Investing smartly in condominium projects in the Philippines, How it works.
as published in phinvestors.com
By investing smartly in certain condominium projects in the Philippines investors are able to generate 80% to 85% annualized Internal rate of return (IRR) . It's an opportunity created by the Philippines' booming economy, and one that uses a unique, staggered downpayment model.
A Pre-Selling Under Construction Condominium
Several property developers in the Philippines offer flexible payment schemes in their condominium project. A staggered down payment means a buyer or investor pays a small amount every month usually about 0.5% (half a percent) into owning a condominium project for 3-4 years.
The developer uses money from several such buyer/investors to fund part of the construction. Typical price appreciation for a condo in the Philippines over the past several years has been roughly 7%-8% annually, and that is a very conservative estimate. This growth is expected to continue. As development nears completion, there would roughly be a 35%-40% overall price increase in their property.
At this time end users-buyers pay the remaining balance which is usually 70%-80%, with cash or bank financing; investors on the other hand flips their unit in the condo, before they have to pay this 70%-80% balance creating an annualized Internal Rate of Return (IRR) of 80% to 85% percent.
This is because, while the initial investment is a small amount paid in equal monthly installment payments, the appreciation is at the face value of the condo, and not on the actual amount invested, hence the IRR is incredible.
For example,
An investor called John invests about $300 a month into owning an under-construction high-rise condominium unit with a face value of $70,000.
The developer uses these monthly payments from John and other buyer-investors to fund construction that requires about 4 years.
John decides to flip the property after 2 years; after investing in a staggered way a total of $7,200 ($300 X 24 months).
Meanwhile, the unit has appreciated about 8% annually. That means its current market value is about $81,600.
After costs and expenses, such as brokerage fees and transfer cost his net profit is still roughly around $7,000.
That's a whopping 85% Annualized IRR on his actual monthly part payments.
The pre-selling model is a growing trend in the booming real estate industry in the Philippines, and a number of investors, local and foreign buyers, are starting to realize how it can create them massive wealth.
