New structures being constructed has been a common sight in the last 10 years in the Philippines, especially in the big cities. Real property businesses are indeed in an upward trend, and contrary to popular belief you don’t need to be a billionaire to enter cash in on the property boom. While buying and selling property technically requires a considerable amount of capital, it is still possible for a middle-income person to pursue his dream of becoming a real estate tycoon.
Buying and selling property is an excellent business to be in as real estate provides advantages that other asset classes and products do not and they are:
- Real estate prices have been on an upward trend in the last decade
- Properties can provide cash flow as you are holding it
- Prices are also fairly insulated from external factors
- Unlike service business, you have an inventory that has a tangible value
There are different types of properties you can choose from. We have residential, recreational, commercial, agricultural, or industrial properties. The property you may opt to choose for a buy and sell business will depend on your capital. It is definitely a good choice for a business given that its market is flexible and grows vigorously, but of course, there are many factors to consider.
In buying and selling a property, you don’t just think from the buyer and seller’s perspective but also from the consumer or homeowner’s perspective, plus other external factors for consideration. If you’re highly considering this line of business, read on further for more helpful information.
Advantages of Buying and Selling Property
1. Upward Trend in Real Estate Prices in the Philippines
Real estate prices have been on an upward trend in the Philippines, not just in the capital city but also in the provinces. From 2010 to 2018 the average price of a condominium unit in Makati increased 132%. Although this growth seems unbelievable, analysts believe the property sector is far from overheating as prices are still way below the 1997 Asian Crisis levels.
One of the lucrative types of investments one can get into are pre-selling properties. Pre-selling properties usually come with a reasonable introduction price, so you one may want to grab it while at this stage. The price is generally reduced by 30-50% compared to the price upon completion.
2. Possible Cashflow From Idle Property
When you’re a real estate buyer and seller, you can safeguard yourself against the pre-termination of the agreement from a buyer and still profit from it. You can still have your income from rent while you hold onto the property as inventory.
As for rental income, the security deposit can be held in favor of the landlord even if the renter decides to withdraw from the rental agreement. This security bond and rental advances can also contribute to your income. It will also be best to hire a lawyer so that you’re fully aware of your rights and responsibilities and to help you make a legally valid contract.
3. Steady Cash Flow
A usual buyer approach is buying a property at below market value and selling it for a higher price when they see that a particular property has appreciated over time.
Also having a pipeline of properties ensures this cashflow is continuous. Searching for bargains and pre-selling properties can be challenging at first but it pays dividends as you can sell them at a higher price after turnover or with some improvements.
4. Insulated From Economic Downturns
When the economy turns south, the property sector is insulated in a way such that buyers turn into renters, which provide another source of cash flow for you. To add, real estate properties appreciate in the long term so losses in the medium term during economic depression are recovered eventually.
On the upside, the real estate sector profits greatly from economic boom. Property values increase greatly as well as rental values.
In essence, real estate properties are one of the best options for a business or an investment because one can earn more than what was initially paid for. Real estate also appreciates over time. Whether you choose to rent out or sell the property, it can either provide a sustainable income in the future.
Disadvantages of Buying and Selling Property
It may take a long time to sell a property. It will become more difficult when you face financial hardship, and you need to sell a property quickly, so you may not have a choice but to sell it for a lower price. You may also not be able to rent out a property after you purchase it as you will need to spend some time finding tenants and shed extra funds to cover all the expenses.
2. Not a Liquid Asset
You do not have immediate access to your capital the same way you would if you have money in a savings account or stock market. Even if you can take out a home equity loan, this is still not considered a “liquid” investment.
Buying and selling property is not a one-time thing. There are many expenses to consider, such as monthly fees, maintenance fees, electricity, painting, plumbing, and the like, which are not cheap. You have to be at par with the market demand to secure tenants or buyers in the long run, so it is essential to have a contingency fund for this.
4. High Cost
Although there are properties that offer below market value, buying properties require considerable capital. It is nothing like stocks where you can only buy a few shares. You can’t buy it on a budget and expect a significant return. It’s all or nothing.
Buying and selling property is good but there are also underlying risks to it.
Buying and selling properties is a thriving business, and it is not difficult to learn about. You can learn how things work without having specialization in property investment or similar niches. You just have to be careful and responsible with your choices and make sure that you have everything well thought of and planned before deciding on pursuing this kind of industry.