Putting up an apartment business nowadays, profitable or not?
The real estate market in key areas in the Philippines has really gone into high gear in the last two years, driving some real estate experts to predict that the country is in for a bubble. Whether that is true or not is a subject for another day. The focus of this article is on the apartment business, meaning rentals, and whether it is profitable or not.
There are many ways to consider this issue. Renting out apartments is generally passive income, meaning that the owner does not have an active part to play outside of advertising, vetting applicants, collecting rent, and maintaining common areas (in case of an apartment building) and the unit/s. This makes it attractive for retirees and OFWs looking to invest, and for property owners looking to putting their property to good use. In either case, there is a capital investment though in varying degrees. However, many factors affect the return on investment for an apartment business in the Philippines. The main consideration is the rental rate vis-à-vis costs.
The rental rate for a 2-bedroom apartment in Quezon City will not be the same as that in Angono, Rizal. While the costs of buying said apartment will also be directly proportional, all other costs i.e. government permits, taxes, insurance, property management will be more or less the same for the two locations.
Hand-in-hand with the location is the market. Most people will look for an apartment because it is close to work, school, public transportation (such as the MRT), and malls. The nearer it is to one or all of these, the more willing the renter is to pay a premium. If you have an apartment unit in front of Ateneo, for instance, you can get a higher rent from a student studying in Ateneo than if you are in Project 4 for the same size and type of unit. Again, the running costs will be the same for both.
Type of lease
The rental rate will depend on whether you have a long- or short-term lease. Long-term leases are lower but they are more regular and have lower running costs. Short-term leases are much higher but you pay for all utilities, and you need to invest in furnishing and other amenities not necessary for long-term leases. It also involves active involvement on the owner’s part in terms of advertising, vetting, turnover, and maintenance. There is also more vacancy, although the higher rates can offset the difference. Location will also have an impact on rates. If your apartment is in Baguio or Tagaytay, for example, you will probably have a great demand on weekends and during summer vacation, while demand is more even but less intense from transients for an apartment in Makati.
Overall, the apartment business in the Philippines is a profitable one if you know what you are doing. It is relatively easy to make some money if you research the going rates, the demand, and the projected development in the target area. Do the math before you do anything else.
Lastly, learn from the mistakes of others. Get advice from people who have been there, done that. You can find many online forums on the topic. Read, ask questions, and take heed.