Real Estate Investment in Dumaguete City
What Are Your Options and What Returns on Investment You Can Expect
A Real Estate investment, or widely termed “brick and mortar” asset, is becoming increasingly attractive as global interest rates stay low and yield on other stable and relatively secure investments such as term deposits or bonds, will probably get you somewhere between 1.5 to 4.5 % per annum. Alternately, you could chose to play the stock market and though the potential return on investment can be much higher, however it can be a roller coaster ride with much higher risk.
With real estate, you get the securement of a hard assets that historically almost always appreciates in value, along with the potential for much greater return on your investment than the bond or term deposit market.
Before you decide on a real estate investment in Dumaguete City, you must seriously consider what your goals are. The most important potential goals should revolve around how long you want your money tied up for and whether you want a big one time payday or a stable recurring payout.
Should you choose the former goal option for your real estate investment, where you are interested in a shorter turn around with a large lump sum payout(s), you have several different things you could look at.
- Purchase distressed properties and flip in a quick sale – For you to have any success with this method you need to have a very good understanding of the local real estate market, and have cash on hand to close a very attractive deal very quickly. If you know what there is a high demand for and what price would be extremely attractive to your potential third party buyers, you can determine what price you have to buy the property at to make the deal attractive to you
- Renovate and flip – Again you need a very keen knowledge of the local market, plus having construction expertise. When you find the right property you will need to be able to get the renovations done economically in order to preserve your profit margin upon a sale. There is a whole industry that plays this game in North America to great effect, however here in Dumaguete, there seems to be very few who have caught on to its potential
- Purchase of a large lot and subdivide for sale – With this method, you need to buy a property at a fairly low price (under 600 pesos/sqm seems to be the cut off point to be financially viable), then do the necessary work to make the smaller sub-divided lots sale able. This would include having the land surveyed, getting a sub-divison plan approved, then doing site development to provide the basic infrastructure to each lots such as road, power and water. Typically you have to figure that subdivision cost and provision of infrastructure will cost you 100 to 300 pesos per square meter, so carrying the numbers through sub-divided and serviced land will cost you on average 750 pesos per sqm. Smaller sub-divided lots can be sold anywhere from 1,200 to 3,000 pesos per square meter dependent on location and attractiveness, so there is plenty of potential upside profit if you do this correctly.
- Property Development – This involves purchasing a property then adding value to it by constructing some structures. simplest would be a housing tyoe development such as Number 3 but then going one step further. Here you can earn money not just on the land but also on the structure, however you must have the capability to build economically as well as the ability to look at the development strictly on business terms. A common mistake for would be small developers is building a product that is attractive to them (an emotional approach) rather than studying closely what the target market desires)
In terms of Return on Investment, (ROI), this type of real estate investment has huge potential and can range from 100-500% over the life of the turnaround. For the first 2 options you will probably look at a term of investment of 6 months to 2 years and for the latter 2 options you should plan a total turnaround time in the 3-5 year range.
For those looking for a long term, stable and recurring payout real estate investment, then rental units are the way to go. You can choose to buy something that is a turnkey type operation already in place, or you can purchase land and build your own. For the small time investor, residential units are the preferred choice simply because the target market is easier for them to reach. For commercial properties, there is usually more investment required both in terms of land costs(prime commercial land is usually more expensive) and construction costs. On the other end, the average small time investor usually does not have the necessary contacts to adequately market their rental space to corporate clients.
1.Turnkey rental development– When you buy a turnkey operation some important factors to take into consideration are:
- Age and conditions of the building – An older building or one which is poorly built will increase your maintenance and upkeep costs, cutting into your profit margin
- Reputation – If the reputation of the building is poor for any reason, this will negatively affect your ability to obtain good tenants
- History – Knowing the rental history is important because it can help you determine future occupancy rates with more accuracy
2. Buy land and build – In most cases it will cost you less to buy a piece of land and construct your own rental units, however there is more risk involved. If you go this route, you need to keep some things in mind:
- As you have no history to go by, you have less information to base your financial projections on. Will you be building the type of units that are in demand and will your location be attractive to potential tenants? You can get this right and reduce the risks, you must know the local market well
- Construction costs can vary and if they soar above what you plan, then this can throw all your financial projections out of whack
In terms of Return for a rental unit real estate investment in the Dumaguete City area, what you should be shooting for is between 7-10% per annum on operations and when you add in the appreciation on property value , you can come away with anywhere in the 10-12% per year range over a 10 year term.
As you can see, there are numerous ways you can get invest in real estate and the returns you can achieve are far greater than Term Deposits or Bonds with similar risk factor, and somewhat less than potential returns you will get playing the stock market, but with far less comparable risk. The one thing though is that like any investment of your hard earned money, do not get into it blind. Do your research, plan properly and as one last piece of advice, never overextend your self in regards to either finances or time resources available.