One of the more popular ideas or strategies Pinoys have when it comes to generating income is buying properties and renting them out. After all, the image is sooo alluring — You work. Buy a property. Rent it out. Sit around and collect money on a monthly basis.
Well, like many things, something that sounds so good rarely lives up to expectations.
Consider the following article: http://www.bloomberg.com/news/articles/2015-03-15/no-let-up-in-manila-s-record-building-boom-triggers-glut-concern?cmpid=yhoo
Yes, we’ve all heard the concern about a real-estate bubble repeatedly over the years but if you REALLY read the article you will find a rather interesting piece of information.
“Rental yields will be 3 percent to 4 percent in 2015″ — Antton Nordberg
While it is somewhat unclear as to whether that yield is Nominal , Real, Gross or Net; I think we can all agree that it is still quite small considering the millions of pesos that the usual property buyer has to fork over.
This is made even worse if you consider that the yield quoted above most likely does not include the interest costs that buyers have to pay on their loans.
Put another way: Does it make sense to pay 6% or more per year for money that you will use to buy an asset that will only earn you 3% to 4%?
(Yes, yes, that asset can be sold for a POTENTIAL capital gain and we will discuss that on another article. )
As always, comments, reactions and suggestions are very welcome.