Is Buying a House or a Condo Unit An Investment?
This article is posted under Investing, Personal Finance.
If you walk around malls and business centers these days, it’s typical that you’ll meet a real estate agent handing out flyers for townhouses, property lots and condominium units.
Their primary sales pitch?
Buy their real estate product as an investment:
“Bili na po kayo ng condo unit sa amin, magandang investment po ito.”
Even their brochures, billboards, newspaper ads, posters and almost all of their sales and marketing materials say it:
“Invest now for as low as P8,000 a month.”
Sadly, many people believe them… specially OFWs and their families – who would now spend so much money paying for something that will never ever become an investment for them.
So if you or someone you know, is planning to buy a house and lot or a condo unit very soon “as an investment”, then I hope you or that someone you know, can read this post first.
What Is An Investment?
Simply, an investment is something that makes you money. Alternatively, if something’s costing you money, then it is a liability. And lastly, if it’s neither giving nor taking cash from you, then it’s simply an idle asset:
- Investment: gives you money
- Liability: takes money from you
- Idle Asset: just sits around doing nothing
Please note that these are not exactly your textbook definitions. But they’re close enough for you to fully appreciate the rest of this article.
A house or a condo unit IS NOT AN INVESTMENT if:
- You or your family will be living there; or
- You have NO PLANS of selling or having it rented out.
But it is an investment, because the value of the real estate will eventually increase. Thus, it is really making me money…
That thinking is mostly wrong because:
- As defined, if it’s not making you money that you can physically hold – then it’s not an investment; it’s probably just an idle asset, or worse, a liability.
- And even if it does appreciate in value someday, if you are NOT willing to sell it, then again – it is not an investment because there’s no physical cash going into your pockets.
Now, before all the real estate agents bash this post in the comments section. Let me offer you the other side of the coin.
A House or a Condo Unit IS AN INVESTMENT if:
- Your MAIN PLAN is to sell or have it rented out once it’s ready.
- You plan to leverage it as an asset to get portfolio income.
Caveat emptor… let the buyer beware:
- Selling real estate
- If you buy a property at market value, then you would have to wait several years before you can sell it for profit (and that’s assuming its value will increase more than the rate of inflation). Can you afford to have your money frozen that long?
- If you buy a property at “cheaper” pre-selling prices, then you would have to again, wait for the unit to be turned over to you, before you can sell it. What if the developer doesn’t finish on time? Can you afford the risk?
- Renting out real estate
- Is your property located in an area where there will be renters?
- Will your rental fee be more than the monthly mortgage you’re paying? If not, then it’s theoretically not making you money and it will become an investment ONLY after it does.
- Are you knowledgeable with property management and maintenance? For example, do you know how you can legally evict non-payers and trouble-makers?
- Leveraging on equity
- Earning portfolio income is often practiced by savvy investors. If your only paper asset is your time deposit account, then you’re not at this level yet.
- Leveraging on real estate equity typically involves buying another property. So if buying this house or condo unit is just a “one-time real estate thing” for you. Then you might want to reconsider your plans.
As you can see, buying a house and lot or a condo unit as an investment is not as straightforward as it seems to be.
Often times, we get blinded by our aspirations of becoming a home owner or living a condo lifestyle that we fall into the trap of buying real estate property under false pretenses that it is an investment.
So always have your objectives clear.
Want to learn more? Then check out and read: A Primer on Real Estate Investing
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Welcome to my blog, Ready To Be Rich.
Hi, my name is Fitz and this is my blog.
I totally agree with you. What most people don’t realize is that their house (if they only own 1) is not an investment. They can sell at the top of the market for top dollar, but since they don’t have another house, they have to buy another house for top dollar.
I agree with this article. OFW’s who have been scammed – UNITE! There should be a law or regulation that would prohibit such practices. Then again, a futile attempt to correct many millions of “beep” in Philippine society.
very timely post.. thanks sir fitz!
Buying condominiums has been the “trend” in the Philippines recently – but it is the lack of proper education on real estate investing that entice Filipinos, especially OFWs, to be trapped on this investment. Kudos to you, Kuya Fitz, for making this entry and I hope that many Filipinos would read and be enlightened through your post.
On the other side of the coin, if you are renting a house/apartment/condominium for Php8000 per month, why not buy your own, let it funded by Pag-ibig and pay the amortisation of Php8000. This is *not* an investment – but then, why rent when you can own it, dbah?
Ouch! This article is so harsh. Hehehe.
Fitz, I know you are just clarifying what constitutes investing and you are not bashing condo investing per se but I am sure a lot will walk away thinking condo investing is bad. I would just like to share why I think condo investing can be a good thing (even if that is not the point of your article).
I imagine a condo or property investment is still ok if you can get tenants and if it will periodically appreciate in value. My point is, if you can get a quality property and a good location, why wouldn’t you be able to find lessees right? And why wouldnt the property periodically appreciate in time? So to me, condo investing shouldn’t be that scary and might even be a good idea. I was told (by a real estate agent hahaha that Serendra originally cost 70k only, well now it is around 120k or even 150k.
Moreover, if you pay amortizations, then you are also practising a form of forced savings. We all know the importance of saving or paying yourself first but how many of us actually strictly enforce it continuously for many years? With a property investment you will surely pay yourself or your property first for the duration of the loan.
In addition, isn’t leasing business one of the best ways of earning passive income?
My only issue w condo investing is — should you buy pre selling? or look for old but quality condo units that you can rent out, because w preselling, many years are being wasted with your money idle the whole time.
Thanks!
@Lyn-Lyn
That’s actually a big debate in the personal finance world – if it’s better to pay rent or buy a home. Perhaps I’ll write about that soon here.
In any case, personally, I lean towards the “renting” side because given that the expense will be the same, then I’d rather choose to have location freedom.
Over the past ten years, I’ve lived on rented apartments in Quezon City, Makati, Las Pinas and currently, in Paranaque. And last year, I’ve had the idea of moving to Iloilo or Davao – which I might follow through soon.
Moving around that much has helped me gain a lot of friends… and more importantly, “minimize” my lifestyle – which complements my frugality.
Indeed, I love the “location freedom” that I have that’s why I’ve chosen not to buy a home property for myself. And maybe people who are renters feel the same way too.
But still, who knows, I might just decide to settle in one location, buy a lot and build my dream house there – I guess we’ll never know until we get there.
@Maxwell
Thank you for sharing your thoughts.
I agree that condo investing can be a good thing, but only if you really know what you’re getting into (ie, fully understanding the caveat emptor items I mentioned).
The problem I often see is that many people think that simply buying a condo unit (or any real estate property) is already an investment. They fail at converting that into an income generating asset (so as to be properly called an investment).
And while real estate do appreciate in value over time – again, if you’re not willing to sell it, then it’s not an investment.
A friend of mine bought a condo and he’s been living there for almost five years now. I asked him earlier if he’d be willing to sell his unit if someone offered to pay at market value (which is now about 30% more than his purchase price).
He said “NO”, because the unit has already become his home.
Many people buy real estate property and say that they’ll “sell it later”… but often times, over the years, they “fall in love” with the property and never sell eventually – thus making it a “failed investment” by theory.
Moreover, I don’t think paying amortizations is a form of forced savings, because there are risks involved – the property can depreciate in value and your money is not very liquid – instead, I can see it as a “regular investment plan”.
And if you’re buying a condo unit under the assumption that it is forced savings – then perhaps it would just be better to instead invest in a mutual fund that has real estate assets in its portfolio.
Because this way, if you decide to take a vacation and use your supposed investment money for the month – then it’s okay because there’s no risk of defaulting (and incurring penalties or interest fees).
Plus, if you suddenly need money, then it would just take less than a week to redeem your cash in a mutual fund – unlike in a real estate investment where it could take weeks (or months) to find a buyer.
Unless of course you have the network (which many don’t have), and you’ll be willing to sell it at below market value.
Lastly, I personally believe that the best way to go about condo investing is through foreclosed properties, or second hand units.
Because first, you’ll be able to get it at below market value. Second, you already have an established community in the area that will help you evaluate the potential of the property. And third, it’s immediately ready to make money for you.
But buying a house would be far better than renting one, because the latter is technically money down the drain. So yes, I still agree that buying a house esp. if you’re going to live there isn’t technically an investment as it’s not generating income for you… but at least it’s got that ‘investment’ potential, than a rental house.
One more commonly overlooked thing is if you pay for mortgage on a property, and plan to sell it later, most probably, the total amount you paid to the bank would have been around the same amount (or even higher) than the market value. Thanks to interest and inflation.
I think real estate investing is best if:
- you pay cash (or better: if you use passive income from business to pay for it)
- the area will surely develop significantly in the next few years (if it is already developed, then the increase might not be too high)
- the property is really being sold at a steal (owner is desparate for liquidation)
The part that burns most people is when they use their hard-earned salary from a job to pay for monthly amortization of their property. Then they are excited to move in soon, furnish their new shiny property (which usually costs 2-3x their initial furnishing budget), and supposedly they will live happily every after. But the truth is, after 6 months or so, they get tied up at work, and they can’t quit or get fired because they have to pay the amortization (and sometimes the credit card bills from the furniture and new TV, aircon, etc). Not a good situation to be in. Thank God for articles like this, and for people like Fitz.
@Liza
What you said is true regarding the “investment potential” of a bought house. Indeed, rental money is cash down the drain, i.e. an expense.
However, your monthly mortgage is likewise “cash down the drain” and will only become an investment when you convert or leverage your property to create income.
And when it comes to real estate, not many people know how to actually “unleash the potential” of their properties.
I’m not saying that buying a house or a condo unit is bad… I’m only saying that one should not be so quick into thinking that it is an investment.
And like all other things that you want but don’t generate income – one should only buy it if one can truly afford it.
Very good article!
As an Architect, I do encounter a series of questions regarding condos and townhouse “investments” from my clients. Most of the time i find them sucked in by various marketing strategies and looking for my validations that the condo they thought as an investment would actually be profitable to them in the near future.
In terms of condominiums, may I share that the structural integrity of any building is only up to 10-15 years. After that, the architects and engineers are not any more liable if it collapse. But do not worry, every year, building inspections are strictly conducted and restrictions are reinforced in terms of constructions inside the units to prevent structural damage and deterioration. I always say to my clients that when buying a condominium unit always think “50 years from now” the building developer will bring it down, and you own nothing but airspace and a minimal share in the property. what do you do then?
I prefer to buy a house and lot rather than a condo because 50 years from now, i could give the land title to my son/daughter and let them renovate or build a new home for their family.
Always think Long term.
There are also “rent to own” housing schemes. when I was still in college, I suggested the idea to my best friend who happens to be my classmate in architecture… after 5 years of studying in manila and splitting the bill with her older sister, and 5 years of working in singapore, she now owns the house and the lot and currently making profit from it by renting it out to a Karinderya.
Relocation sites are also a good investment or should i say a good buy but not all are… Location is key. In Dasma Cavite, approximately 10 years ago, a relocation site was given to illegal settlers and was made affordable to them. Many of them sold their property in exchange for instant money (lets say 30K -60k) they sold it for various reasons like “it is far from manila”,”no work”, etc. But the relocation site is near the Industrial Park of Cavite. I guess, some are just blinded by the instant cash and did not see the opportunity. Right now, the properties that was brought 10 years ago, by a Seaman for (30k-60k)is generating money year round by renting it out to factory workers.
As a Real Estate Agent here in Philippines, Real Estate Investor in USA (Buying Foreclosed / REO /Bank owned properties)in Florida and sell them. I can say that I am in investor and I am investing. Buying homes in very low price then renovate them and sell them. We bought houses like US$80,000.00 ( aprox 3M pesoses) and sell them up to US$120-150,000.00 (aprox 5-10M pesos).
This is a very great article. You helped people to determined the real meaning of INVESTMENT.
Keep it up. I am now your new follower.
Larry C.
very informative article!
I have 2 co-OFW, the first one buy a townhouse and the other a condo unit. now, both of them are paying the amortization for the last 4years already.
As for me, i need only less than a year and i’ll be leaving my work for good..god willing. but, my co-OFW will stay more here in our company for at least 6 years just to pay for it in full.
we make choices, but i thank god..i made the right choice.
thank you sir.
I agree with you! We usually feel great to have these kind of investments but knowing the real essence of investing we realized that it doesn’t payback a great value for our investment at all. Unless we know what we are investing and how much we money we want from our investment. People should learn what to invest in and learn more how to make their money grow.
hi there!
thank you for this post. it is very educational. i think most of us really want to earn. we are overwhelmed by the idea of earning that we tend to dive into anything that sound worth investing. because of our eagerness to have more than what we have today, we end up spending instead of actually earning.
Is Buying a House or a Condo Unit An Investment?
Thanks. Buyers should know their goals before buying a real estate property. And most importantly, the level of risk they will be facing by the time they signed the contract.
Some buyers fail to continue paying for the property because they failed to calculate the risk involve on whether they can really pay the whole amount, some ended up on foreclosure and losing everything they paid for.
Hi Fitz,
If you do plan to purchase a property for investing purposes, which is recommended? To buy in cash or bank financing or Pag-ibig financing? I admit I can’t do the cash option yet. What are the pros and cons.for each financing option?
Secondly, I plan to buy a retirement home, Is it a good idea to buy now (lot only) or later when your nearing that age?
Thanks.
Hi MC,
Bank financing is usually the best option for buying investment properties, specially rentals. Pag-ibig is best for buying your own home, in my opinion.
Buying in cash freezes your money into the investment and may not be a good option, unless you’re confident you can sell the property within a year or two.
Lastly, if you can afford it, then go ahead an buy that retirement home lot. The only problem I see there is you might change your mind later on and decide to live your retirement years somewhere else – but in any case, you can always sell that lot if that happens.
Thanks Fitz. Happy Birthday to you. Wishing you more wisdom to share and good health.
yes, I agree that buyers should know these things. But bear in mind that there will always be RISKS on investment. The higher risk, higher return, That’s basic. The only risk I know on Real estate investment is Liquidity. Because you really have to look for buyer before you realize your returns. However, if the goal is conservative investment, I’ll still go for a condo, rent it out and sell it.