4 Things to know before investing in real estate business (condo)

Real Estate business can be lucrative, but to succeed, we must know what a real estate business is. In simple words, it is a business involving either land or properties or both. This type of business requires tons of capital and is very hard to start. But if you do things right and know that it involves money, the gain is undoubtedly immense. Here are the things you should know before engaging/investing in the real estate business.

1.    Determine who your target audience is.

The area where you can determine your target audience is essential in choosing an investment property. Each location has its market.

For example, if you purchase a condo unit in the Cebu business district, your target market may be ex-pats or help desk agents. In contrast, if you buy a condo unit in Davao City residential neighborhood, your target market may be families with children or young couples.

The location of your property is essential since it impacts the long-term sustainability of your rental income and your capacity to negotiate a higher monthly rate.

An excellent location provides easy access to your renters' necessities, such as a grocery, beautiful restaurants, public transportation, hospitals, and schools.

 

2. Knowing the financial capability

After you've decided on a location and a target market, the following step is to figure out how much money you're willing to put into it—the more the amount you spend, the greater the expected return on investment.

The cost of the condo apartment isn't the only thing on your mind. You'll also need to account for the cost of any renovations to the flat, as well as the furnishings you'll need to furnish it.

If you want to receive a good return on your investment, you'll need to balance your budget with your anticipated rental revenue.

Although you can use the current market rate in the region to estimate your rental income, there is no guarantee that you will get it because tenants usually negotiate and compare your unit to the other tenants in the building.

It is usually beneficial if you can reduce your investing budget. The lesser your investment cash outlay, the more likely you will get a positive return on investment.

 

3. Analyze your investment's return on investment.

How much will you make every year if you put your money in the money market right now?

If you're going to take your savings out of the bank and put them into a condo rental property, you should be able to make at least as much money as you are now.

If the interest rate rises to 6%, you can expect a return on investment of at least 8% or more, depending on the premium you wish to pay.

If you're buying a brand-new apartment, the first thing you should figure out is what your estimated return on investment will be.

Based on the selling price and market rental rate in the area, how much return on investment would the property generate? Will the return on your investment be sufficient to cover all of the risks?

When you have cheap investment outlays, you can achieve significant returns. If a brand new condo does not match your needs, you may want to consider purchasing a used condo in a great location where you may negotiate for a lower price.

4. Make sure you understand the terms of your loan.

When you decide to borrow money to fund your investment, you can shop around for the best bank to work with you. The perfect loan agreement allows you to pay off your debt in the shortest amount of time feasible.

You want your monthly rental to be at least equal to your monthly amortization, so you don't have to cash out anything. Still, it's ideal if it's more than your amortization so you can use the additional money as income.

Your monthly amortization is determined by the loan's term and interest rate. The lesser the amortization, the longer you have to pay back the loan and the lower the interest rate.

Typically, banks will offer a condo unit for a maximum of 15 years with an interest rate subject to annual re-pricing or set for some time.

You'll need the bank to calculate your monthly amortization depending on the terms supplied so you can see if investing in a condo is financially possible for you.