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Is this good investment?

24bit · 25 · 3664

24bit

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on: Dec 17, 2013, 08:32 PM
My friend is selling me his newly acquired condo for 1.8M with current rental income of 10K a month. Is this a good investment?


Sans

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Reply #1 on: Dec 17, 2013, 09:18 PM
If you were to pay your friend 1.8 million in cash to buy the condo unit, and you were to rent it out for 10k a month...

1,800,000 divided by 10,000 = 180 months
180 months divided by 12 = 15 years

Meaning it would take you 15 years to earn back that 1.8 million pesos if you charged 10,000 pesos a month for rent. This is if we assume that, for 15 years straight, you will always have tenants who pay on time and that you will not have periods when no one is renting the unit. We also haven't taken into account maintenance costs and property taxes.

Although it's possible to make money in real estate (especially if the condo you're talking about is in a high demand area like Makati), I don't think you will get good returns with this particular property. You will either have to negotiate the selling price or raise the rental rate.


Homeboy

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Reply #2 on: Dec 18, 2013, 12:30 AM
^Good points!

May i add that you might also consider the "future" value of the property. You might sell it within 5 or 10 years with a positive return. But thats a big IF.

As said by Sans, negotiate the price. I doubt if you can jack up ur rates though.

Also, check why is it for sale. Must have been a bad investment for the owner. Beware!

Cheers!


bauer

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Reply #3 on: Dec 18, 2013, 08:30 AM
My friend is selling me his newly acquired condo for 1.8M with current rental income of 10K a month. Is this a good investment?

10k divide by 1.8M is about 0.55% x 12 months = 6.67% per year in gross earnings.

In your gross earnings of about 120k per year, did you consider the following expenses:

1. cost of financing (1.8 million in purchase cost)
2. realty tax
3. insurance for property
4. association dues and other miscellaneous expense
5. opportunity cost in case the tenant leaves or the tenant can't pay on time
6. repair cost and/or maintenance cost

In my view, it is not a good proposition.


casanova

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Reply #4 on: Dec 18, 2013, 11:31 AM
10k divide by 1.8M is about 0.55% x 12 months = 6.67% per year in gross earnings.

In your gross earnings of about 120k per year, did you consider the following expenses:

1. cost of financing (1.8 million in purchase cost)
2. realty tax
3. insurance for property
4. association dues and other miscellaneous expense
5. opportunity cost in case the tenant leaves or the tenant can't pay on time
6. repair cost and/or maintenance cost

In my view, it is not a good proposition.


you have to consider the additional expenses above. I read somewhere some people used 100 x the rent = maximum total acquisition cost. By using that principle it will not be a good investment at present value. You can do two things though negotiate for a lower cost or think if the 10k rent is below market and can increase it.


bigporkydude

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Reply #5 on: Dec 19, 2013, 11:00 PM
Parang yung papasukan ko pa lang na deal.

P6k/850k=0.70%x12=8.5% per year... Not a good deal?


budz17

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Reply #6 on: Dec 20, 2013, 06:15 PM
question, if you have rental property like a condo or house, what taxes are you going to pay, income tax and real property tax?

thanks


24bit

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Reply #7 on: Dec 20, 2013, 07:27 PM
10k divide by 1.8M is about 0.55% x 12 months = 6.67% per year in gross earnings.

In your gross earnings of about 120k per year, did you consider the following expenses:

1. cost of financing (1.8 million in purchase cost)
2. realty tax
3. insurance for property
4. association dues and other miscellaneous expense
5. opportunity cost in case the tenant leaves or the tenant can't pay on time
6. repair cost and/or maintenance cost

In my view, it is not a good proposition.
Thank you for your view. I thought the same but do you think 6.67% is better return and you still have the property, if you compare putting the 1.8M in Bonds wherein the current coupon rate is 3-4% with holding period of 5-10 years?


bauer

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Reply #8 on: Dec 21, 2013, 09:32 PM
Thank you for your view. I thought the same but do you think 6.67% is better return and you still have the property, if you compare putting the 1.8M in Bonds wherein the current coupon rate is 3-4% with holding period of 5-10 years?

6.67% is gross proceeds from rental income.  Paano kung hindi nakabayad ang tenant?  Paano kung bakante ang property at walang umupa?  Your returns are not reliable and regular.

Your bonds are reliable (if government not corporate) and regular with no supervision or maintenance required.  Just get the shortest term bond only.


bauer

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Reply #9 on: Dec 21, 2013, 09:33 PM
question, if you have rental property like a condo or house, what taxes are you going to pay, income tax and real property tax?

thanks

BOTH if you reached a certain threshold in income tax.


vlim0001

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Reply #10 on: Feb 06, 2014, 07:53 PM
Should also consider the future value of the unit.  It is not the same as putting your money in the bank - if you put P1.8mln in the bank, and say for example you earn 10k/month.  In 15 years your principal is still P1.8mln.  If you invest in the condo and get P10k/mo, the price of your condo will float with the market value it may go up or down (eventually you will need to renovate etc, but usually the value of properties go up).


wilch23

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Reply #11 on: Feb 08, 2014, 07:32 PM
I am assuming none of you have experience in property rental.

What makes you think that the rent is going to be 10K/month forever? Give me a break!

This is a good investment if the price is fair and the location is good, and:
 - you don't need the capital for a while;
 - you are now just parking your extra cash in bank deposit and the likes;

Don't bet too much on the value appreciation unless it is at least a mid-level to hi-end development. It will go up but not like a house and lot. 


wilch23

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Reply #12 on: Feb 08, 2014, 07:36 PM
question, if you have rental property like a condo or house, what taxes are you going to pay, income tax and real property tax?

thanks

You have to pay Realty tax for sure.

If you register as a realty business (you need this to print official BIR receipts), you need to pay percentage tax/VAT (depending on annual gross sales) and income tax.

If you don't register as a business ... you'll have no Official Receipt so how do you even declare income for taxing?


hzardous

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Reply #13 on: Feb 08, 2014, 07:51 PM
In a realty investment, the first and foremost thing that you should consider is the LOCATION of the property.  Because we are looking for ROI in the shortest period of time.  If the location is bad, you would end up with an unoccupied unit that might be vacant for months, or you would have no choice but to lower the php 10k rental/month.

In my opinion, 10k for 1.8M condo is not a good investment.  You should try to get between 13k-15k condo for a better return, or it is way too long to get your investment back.

Another thing, your friend will hate me for this, but we have SURPLUS of condo units around metro manila.  Developers are offering "No Downpayment Ready to Move In" promos.  You will surely have a hard time selling it unless the location is Prime.

BUT, if you could imagine yourself (or your family) using the unit in the future, then go for it.  Because that will be a different case altogether.

GOOD LUCK!


wilch23

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Reply #14 on: Feb 10, 2014, 12:17 PM
SIr, different ideas from different people. May I qualify your question a little?

For the topic "Is this good investment vis-a-vis where my current money is invested?

It will be a much better investment than if your money is just parked in a savings account or TD. So my question is, where is your money now?



 


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