PROPERTY DESCRIPTION:

INVESTING IN

REAL ESTATE

A PRIMER

1. WHAT IS AN INVESTMENT ANYWAY?

An investment is a vehicle that a person can put money (the “principal”) into with the expectation that the vehicle will earn income (“returns”).

1. IS BUYING PROPERTY CONSIDERED AN INVESTMENT?

Yes, buying property is one form of investing. Like all investments, the question you should ask is: “Is this property a good investment?” A good property investment is one that appreciates in value and also provides income.

a. Income Potential: “How much will the property earn?”

Conventionally, an investor should earn an average 5 – 6% annual return generated by rental on his investment. So for a property worth P1-M, he should earn rental income of P50,000 – P60,000 a year. If the property earns beyond that, it means the property is better than average and is a great investment.

b. Asset Appreciation: “Will the property increase in value?”

An investor generally expects his property value to increase by 20% – 50% over 5 to 10 years. Asset appreciation with rental income roughly gives him a total of 7% - 11% annually – a good yield for a safe investment (i.e. at the end of the day, you still have a hard asset). Actual increases in property value are a function of the location, rising demand in the area, lack of supply specifically designed to meet the rising need, availability of a buying market and other factors. If property values in the area have appreciated by 20-50% in the past 5-10 years, then property in the area is a good investment.

1. WHAT ARE MY RISKS IN A PROPERTY INVESTMENT?

The primary risk of a property investment is its illiquid nature. In the event that you need money, the property needs time to convert to cash. If you’re in a hurry, you might end up selling at a price much lower than you would like. If you did not choose wisely by looking at the market and the changing land use in the area, your risks increase. Your property may not increase in value or generate income as you had hoped.

Investing in property, therefore, requires that you study the area and its market factors. Also, you invest only after you have taken care of your liquidity or cash flow needs (i.e. you have enough cash now or expect to receive it regularly in the future to cover your needs). A well-chosen property makes a great addition to a portfolio because it safely supports your other investments and offsets the latter’s performance in volatile times.

1. IS VIVIDA NORTH A GOOD PROPERTY INVESTMENT?

VIVIDA NORTH meets all the criteria for a superior property investment.

a. 12% - 17% Investment Return on Rental Income
A survey conducted in a 2-km radius around FEU-NRMF showed
that the monthly rate for student bed-spacing reaches P4,000/mo., at
4 bedspacers to a room – an annual rental income of P192,000, not
counting summer vacation months. At VIVIDA NORTH, units for P
1.1-M up can be configured for a 4-student bedspace unit. Over a
very limited time period, however, these units are being sold for up to
20% less, dramatically jacking up an investor’s return on rentals up
to 17% annually using a conservative Php 3,000/student/month -
over a three-fold increase versus the average 5-6% return on other
properties.

b.   38% ROI on RESELL

      The units being offered now over a limited period are being sold toearly investors at a 20% discount on the pre-launch price. That
means that if a buyer today sells his unit as soon the building is
ready – the time when demand is at peak – he would earn 47%
return on his investment in just 1 year (VIVIDA NORTH intends to
turn over units to buyers in 1 year or less from date of purchase).
For example: A P1.17-M unit today can be purchased today for just
Php 937K – at a 20% discount. Once completed, the unit is priced at
P 1.296-M – so the investor earns a gross of P360,000 or a return of
38.5% by reselling after just one year.

c.   Steady Demand in the Area
FEU-NRMF and the other schools nearby have a combined
population of over 9,000 students and staff. Based on the survey
results that rentals in the area are running at virtually full occupancy
even with less than desirable amenities, the target demand of only
400 bedspacers (or 4% of this school population alone) coupled with
superior amenities that make VIVIDA NORTH a desirable first choice
for boarders, ensure that the investor’s units will not stand idle.

d.   Stable Locational Value
Property adjacent to good private schools is less sensitive to
fluctuations in property value, because these students generally
come from families able to withstand economic conditions. Given
that 2 of the major schools within a kilometer are medical/nursing
schools (i.e. a high and stable growth business), demand will
continue to rise – ensuring stable growth in property values in the
area.

 Invest in real estate wisely.