Finding Real Estate Opportunities

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Contrary to popular quick rich schemes, most of those who are successful in real estate did not attain their status overnight.

Key to success in real estate is patience in looking for opportunities. There is no rush to force things especially as you will have to look for bargains. In fact, given time and lots of creativity, you may even secure a real estate bargain that will practically be presented to you in silver platter! Yes, as if given to you for 'free', so to speak.

First step will be to broaden your options and choices. For real estate beginners, ideal property to acquire will be housing unit/s to be used as boarding and lodging houses that are ideally located near the urban center in order to ensure abundant supply of prospective lessees. You will have to scout around for foreclosed assets from banks and lending institutions, and check for the condition of the housing units if they will need minimal renovations at all. You will have to check loans balances and terms of payment, and see if the cash flow generated, though minimal, will provide windfalls if the property will be disposed in the next 3-10 years.

Very good options and targets for real estate acquisitions are those properties where the owners are 'motivated' to sell, like the owners are leaving, or are involved in marital disharmony, or there are several co-owners and the only way for those to get their shares is to sell the property. You will have to generate a master list of these properties, and prepare a checklist of pros and cons before you make a short list of at least three (3) properties for you to finally choose.

One of the major consideration in your decision is the availability of bank financing. In our previous blog post, we mentioned about the need to build and establish a good savings plan in order for you to improve your 'bankability'. If you have a modest savings of at least P100,000 to P200,000 parked in a savings bank, and if you are employed also, you have very good chances of securing a 15-25 term loan.

Another important key is analyzing your cash flows in the first five years, whether or not the rentals generated will be enough to cover the monthly bank amortizations. As you should not be in the rush to make decisions, you will have to study if the bank can provide you with financing with very minimal, if not zero, cash outlay or counterpart. Again, you will have to study your budget for renovations, or expenses needed to make your housing unit habitable or livable.

One important cue is to find housing units near big colleges or universities, or near the business center, as your lessees will come from these institutions. A P500,000 to P1,000,000 loan will have monthly amortizations from P5,000 to P12,000 depending on interest rates and terms of loan. You will have to convert your housing units into bed spaces only, so if it has 2 bedrooms, you can have two (2) double decks per rooms and all your lessees will have to share kitchen, comfort rooms and receiving area.

Depending on the conditions and amenities of your housing units, you can lease per bed space from P1,000 to P2,000 to make it affordable to your target markets. Your target will be positive cash flow per month to be deposited to a separated bank account, as your monthly rentals should be more than enough to cover your bank obligations. You should have the discipline to treat your positive cash flows as forced savings or investment, or provisions for repairs and to make additional room extensions in order to have additional lessees.

As experience will tell us, do not convert your housing unit into a single lessee outfit as multiple lessees will provide you with buffers for occasional vacancies. During your initial years, you will have to provide hands-on supervision on your leased unit/s, like weekend visits if you have a full time job.

In tandem with your side savings coming from your employment or your business, and your positive cash flows of your first real estate investment, you will now be on your way to a promising career in real estate.

The powers of leverage and savings

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Sometimes, the most obvious seems the most ignored. Take for example the concept of savings, the most obvious yet the most boring investment proposition for many. However, independent of any investment plans, accumulation of savings is the foundation of all investment.

Was it the great physicist Albert Einstein who once said that the eight wonder of world is the power of compound interest? Again obviously, a long head start is needed for savings and its twin concept of compound interest to have a very significant impact on our retirement plans. With very low bank interest these days, savings should be placed in the context of preparations for future investments, especially as savings per se may not be enough to outpace the impact of inflation.

For those in their 20s to 30s, a consistent monthly savings, even though small, will greatly help in subsequent investment activities, especially in real estate. For professionals and those with regular employment, regular savings can be implemented as long we have the correct mindset of thinking in the long run, and paying ourselves first before we disburse our monthly paycheck to other recurring monthly expenses.

In fact, the concept of all educational and pension plans is just founded on savings plus interest plus investment income, except that instead of you controlling your savings and investment, we hire third parties to do the job for us. In the process, we do not control entirely our money placements much as bank time deposits. The need of control is very important especially in situations where other investment options come into play, just like in real estate.

And what is leverage? What is its relation to savings? Unlike savings, leverage is very exciting as you can control and acquire a bigger asset with smaller capital. Who was that philosopher who once said that give me a lever and i will move the earth? Yes, taking control of a property with smaller capital, even as low as 10% of the property's valuation!

Assuming you have generated savings of say, P50,000 to P200,000, the road is now ready for you to embark on your real estate investment. If you are employed, the savings you generated is big plus point if you intend to secure a housing loan with savings banks, or even financing for the acquisition of a house and lot under the Home Development Mutual Fund, Social Security System or the Government Service Insurance System.

Why housing loan? Unlike other forms of financing, housing loan is relatively easy to process with no showing of business track record, as mere membership with the HDMF, SSS or GSIS with corresponding contributions would be generally enough to secure an approval. This may hold true even with savings banks as your banking relationship or track record will hold great weight in securing a fast approval.

The next crucial step is careful research and preparation, mindful of the fact that you will have to get that best bargain in the real estate market. There is no need to rush things as you will have to consider many options, or at least ten options, as many experienced real estate practitioners are doing. The mechanics of this search we will discuss in a separate blog posting.

If your search is well done, there may be a possibility that you will not even shell a single centavo in your real estate acquisition, as you may even be given additional cash to renovate the property as the loanable amount will be greater than the agreed purchase price. Is this possible? Of course, this is doable, but again, we will treat this in a separate blog posting.

What is the target goal here? The target is to generate extra positive cash flow, or cash in excess of monthly amortizations, so that you will again continue to increase steadily your savings nest egg over a period of time, in preparation for your next real estate acquisition, which may happen in another year or two.

Definitely, there will be many what ifs questions. If you have many questions, that is a very positive sign, as that shows you are thinking. Hopefully, our next blog posts will cover your reservations.

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Ortigas embarks on ambitious 'Ayala of the North' project

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News circulated in real estate circles that property developer Ortigas & Co. has embarked on an aggressive P100-billion redevelopment program for its four flagship projects.

The first project, which recently broke ground, is the Circulo Verde master-planned residential community along Calle Industria in Bagumbayan, Quezon City.

The first phase of construction for the project, which has been allotted P3 billion, includes the construction of five residential towers on 2.7 hectares of the 12-hectare property.

The privately held property firm also recently completed a deal with the Rizal provincial government that saw a new provincial capitol built—at the company’s expense—in Antipolo City.

The transfer freed up the 10-hectare site of the former provincial capitol along Shaw Boulevard in Pasig City, which had originally belonged to Ortigas & Co. Under the original deal between the government and the firm, the property would be returned to the Ortigas family once it is vacated by the provincial government.

It is reported that Ortigas & Co. would also start next year the redevelopment of the 16-hectare Greenhills Commercial Center to transform it into a modern shopping complex.

Once completed, the P25-billion shopping complex will hold several mid- and high-rise structures, a larger “tiangge” area as well as three levels of underground parking facilities that can accommodate up to 10,000 vehicles.

The company would also develop a 1.6-hectare property in front of the Asian Development Bank compound in Ortigas Center, which is currently a vacant lot, where the company hopes to construct the tallest buildings in the country.

For this year, the company will start construction of the 23-story Ibiza Tower in Circulo Verde, which will offer one- to two-bedroom units, sized from 44 to 80 square meters per unit. Also underway is the construction of the 11-story Majorca Residences with one-, two-, and three-bedroom units, sized from 42 to 107 square meters. Both projects will be completed by the third quarter of 2012.