How to Invest in Real Estate Even When You Have Zero Cash
Published: August 12, 2016 | Updated: September 15, 2020 | Posted by: Kristel Silang | Personal Finance
If you’ve been using financial comparison websites, you’ve probably saved a lot of money. Car insurance and interests on credit cards and loans can be expensive if you picked the wrong choices.
Now, saving is the first part of building wealth. If you don’t put your savings into good use that will just be used for another unnecessary expense.
After saving, put the money you saved to work. Putting your money to work will give you more income. These other income sources should not require a lot of time and effort, hence the term passive income.
So how do you put your money to work through investing?
There are many ways you can invest your money. You can invest it in a business, stocks, commodities, real estate, among many choices. Some have achieved greater success in one investment strategy than others since this depends on personal preference.
Is real estate the right choice for you? Then I’ll show you how easy it is to get into this investment with the right knowledge.
You Can’t Go Wrong With Real Estate
This is especially true in developing countries since there is still a lot of room to grow. The potential for real estate value to increase is big. An example is the rise in value of properties in Makati. You can probably ask your parents or grandparents how much the value of real estate in your hometown has increased.
This is because as we progress, we develop our lands with houses, buildings, roads and other infrastructure. These improvements cause property value increase. The only way we are going forward is building more value-increasing improvements.
That’s not even the biggest reason you can’t go wrong with real estate. The biggest reason is that real estate is tangible. You can see it, touch it, feel it, smell it, or if you’re crazy enough, you can even taste it!
You can also say that it’s less appealing to invest in stocks because they are paper assets which you can feel the gains only when you withdraw your funds. Real estate has relatively low risk (like having lean months due to lack of tenants) since you’re putting your money on an appreciating asset and there is a fixed rental rate.
Moreover, no one can just steal away real estate because it cannot be moved.
Shelter is one of the basic needs of us human beings. People will always need it. To the investor, this means having a guaranteed market that will pay him for property usage.
So even if the market crashes and other types of investment are gone, even in the unlikely event that property prices go to rock bottom, your property is still intact. Its existence, physical qualities, and necessity are not affected by the market’s condition.
How to Get Started in Real Estate
Alright, so the next questions most people ask are something like the following:
“Okay, that’s great. But real estate is very expensive, I can’t afford it yet. How am I going to get started when I’ve just spent my last cash on last Saturday’s night out?”
“Besides, I’m so busy with my job. How am I going to run a rental property? I barely have time for myself.”
While it was true that in the past, it was very hard to buy real estate because of the costs. Today, you don’t have to immediately pay the full amount of the property. You don’t even have to pay any cash and you can secure a property to yourself.
Here’s how to do that:
Pay the reservation fee using your credit card.
Most real estate developers today usually require only a small amount to be paid to “reserve” a property you’d like to buy. This ranges from ₱5,000 to ₱25,000 and for some of the high-end projects, up to ₱50,000.To get started even when you have zero cash at the moment, choose a developer that accepts credit card payments for the reservation fee. This would be one of the very few uses of your credit card that will generate money in the future, instead of just more expenses.
Pay your equity in installments.
After the reservation, you usually have 30 days to comply with the documentary requirements (IDs, proofs of address and income, etc.). After that, you have to pay your equity that varies depending on the developer and can be 10% to 30% of the property contract price.To get the most leverage on your money, choose to pay your equity in installments and choose the longest term you can avail with zero percent interest. For some developers and in specific projects, this can be up to 36 months. This way, your monthly installments will be lighter and you won’t be paying any interest at all. The only trade-off is that you can’t use your unit yet while you’re paying down your equity.
Avail of Bank Financing or HDMF (formerly PAG-IBIG) loan, to pay for your remaining balance.
After completing your equity, you will have to pay the remaining balance in the contract price. If your equity was 20%, then the 80% will have to be settled after completing your equity installments.And likewise, to get the most leverage on your money, don’t pay the amount in one-time cash payment. Use bank financing in the form of a housing loan, or use your HDMF member benefits. This way, you will only have monthly amortization instead which is lighter compared to paying a huge amount in bulk. The only trade-off here is that you’ll be paying interest to the bank or to HDMF.
Use the rental income from the property to pay your monthly amortization.
When you’ve availed of a housing loan to pay for your property, the financing institution has paid the developer or seller the remaining unpaid balance you have on the property. You can now use the property you bought after this. You only have to repay your loan from the bank or whichever financing institution you chose.Since we’re talking about investing, a good use for your property is to rent it out. Then use the monthly rental proceeds to pay for your monthly amortization on the loan. This way, you effectively have other people such as your tenants to pay for your loan.
Your loan will eventually be paid off and you still have your property. You can still continue renting it out for ongoing income while you may buy more to increase your passive income.
Bonus: Completely outsource your rental operations for a totally passive income source.
Operating a rental property takes a great deal of your time. To get a paying tenant, you need to market your property. And for your marketing to be effective, you need your property to look nice in the photos and for potential tenants to like your property when they actually come to view it. Then you have to make sure you have proper contracts to protect your investment. And when you already have a tenant, it’s a recommended practice to conduct routine inspections and maintenance activities like aircon cleaning (if you provided the A/C unit) and cleaning of grease traps and/or other kitchen plumbing, etc. This is to make sure your property is maintained in good condition.
If you have a job and you don’t have the time to take care of all these things, you can avail of full-service property management services offered by third-party companies or by your in-house building or subdivision admin. Be sure to ask a few providers and compare their offers before signing a contract with one of them to get the best deal.
You don’t even need any cash at all to just get started and be on your way to becoming the next real estate tycoon. Put your credit card and your savings into good use by investing your money.
Real estate has always been the safest investment you can put your money in. This is not to say that real estate is the best investment. Different approaches work for different people. Try other investment opportunities but make sure to diversify and include real estate in your portfolio. When everything fails, you will still have your real estate properties to fall back to.
This post was written by Nimrod Flores, one of the founders of Phil. Property Expert, Inc., a full-service real estate brokerage firm affiliated with most of the major developers in the Philippines. They also provide award-winning Property Management Services, Titling and Real Estate Appraisal Services.