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?
- 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?
- 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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