Buying a house and lot, specially when you are younger with lesser financial responsibilities and more freedom to decide, is really a smart decision be it financial or otherwise. Read on as I show you why buying a house while you're young can be incredibly beneficial.
Real Estate is a great investment
Being a professional, you must have known about different types of investments. You might have heard about Stocks, Mutual Funds, Bonds. This investments are really good if you can handle the risk involved, they do not have a guarantee of giving a return of investment and require a very adequate knowledge of the ropes in order to be succesful. Although I recommend investing in one of these as they can really be profitable in the future, it wouldn't hurt to diversify your investment portfolio. One type of investment you can't be wrong about though is Real Estate investment, why?
Because real estate value does not depreciate and will only grow in value over time. There are many factors on how this actually happens most of it is because of inflation, the law of supply and demand, capital improvements and other factors. Actually, the only part of real estate that does not depreciate is the land that comes with it. Which is why it can be considered that House and Lot may be better to Unit only properties such as condominiums. Wikipedia have even noted that Real estate investment has traditionally outperformed the wall street equity market. For a more accurate explanation about property appreciation you can check out this link from investopedia.
Even though all of the points proven that real estate can be a good investment we should still keep in mind that in any investment we decide to put in. adequate research and a fair knowledge about the matter should be in place.
We must always consider very carefully whether the property we are planning on buying is really a good investment or not. Remember not all properties are created equal.
Buy a property while it's cheaper
Remember when we discussed earlier how House & Lot properties do not depreciate? I do not mean to scare you or anything but failing to buy a property early on may cost you more than, say 5 years ago. Back in 2007 I'll share with you an infographic from the economist showing a sample of the arising cost of buying a house property from 1997 up to 2010.
prices are only getting higher and higher.
You might ask how the house prices just continue to rise over the years well, the major player contributing to this one is inflation. Inflation is caused by the increase in the amount of money that are being circulated. Value of money declines when the supply of money increases and this results to an increase in prices. The raw materials like concrete,construction materials, labor services and building permit fess involved in building such a house is not an exemption to this rule and affects the prices as well. But these factors alone does not guarantee in an increase of value for your property. We need to be careful and not be too tempted in buying a home that we fail to notice other factors such as poor upkeep, worsening living conditions such as crime or the effect of weather in an area and plenty more could risk in a decline of value in your property specially when the costs to maintain, repair or upgrade your home are increasing.
a glimpse of general decline in an area
I have personally experienced buying a house and lot when they are still only pre-selling. When I bought my first house and lot when I was 23, the total price of this House and Lot in Cavite back then was only 900 thousand in pesos, but now it amounts to 1.2 million.
In relation to buying a property early and while it is cheap, watch out for most of the real estate development companies release promos and discounts on properties and subdivisions which are newly opened. So it might be the best time to buy when you see one where it is worth it (affordable, good location etc.). Of course you should also consider whether you can really afford it as well.
Limited House and Lot Vacancies
Another cause of price increase in property is Supply and Demand, but this can make the value to either go up or down. The demand for real estate can differ greatly according to different areas and their living conditions. Factors such as the number of people who have jobs and earnings can affect demand even the general conditions of an economy can affect the price of a house & lot property. Supply as much as demand can affect Real estate prices as well, a surplus in supply can cause price value of a home to decrease while limitations in supply can cause the price value to soar up.
Factor in other factors involving demand such as levels of interest rate, availability of prime areas which means proximity to general establishments such as schools, markets, hospitals, parks and other infrastructure can affect prices as well.
It never hurts to check a map.
Unfortunately, availability of these prime areas is on a continous decline as well. According to a census from the philippine statistics authority there has been a continuous increase of occupied housing units in the country. The lack of available House & Lot properties become even greater when we look at places where there are high development or prime areas such as Metro Manila.
So if you want to consider owning a property that may be dubbed as the next prime area, you should be on the lookout for on going developments and plans that will soon be established in a relatively unpopular area.
House and Lot can be a source of Income
Many of you have probably known about becoming a Landlord and renting their House and Lot. The business model is fairly simple you just need to look for people interested in renting your place out and you can earn a monthly passive income for it. I have been following a very interesting blog called investfourmore that proposes real estate investment as a means of financial freedom and being able to retire early. He even has a cool ambition of owning up to a hundred rental properties and rely solely on them as investment.
a sample computation of income from property rentals
But becoming a landord isn't necessarily very passive when you are starting out. There are things to consider when you want to put your property for rent.
- Plenty of cash - Banks and other Home loan providers have tightened their standards significantly which means that down payments may require higher amounts that can reach up to at least 20 percent of the total price of the House & lot property. If the downpayment seems to much for you then it may not be the time to buy the house yet.
- Tenant Risk - Many people think owning a property to rent is a sure fire money making endeavor, but this can be far from the truth. One of the most common are bad tenants some may cause damage to your property and some run away from their payments so it's very important to create contracts as a safety measure in case this happens. Here is a sample of a basic tenant contract. I've also included one specific for the philippines you just need to fill out the details and it creates a template for you.
- Random bad things - Sometimes we just can't control the bad things that may happen unexpectedly. More so, from the philippines when there is a higher risk of crimes such as break-ins and the risk of your property being damaged by weather. But the best thing to do is just to prepare for these if they might happen. "Hope for the best, but prepare for the worst."
But despite these risks, I can assure you that with proper research on your property investments and the right management of your property, it will be a huge payoff in the long run,
Let me share you a neat tip, Try to look for Financial institutions that give you convenient home loans, then try to match the Rent fee with the Monthly Fee of the loan. This gives you the advantage of using the rent as payment for your Home given enough time it may seem that the Home you bought to almost seem free. The property pays for itself. Now if ever you choose to follow up this method you can use the cashflow from your previous property and invest it on buying a new one. They call that method the snowball and it is simple and practical as it is smart.
Benefits for your family
I think the best benefit of owning a house and lot is not the ones measured by money. One of it is being able to have a place to call home. One cannot deny the fact that having a home can greatly benefit not just your family but even the whole community that you live in.
These social benefits as one may call them are almost too many to list down but I'll try to list down the most important and as many as I can and just share links on the other ones.
According to statistics compiled by Habitat for humanity there are tons of benefits of owning a home for your family to live in.
Homeownership tends to build succesful children. Compared to children who grew up living in families who rent a home.
Children of homeowners tend to be 25 percent more likely to graduate from high school. Children of homeowners are 116 percent more likely to graduate from college. they are able to gain better grades from 7 percent up to 9 percent in subjects such as math and science. They are even 59 percent more likely to own a home within 10 years of moving from their parent's household.
Families who are homeowners tend to attend church as a whole by up to 10 percent. 16 percent of families are likely to belong to productive and community helping organizations and clubs. They are even observed to be less likely to have alcohol and substance abuse problems.
Health benefits are even observed in owning a home when compared to renting because of health risks such that may be a link to ailments and allergies such as asthma in young adulthood. (Chen et al.,2006; Miller and Chen, 2007).
There are many more research and articles involving the benefits of having a home for you to raise your family. If you want to check out more you can read about the article of nhc.org and the Research institute for Housing America.
I hope you enjoyed my very first blog post and I hope I inspired you on starting early and buying a home while you are young.
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