Tomorrow I will be one of the panelists in a PhilStar webinar on real estate investing together with Francis Kong.
I may not have talked a lot about real estate investment in my past articles but do you know that it occupies the second biggest chunk of our portfolio? If you have been following me, you probably know what asset class occupies the top position. 🙂
Real estate assets take the number two spot in our portfolio because it plays an important role in our Asset Allocation.
Asset Allocation is the single most important decision you have to make in managing your portfolio. Your selection of stocks, bonds, real estate properties, art pieces, and other investment instruments is just secondary to your decision on asset allocation.
Today we focus on real estate investments by sharing with you our own experience.
Marvin and I got married in our twenties with no real estate properties. We had equity and fixed income investments. After a few years and into my second pregnancy, we bought a lot close to my parents’ home. It so happened that two of his and one of my siblings also lived in the area. A few months after, we built our home (with no contractor as I narrated in the FQ Book 1 and Raising Pinoy Boys, in order to save on cost.) Living near your family is a big plus when you are raising your children. You can count on them to the rescue in times of emergency and trips abroad leaving your young kids at home. Of course, it is also easier to fortify the familial bonds when you are living close to each other.
As the years passed, we invested more in different asset classes – primarily, equity or stocks, fixed income instruments, and real estate. For quite some time in our marriage, our asset allocation was 1/3 fixed income, 1/3 equity, and 1/3 real estate.
As the market moves in different directions and as we move from one life stage to another, we also rebalance our asset allocation. Today we have significantly reduced fixed income instruments. And because of our familiarity and comfort in the long-term returns of equities, this asset class now occupies the top spot, followed by real estate. We have added a bit to our real estate assets (which started as just our residence) to include some for rental income and also for capital appreciation or maybe retirement home? J
I wish to share some insights that may help you in making your own real estate investment decisions:
- The return on your investment in your home (probably the single biggest chunk of your real estate portfolio) is not just its price appreciation. It is going to be the repository of family memories. To me, it is the place where we raised our three sons, now all grown up, where my husband and I fortified our union, where we shared fun times with family and friends, where we rested, and argued, where we really lived. So, in choosing your home, consider all the things that would make you live your dream life.
- Real estate prices are quite resilient in the Philippines. In my decades of observing investment options, I notice that prices of real estate don’t really plunge drastically. They usually plateau but hardly go down in times of crisis. I would only hear of properties losing their value because it’s “NPA-infested.” This is because real estate crashes are closely related to over-borrowing. In the Philippines where home loans are not that easy to get, not many people are able to buy without their own equity. The biggest real estate market crash I’ve seen was during the Asian Financial Crisis in 1997. That was the time we relaxed credit.
- Real estate investments provide a valuable hedge against inflation. Real estate returns tend to be more closely related with inflation over time compared to equities or bonds, especially when inflation is accelerating. Real estate leases adjust to reflect inflation, especially in commercial properties. Property prices also rise as the cost of construction rises with inflation. Given these, this asset class provides that valuable hedge to preserve your purchasing power when inflation accelerates.
- Real estate investments, according to industry expert David Leechiu, is sexier than any other asset class. It’s so much easier to make yabang (flaunt) your property than your shares of stocks or bond certificates. But this “sexiness” comes with challenges as discussed in the next items.
- Real estate is not liquid. It is so much more difficult to sell real properties than the other asset classes.
- Beware of the other costs involved. Even if it’s so nice to say, “I bought this property for P10,000 per square meter back in 19-copong-copong and now it’s P100,000 per square meter!” but please don’t forget the homeowners’ dues, taxes, maintenance, headaches, etc., that also went with it, in order to properly assess the real return you made.
- Can you afford the mortgage? Always take into account the interest rate and the total amortization that you are committing to if you’re using loans. Don’t squeeze yourself too much that there’s no more elbow room for other expenses. And please make sure that your emergency fund and some protection funds are already in place before you acquire that next real estate investment.
I hope the above insights help you in figuring out your own real estate investment. Cheers to high FQ!
- I hope to see you at the “Investing in Property in the Time of COVID-19” with PhilSTAR columnist of “Business Matters Beyond the Bottom Line” Francis Kong and yours truly. This is a webinar organized by The Philippine Star Property Report PH in partnership with Rockwell Land. Register here: https://www.virnew.com/property-report-moving-forward/
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