rental income is passive income—it is money you earn without having to exert much effort. This is income that can support you during your golden years, from age 55 onwards. This is the “saving up for a rainy day” approach. Create passive income while you are young and energetic, so you can reap the rewards when you are older and your income potential is not as strong.
But like all things, there is a downside. One disadvantage of property investing is the high entry cost. Good property will cost millions of pesos, so proper financial planning and education is needed. You can take out a loan and stretch out your payments over a long period of time, but the lack of information and understanding about your loan payments can cause stress in the future. You should always have an exit plan.
Another disadvantage is the timeframe needed to make a profit. Personally, I see property as a long term tool to create passive income. If you are looking for a faster return on your investment, maybe opening a business or going to the stock market is better, but they also have their own risks and returns.
How much should an OFW put together to start investing?
There is no easy answer to this. Prices differ depending on what property you want to buy or where you want to buy. A conservative rule of thumb would be to have at least 30 to 40% of the total amount already set aside as your downpayment or bank equity. You can get the remaining 60% through a housing loan from a bank or Pag-IBIG, and your payments for the loan can be spread over 10 to 20 years.
But a big consideration is this: How do you know if you can afford the monthly payments? First, identify your “monthly hurdle” or your monthly fixed and living expenses. These include your rent or housing payments, all utilities, transportation and food expenses, leisure and weekend expenses, your kids’ tuition and allowance, and all other expenses, plus a comfortable buffer amount. In my seminars I give participants the monthly hurdle exercise, to help them see exactly how much they spend and how much they can spare. Whatever is left of your income is your monthly investable excess cash, so make sure this investable cash is enough to cover the projected monthly amortization on your housing loan.
What would you advise OFWs looking to invest in properties back home?
So you’ve looked at the pros and cons, and you’ve figured out your monthly hurdle and investable cash. What else should you think about? Here are four very important things to consider:
PURPOSE – This is the first step in any new endeavor. When buying property, identify your purpose. Are you buying a house for your own family use? Is it for your parents or for your own family and kids? Are you buying land or a condominium for rental income? Will your property be rented out first then used as a family home later on? Identifying the purpose of your purchase helps pave the way for your property investing road map.
- LOCATION – Your location is linked to your purpose. If you are investing for your own use, it is important to find a property close to your daily grind, as you don’t want to spend a big part of your day traveling. The property location should be in close proximity to what is important to you. The ideal location of course is a place near your family and friends, near your place of work and near your kids’ school. If you find a property that is far from your daily routine, be ready to factor in your travel time and costs so you know if this property can work for you.
- ENVIRONMENT – Another thing to consider is the surroundings of the property you are buying. Is the neighborhood well-maintained? Are your neighbors taking care of their own houses? How is the community or village management? Do the values of your neighbors matched what you want for your kids? A big criteria in the appreciation of property value is the environment. A well-managed, clean and safe community with caring neighbors will surely be in demand, thus bringing the price up over time.
- AFFORDABILITY – Property investment takes money, large amounts of money. With hard work and careful planning, you can save the money. But don’t be afraid to dream big! Filipinos are fond of saying “libre mangarap,” and usually all achievements in life start with a dream. There is nothing stopping you from looking at properties even before the money is there. Go ahead and dream of the house and the future life you want to have, then work backwards to identify the steps to fulfill that dream. Do you research about locations and environments, study the different price schemes and payment options available to you, and see how you can make your budget work. And of course, take control of your finances.
Even if you don’t have money to invest yet, I highly encourage you to start learning about property investing early on. If you want to learn the secrets of creating wealth using real estate, it’s time to start saving and studying now.
Carl Dy is the President of Spectrum Investments. A property investor with over ten years of experience, he is continually building up his portfolio, with the ultimate goal of living on passive income from property. He believes that property investment, just like business, is not an automatic income-generating product. One must combine passion with strategy, and devote time and effort for the investment to flourish.
Carl Dy can answer all your real estate questions and help you create your “Real Estate Road Map.” He will be visiting Dubai to give his seminar, “Creating Wealth Using Real Estate.” This will be held on February 13, 2015, Friday, from 2:00 PM to 5:00 PM at Hawthorn Hall, Avenue Hotel Diera, near Rigga Metro Station.
For tickets, please visit https://www.eventbrite.com/e/creating-wealth-using-real-estate-by-carl-dy-tickets-15348608100. Limited slots available.
For more information, coaching and one-on-one mentoring, send an email to firstname.lastname@example.org or like the Facebook page “Real Estate Wealth Manila.”