Two of the biggest days in Real Estate investing were April 1 and 2, 2017. These were the dates of the 1st ever Financial Literacy Summit help here in the Philippines, spearheaded by The Global Filipino Investors (TGFI) and DRIVEN Marketing Group Inc. A momentous event well-attended by over 3000 investors, salespeople, OFWs, and business owners.
I got invited to be one of over 40 speakers who talked for the attendees. They chose among topics of Investing, Online Marketing, Business and Franchising, and of course Real Estate Investing. After Jay Castillo, the founder of ForeclosurePhilippines.com, I took the stage to talk about the things in my mind of how people should think when talking about real estate investing. Ronald Cagape followed soon after me as he talked about his No Money Down Formula in Real Estate.
I talked about the mindset people should have in real estate investing. That investing in real estate should not be taken for granted because it entails a lot of money. So I shocked the crowd by telling them “Don’t Invest in Real Estate”… at least not yet.
Before investing in real estate you got to ask yourself the most important question: Will you buy real estate for Personal Use? Or will you buy it just for investment? These are complete two different things. Let me tell you why.
When you buy for personal use, you are considering yourself as the end user. Since this is the case, you really have to take a look at the features of the property because you and your family will be the one to use it for a long time. If you are buying for investment, it will be different. There is a big possibility that you are not the one who will use the property so you should be looking more on the potential capital gains or cash flow when the property becomes available.
When buying a property investment for personal use, you should be considering these 6 things:
- Budget – Consider your monthly household income. Your budget for your house amortization must only be up to a maximum of 40% of you monthly take home pay. This is the basic rule of thumb when buying a personal property. You don’t want to overshoot from your monthly capacity as you will surely want to allocate funds to other expenses like food, clothing, fun, travel, and other things your family needs. You wouldn’t want your family to starve just because you have a beautiful house!
- Location – Since you will be living in this property, you will be traveling to and from this place everyday. You would want a trip that is tolerable for you as you will be doing this on a regular basis. Also consider the neighborhood because your family will be living in it. The formation of your children will also be influenced by everything in it. Choose a location that you would want you and your family to live in a long time. When you say yes to that, then you can say that this is a right buy. If you don’t see living in this place for at least 10 years then don’t ever think about buying it. It’s not worth it!
- Time Frame – You must be clear when you will be needing the property. You don’t want to buy on impulse and you don’t want to buy with a very long lead time as well. Property investing for your personal property must have proper timing. Buying at the right time will ensure you that you will be getting the best price for the location that you want. Planning is essential in real estate investing as well as buying a property investment.
- Documents – Nobody can buy real estate without proper documents. The main reason is because real estate is finite and land gets scarce. You would want the title of your property under your name so before you pay any reservation fee or earnest money, make sure that you can provide the documents needed for the purchase. Basic requirements will always be proof of identification, proof of income and capacity to pay, and proof of billing address for documentation purposes.
- Long Term Plans – You got to consider your plans if you will still be working in your job 5 to 10 years from now. If you will be buying in a location just because it is located near your workplace then you might want to rethink it again. Ask yourself whether you will still love to keep this property even when you are working far from it. Do you have plans of renting it out and look for tenants if you vacate the property or will you sell it if ever your needs changed. Think long term so you will make better decisions for your property purchase now.
- Your Broker – Look for someone who will help you through the process. Brokers are there to ensure that there will be someone to guide you to your purchase. Never by-pass them because when the time comes that you need help with your property, especially when dealing with the developers, you will have nobody to guide you along the way. Brokers can also help you in making sure that you submit the documents needed to complete your purchase, your loan gets approved, and you move-in to your property with ease. Good brokers will always be of great help to property investors as they will always act for the best for the buyers.
I even gave a link to the free report I wrote about the 8 fatal mistakes property buyers make in buying their first home. You can go to http://djdimaliuat.com/propertybuyermistakes to download a copy.
If you are looking to buy a property investment you have to ask yourself “What is my primary goal?”. Commonly, the goal would be either capital appreciation or passive income. Before you invest, you got to ask yourself and check your finances these 3 things:
- Do I Have a Steady Cashflow? Investing in real estate usually requires the real estate investor to have a steady stream of income. Unless you pay the property in cold cash, you got to pay your loan on a monthly basis. Ensuring you have a steady stream of monthly income will make sure that your property will not be foreclosed and your money will not be put into waste.
- Do I Have a Positive Cashflow? Earning on a monthly basis doesn’t mean your cashflow is positive. Are you sure that your monthly income is greater than your monthly expenses? If you cannot manage your own cash flow, don’t expect to be successful in real estate investing. This business is not for the irresponsible investor. You got to have a positive cash flow because your investment in real estate may not mean immediate cash inflow for you.
- Do I Have a Passive Income? This one is optional but ideal. When you have other businesses, it will be easier for you to invest in real estate. Passive income in your business will buy you more and more properties should you choose to. When you have a real estate portfolio, then your income will be bigger because real estate properties are more simpler to run compared to other sophisticated businesses.
MY VIEW OF REAL ESTATE PROPERTIES
I see real estate properties more of a wealth amplifier rather than wealth generators. For this reason, you got to focus on building other sources of income first before you invest in real estate. You might want to enter into the sales industry, like joining us and be part of DRIVEN Marketing Group Inc., to build a bigger income base that you can grow. You may also want to start a business that can give you passive income, that in turn will buy you real estate properties for investment.
If you follow Robert Kiyosaki, you may already be aware of the Cashflow Quadrant. He is so popular for his success in real estate investing. If you are an employee today, the best way is to transition to being self-employed (sales), then start your own business (B). When you are earning enough passive income, then you can now go to “I quadrant”, which is investing. In the “I quadrant”, money is working for you. To speed up the process, you got to have more money, working for you. Start building on your income side first, both active and passive, before you even think about real estate investing.