LIQUID OR REAL ESTATE INVESTMENTS: WHICH IS BETTER FOR YOU?

Usually in a developing economy, where the fundamentals of production and consumption are in placed, the circulation of money should be continuous. Where the demand for production and consumption of goods and services are robust in a vibrant economy, the benefiting factor is the employment component. 

Where there are employment opportunities for all possible types of labor and the consumption trend is steadily increasing, the disposable income derived from steady employment more than sustains the revolving wheels of economic prosperity.

Employment creates more products and services that are patronized and sustained by the consumerism population which derives their personal income from employment. As more jobs are created, more personal wealth can be accumulated. The availability of extra disposable income entails a serious responsibility for its earners. How does one keep their extra income to sustain the momentum of economic growth?

Extra disposable income as the term implies is actually excess income. It is income derived from one's occupation or exercise of a profession or business that is over and above one's monthly basic spending necessities. This is excess money or savings that can be parked in liquid assets such as short term monetary instruments such as time deposits, stock markets, bank or treasury certificates or company bonds that can easily be convertible to cash when the immediate need for it arises.

On the other hand, the same excess money can also be placed in long-term investments such as real estate investments. Both are good options to safe-keep one's excess income or savings; but the benefits to be derived from each option is highly dependent on the owner's short and long term financial goals. The investor should sit down and make a priority list of personal goals and objectives as they have a direct bearing on the financial aspect of one's future actions.

It is a definitely an excellent idea to keep a certain percent preferably 40% of one's excess income on risk free short-term instruments. These would provide an emergency fund buffer for unexpected events such as medical emergencies; sickness or birth in the family, or for sudden lose of employment. 

The same readiness and easy availability of short-term instruments makes it readily dispensable and easy to be spent on impulse buying and indulgent shopping. So it is best that a limit or cap be set as to the amount that can be utilized unless of course it is really meant for dire emergencies.

On the other hand, excess savings that are parked in realty investments should be considered as long-term investments. Real estate properties, no matter the type are not readily convertible to cash in such short notice, unless one is willing to sell it at a loss or lower than the existing market value for which it is currently traded. It is therefore good assumption, to consider real estate investments as semi-permanent saving instruments; if the intention is to keep such property over a long period of time.

Real estate investments entail maintenance costs such as payment of monthly or annual maintenance/improvement assessments and realty property taxes which are adjusted upwards from time to time based on the assigned zonal locational value. So if these properties don't generate rental income for its owner, the cost to maintain such become a financial burden in the time that it is kept in its investment portfolio.

However, if the same realty property is an excellent source of rental income for its owner, the tremendous returns that benefits its owner can become a perpetual source of personal income for the duration of its lifetime of ownership. Depreciation is the biggest setback of property ownership as its net value decreases over its useful years and extensive maintenance requires additional assessments for its upkeep.

Whatever your choice of safe-keeping your excess income, the best person to decide on an excellent mix between short-term or long-term investments can only be you, and not the financial adviser. You alone are the best financial adviser for your economic state-of-affairs since the volatility of life and the fluidity of the times require one's readiness to adapt responsively to the situation-at-hand. Remember, you are the person responsible for earning, spending and keeping the wealth, you make!

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REAL PROPERTY INVESTMENT DECISION MAKING

In life, after getting married and raising a family, the next most important major decision we'll ever make is buying real property. Acquiring sound and good real properties whether for personal use or for long term investment is a crucial decision that requires extensive research and careful thoughtful planning.

Here are some important points to consider before buying your first real property:

1. Identify your primary purpose for purchasing a property. Traditionally, people consider buying their first real property for residential use; which is normally a house and lot in a residential village in the suburbs or a residential apartment in a condominium complex in the city.

For a starting couple intending to raise a family, a two or three bedroom house in a residential subdivision would be practical and more suitable for the expected arrival of children. A house and lot with a spacious yard provides ample space for the children's playground and the neighboring houses with their kids offer interactive playmates which is conducive for the children's formative social development.

The busy working couple who are rather career-oriented may find a residential condominium more suitable to their busy working lifestyles. Aside from the modern conveniences and luxurious amenities built within the condominium complex, the availability and proximity of commercial establishments offer the practicality that a fast paced lifestyle require.

2. The golden rule for the wise selection of an excellent property investment was, is, and will always be about location, location, location.

In the case of a house and lot in the suburbs, the location of the subdivision should ideally be in the central part of the suburb close to the commercial establishments and offices and future schools of the children.

Residential Condominiums are mostly located in the cities within proximities of commercial complexes such as shopping malls and office complexes. The great advantage of staying in a residential condominium is the built in feature of a continuous security monitoring arrangement. This is the strongest and most desired reason for living within high rise structures. The monthly dues that are collected from the owners is an assessment to defray expenses for the maintenance requirements of the security, garbage and upkeep of the common areas and the entire building.

In some expensive and prime condominiums, the monthly assessment can escalate to a hefty sum that is equivalent to the monthly rental of a modest apartment in a middle class complex. Considering that monthly assessments only tend to increase over the years together with the increasing annual property realty taxes, it could be a lifetime maintenance burden to a prospective property buyer.

3. Take into account your available finances on how to best acquire the considered property. This entails dutifully making a personal evaluation of your finances to determine the affordability and your ability to complete the payment scheme being offered in the transaction.

Careful evaluation of the available payment schemes as to savings and period options is a must if only to avoid a possible miscalculation of your finances and the consequential forfeiture and confiscation of all unfinished payments already made to the developer, banks or financial institutions.

4. When adequate finances permit, ask for the best payment terms. If you're able to make a one-time cash payment, buyers are usually entitled to a cash discount. The rate of the discount given varies and is dependent from the developer or owner of the property and it is customary to negotiate for the best cash price with them before making actual payment.

Term payments are installment payments over a fixed period of time that is usually set by the developer or owner inclusive of a fixed interest charge that is consistent with current housing loan rates. The monthly installment consists of the principal amount inclusive of the annual interest charges that is standard to availing of a housing loan package.

5. Now that you've done your calculations on how to make that payment, it's time to make the very important decision to purchase that property. It's important to note that there are two types of real property offered in the market.

There is the traditional type, the already existing ones and the pre-construction projects that are still to be built. There are certain inherent advantages and disadvantages of one over the other.

For the conservative and sure buyer, nothing beats the already built and existing properties. Some buyers prefer to see the property on an as is basis before buying as this assures them on what they're actually getting with the purchase.

This is also convenient in that the buyer can actually plan on making interior improvements based on what is being delivered with the purchase. Prices for such properties are usually cheap compared to non-existent pre-selling properties since they were built and priced in market values years prior to completion of construction. The only drawback is that sales or resales of such properties are often quoted as single cash transaction. For someone whose cash flow is insufficient to cover the one-time payment, bank financing is the solution.

Pre-selling of future properties entail some sort of completion risk. The primary reason for pre-selling a project is to raise the financing from prospective buyers to finance the construction of the proposed project. Though this option is most favorable for term buyers, the greatest risk is the inability of the developer to complete the construction and deliver the project on the proposed completion date.

It's normal practice for some developers to save and scrimp on construction costs and the direct result of such unfair practice will affect the quality of finish of the proposed development. So before making a decision to buy on pre-selling projects, always check on the reputation, character and financial standing of a property developer.

In the end, good common sense goes a long way in helping you make the right property investment decision. Buying real property is a major investment decision that you will be deciding on not only today when you need it immediately, but also tomorrow when you want to sell it to move and upgrade to a bigger and better property.

If you need to make the best major decisions on real property investments in the Philippines, email me at paywined@yahoo.com. I'll be more than happy to assist you in making that all important right decision of acquiring your future Philippine real property for your personal leisure and retirement use.

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