Calculating Return-On-Investment For Condo Units

Posted by: Joanne Almaden in Condominiums, Real Estate Investing On:November 12, 2012 Last updated: January 10, 2016

The rise in the number of buildings featuring condo units made it more attractive to people who focus on property ownership or investment. All these result from the increase in the number of developers – which brought in improvements, innovations and competitive packages for probable clients in the condo investment sphere.

One of the most common questions nowadays: is purchasing condominium units as a form of investment truly wise?

To come up with a feasible computation of your Return-On-Investment or ROI, you must take into consideration the features stated below. These are vital factors that would play a major role in making your purchase a great deal of investment:

Location and Accessibility

One aspect that matters the most whenever you intend to purchase a condo unit is its location. Most clients prefer units that are near accessible public transportation systems, within an area near malls, schools, banks, hospitals, or their workplace.

Price Range

Typical condo units are priced anywhere between 1 million to about 15 million Pesos. Price ranges depend on the location of the building, the amenities within the complex, and furnishings (for fully furnished package options). There are also those that are targeted to the high-end market, some of them may be priced up to upwards of 50 million Pesos.

Different developers already have different specific target markets for each of their projects before they even launch them and their pricing for the units are usually influenced by this.

Some developers seem to focus on targeting the upper class market, so the prices for their condo units are also for that class and it may not always be affordable to everyone. While other developers focus on the lower- to mid-income market and so their units are accordingly priced lower.

Vacancy Of Units

If you are a condo investor who aim on generating income through unit rental, you must be able to determine or estimate how long a condo unit remains vacant within a year to be able to make some consideration in the ROI computation. The current average vacancy rate is about 20% per year.

Rental/lease of residential condo units may be anywhere between Php 5,000.00 for a shared accommodation or bed spacer type to Php 50,000.00 and up depending on the location, size and inclusions such as parking space, unit furnishings, etc.

Condo Living Related Expenses

Purchase of a unit does not necessarily mean an end to cash outflow. Along with any purchase, much like in any living condition, related expenses must be expected.

The most common is the unit owner’s monthly dues. This usually covers the building upkeep expenses such as lights around the perimeter, safety and security (wages of security personnel), repairs and maintenance as well as garbage collections.

Other expenses to be expected are tax dues, insurance policies and unit maintenance fees.

Others opt to have a property manager to look after their unit and help them screen the right tenants and liaise any issues related to unit tenancy.

Calculating the ROI On Condo Units

Below is an example of how to compute for the ROI of any condo unit investment given the following points of considerations. Please note that this is just an example, to demonstrate how you can easily calculate your ROI. Your actual figures may of course, be different.

Estimated cost of a 23 sqm unit of condo	1,200,000
Estimated rental income per year (at Php15,000/month)	180,000
Less:
Vacancy costs (2 months)	30,000
Monthly Dues (12mos at 1,150/mo)	13,800
Taxes	5,500
Maintenance	4,000
Insurance	2,500
Net Income	124,200
ROI = (Net Income / Total Cost of Unit) * 100
ROI	10.35% per year or about 9 years & 8 months

With the above sample computation of Return On Investment, the cost of having a property manager is excluded because there are different arrangements with regards to the professional fee of the manager. This has to be negotiated and included in the planning stage of acquiring an investment condo unit.

Careful planning, looking at every option available and wise considerations of expected expenses could save an investor a great deal of money, and expect a hefty profit in return.

Are you are looking to buy a property in the Philippines?

Whether it be it a condominium, house, lot or commercial property, choosing your broker or agent also makes a huge difference! You don’t only need a broker who is licensed and knowledgeable. You also need your broker to be always there for you when you have concerns about your real estate transaction. And you need him/her to be there even long after your purchase. That’s one of the things we guarantee our clients here at PPE.

See how we can help you today:

ABOUT THE AUTHOR

Joanne Almaden

Joanne is a licensed real estate broker and appraiser. She founded Phil. Property Expert, Inc. – a top-notch real estate services company whose vision is being the most trusted company when it comes to competence and quality of service.

Vince

Do you include the bank financing when you compute for the expenses?
- Nimrod Flores
  
  The above sample computation is a simple and straightforward example. It assumes the condo unit is bought in full cash.
  
  If you bought your condo using a loan from a bank or other financing institution, you most probably have a monthly amortization for that. So yes, if that’s the case for you, then you really should include your bank financing figures into the computation.
  
  Note: If you’re going to count your monthly amortization as an expense, then you should not count your loaned amount as part of the total cost of the condo. If the total price of your unit is P10M and you were able to have your bank finance 80% of that, then your total upfront cost for the unit should only be P2M instead of the P10M. That is, again, if you count the monthly amortizations as expenses, to pay up the 80% loan from the bank.
  
  Likewise, if you count your loaned amount (plus total interest for the whole loan term) as part of the total cost of the condo, then you should not count your monthly amortizations as part of your expenses, if you want to be accurate.
Mark

@jimlefleur:disqus , the line for taxes, is that just the amilyar?
Do we have to pay taxes to the BIR or is there
a threshold where only rents above a certain level
are taxed?

Thanks
- Nimrod Flores
  
  Yes, that’s just the amilyar sir. That doesn’t include the income and sales taxes yet. Those taxes depend on whether you register your rentals as a business with BIR.
  
  If you do, you’ll have to pay sales taxes (either VAT or OPT) and income tax. Well, the income tax is always applicable. Even if you don’t register as a business, you’ll still have to report your income from your rental property as part of your personal income sources.
  - clarice
    
    sir nimrod can i ask something. mas maganda po ba kumuha ng condo unit or mas better ang house and lot
  - clarice
    
    i got a condominium unit in qc but my mom has second thought that its better to get house and lot than condo.. just what the others said thats why we’re confused … what to do i already made a reservation on my unit and paid already the two months advance.. and now my mom want to cancel because shes thinking we cannot gain anythng for buying condo .. and our money will just stocked up and will be waste
Michael Kiok

Is 10.35% ROI realistic? Rental amount of 15k/month for a 23sqm condo is applicable in 2017. But 1.2M for a 23sqm condo? Where can I find a deal like that in 2017? 2.4M would be more realistic. This would drive ROI down to 5%. Most properties I am looking at now only has an estimated ROI of 3%. With ROI like this, is it still worth investing in Real Estate?
Clyde Pascual

if i will buy a secondhand condo (10 years old)? what is the depreciation amount per year? say the initial cost was 8mil php. magkano na price at today market? salamat po. condo is located in mandaluyong near edsa.
Mike

You didn’t factor in brokerage fee which is usually one month of rentals. Assuming you didn’t get a broker, you still have to spend some effort showing it to different tenants.

Also you need to spend time and money rennovating and fixing the unit once a tenant moves out.