Real Estate Investing 101: Tiny Space, Mighty Returns? The Studio Unit Investment Playbook

Investing in real estate is a tried-and-true method of building wealth, and condominiums, particularly studio units, present a lucrative opportunity for those looking to enter the market. In this guide, we’ll explore the benefits and strategies of investing in studio units, using real-life pricing scenarios within Megaworld’s Iloilo Business Park, a prominent township in Western Visayas, as our case study.

Why Smaller Units Such As Studios Are The Best Condo Investment

Smaller units, like studios, are often considered prime real estate investments for two main reasons:

  1. Rentability: Studio units are highly attractive to renters due to their affordability. This high demand ensures that these units are rarely vacant, providing a steady stream of rental income.
  2. Resellability: Studios and one-bedroom units are the easiest to resell. Their affordability makes them appealing to a broad range of buyers, ensuring that investors can exit their investments quickly when needed.

These advantages allow investors to remain flexible, either continuing to earn passive rental income or cashing out when the market is favorable.

How Do You Earn Via Real Estate Investment?

1. Property Appreciation

Property appreciation refers to the increase in the value of your property over time. Selling the property at a higher value than its purchase price yields a profit. However, the process involves several factors, including inflation, taxes, fees, and the overall demand for the property.

Let’s examine a real-life example with rounded figures for simplicity:

In 2014, you purchased a studio condo at Lafayette Park Square for ₱2,500,000 during the pre-selling period, opting for a full cash payment. Over the past decade, the annual inflation rate in the Philippines has been approximately 3.1%, meaning ₱2.5 million in 2014 equates to around ₱3,397,250 today.

The average appreciation rate for Lafayette Park Square is around 7.5%, making the studio unit worth about ₱5.2 million today. If you decide to sell it quickly, pricing it at ₱4.5 million should attract buyers. After accounting for capital gains tax and selling fees, you would net around ₱4 million.

Here’s the simplified math for your net ROI after 10 years, without considering any income from renting out the unit:

{Net Sale} – {Cost of Property} – {Taxes & Fees} = {Return on Investment}

₱4,000,000−₱3,397,250−₱200,000=₱402,750

Although the gain of ₱402,750 may not seem substantial, the investment’s value can grow significantly over time, especially in prime locations like Iloilo Business Park.

2. Rental Income

To maximize your investment, renting out your studio unit is a wise strategy. Furnishing the unit, which costs around ₱200,000, can transform it into a lucrative rental property. Monthly rental rates for studios are about ₱30,000, while transient stays can command ₱2,000 to ₱3,000 per day.

Assuming an annual rental income of ₱300,000, over five years, you would have earned ₱1.5 million. Subtracting the initial furnishing cost, your net rental income is ₱1.3 million.

Adding the ROI from property appreciation:

₱1,300,000+₱402,750=₱1,702,750

In this scenario, your total profit from the investment is ₱1.7 million. Continuing to rent out the property increases your returns, but it’s advisable to sell before the market saturates, typically within 15 years.

Summary

Investing in studio units offers several advantages:

  • Easy Rentability and Resellability: Smaller units attract renters and buyers quickly, ensuring a steady income and liquidity.
  • Value Appreciation: Real estate in prime locations appreciates over time, providing a reliable return on investment.
  • Maximized Earnings Through Renting: Furnishing and renting out the property can significantly increase your cash inflow.

When investing in real estate, consider the location, inflation rate, taxes, fees, and demand for the property. Studio units, particularly in prime areas like Iloilo Business Park, offer a promising investment opportunity with substantial returns over time.

Real estate investment requires careful planning and consideration, but with the right approach, investing in a studio unit can be a mighty way to grow your wealth.