In today’s market, investing has been a significant demand to the society mainly because of the pervasive relevance of Covid-19 to the livelihood of everyone. No one expected that this situation will take place, however we are all aware that we need to secure our future from these unforeseen events. Most of us are consuming time surfing through internet and setting up meetings with different financial advisors just to ask for guidance on how to have triumphant investment but in order to achieve that, you need to take the risks and turn failures into lessons. There are a lot of investment varieties, one of which are mutual funds, stocks and bonds however, there are still other avenues that can also be rewarding in the long run such as investing in landholdings. Real estate investment is a financial strategy that make use of rental, ownership and selling of property with the aim of profit, this could also be the best lucrative way for your retirement plan. Even though real estate is ideal for investment, it takes a lot of dedication, research and planning to become more profitable. Many of investors uses this famous formula in order to maximize the profit potential of an asset or property and they call it the “1% rule”.
What is 1% rule in real estate investment? 1% rule is a long-known guideline or strategy for investors in which they use for them to calculate if a property is worth buying. Most of the real estate investors used this technique to strategize if that certain property will produce enough cash returns to cover its respective mortgage. It helps to determine if the rental income from a piece of investment property will surpass the monthly mortgage payment of that property. However, the 1% rule does not apply to every situation since it will not give you the exact answer or computation but rather a quick estimation only. It only gives the investors an idea of what to expect or what will be the potential income of that property since the formula does not take into account additional costs such as upkeep, insurances and taxes. How does 1% work in real estate investment? This formula comes with a simple calculation, you just need to multiply the purchase price of the real estate property by one percent and the result will determine the base level of monthly rent. Once they come up with the result, that will be the investor’s basis on how much to charge for the rental income in order to cover up the potential monthly mortgage payment and give the owner of the property a better understanding of the property’s cash flow. Let as set this for an example, there is an investor is in the marketplace looking for properties that he can used for rental income and after some careful research, the investor decided to buy a property amounting to PhP 555,000. However, the investor plans to rent the property and wanted to make sure if he will benefit from it and that is where the 1% rule comes in. From the PhP 555,000 multiplied by 1% which will result to PhP 5,550 and as the product, the investor would need to find a mortgage loan with a monthly payment of less than and absolutely no more than PhP 5,550 if they wish to have profit monthly. When to use the 1% rule in real estate investment? The 1% rule formula is used before the purchase of the property since investors wish to determine how much they would need to rent the real estate asset and expect risks to come. It is designed for those investors that desire passive income. If you are one of the investors that wanted assurance of their money and wish to understand more if the property will really give them the best cash return then yes, this is the best strategy for you. When not to use 1% rule in real estate investment? Again, 1% rule will only give you a result of estimation, so if you are looking for an exact answers then this rule is not the best for you to use. In this formula, other costs like upkeep, insurances and taxes are excluded that is why it will only give you an idea of the monthly rent. Is 1% rule in real estate investment profitable or not? The rule is commonly used by well-informed real estate investors and has actually gained success from it. It is very popular that it is consider as ‘proven and tested’ technique in the real estate world. A very much example of where to use this famous rule is in Bria Homes, investors can really gain much profit from purchasing a unit in Bria Homes since the monthly amortization is lower than its base level. Investors has a wide-range options of house and lot where they can choose according to their needs in home. Bria Homes is the most suitable choice for normal Filipino workers and OFWs who desire to invest in a home of high, reputable quality that is also relatively inexpensive. For as low as PhP 1, 897.00 per month, any Filipino can purchase his dream Bria house, which is perfect for those who are not yet as financially established. Bria’s house and lot packages can range from Php 460,000 to Php 1.5M while its condo units range from Php 1.5M to Php 3M. Truth be told, any Filipino will find it difficult to score or land cheaper deals that those offered by Bria Homes. Summary Overall, investing in real estate can be lucrative for long-term investors. The one percent rule is no more than a simple multiplication problem thus it helps investor to decide whether or not a deal is worth pursuing. As a result, this particular strategy is yet another tool for investors to mitigate risk and tip the scales in their favor. Again, it takes a lot of dedication, research and planning when investing in real estate that is why there are a lot of strategies, formula or techniques when it comes to real estate investment. However, when the time comes that you already are a successful investor, then you can say that those risks are worth it.
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AuthorA real estate marketer in Philippines. Archives
October 2021
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