The pandemic has taught many to keep a closer eye on their health and finances. Although the real estate industry may have seen a downward trend early in 2021, it might now be on the up and up as restrictions ease and the economy reopens. According to Colliers, the Philippine real estate market is poised for a rebound in 2022, as vaccination rates are on the rise and business and consumer confidence continue to stimulate economic growth. These developments underscore how real estate remains one of the best investments in 2022.
Compared to other investments, such as stocks and bonds, real estate has a relatively manageable level of risk, making it a viable long-term investment. It can continue providing you with a steady income stream even when low-interest rates and inflation happen.
The question is, how long does it take for you to make a profit on your property?
This article will give you a clear perspective regarding this age-old question, as well as helpful tips on calculating your ROI on luxury real estate investments. Let’s dive right in!
The answer: It depends.
No two properties are alike. Several factors help determine how long it will take for your property to produce profit and how much its ROI will be. But as a rule of thumb, most real estate investors say it takes five to seven years for luxury properties to turn in a profit.
Some factors that can affect your returns are:
Supply and Demand
- Suppose you own a condominium unit in Bonifacio Global City. If many people want to stay there, the demand is high, but units will also sell out faster, accelerating the time it takes to earn a profit.
- If your property’s location is yet to be developed, you might still have to wait until the surrounding area generates enough demand for more people to start moving there. Here, an area’s development tends to rely on the country’s economic performance, among other factors.
Market and Competitive Pricing
- With so many locations that buyers can choose from, it’s natural that developers and sellers set their prices competitively.
- Finding a better deal just a few blocks from your property can sway a potential buyer’s decision. Lowering your price or including attractive features in the property could help you make a sale but simultaneously reduce your ROI.
- The developer can influence potential buyers more than you might think. For instance, properties from certified developers such as Mandani Bay — developed by HTLand Inc., a joint venture formed by Hongkong Land and Taft Properties — tend to give much higher ROI than properties developed by real estate firms without a bankable track record.
How to Calculate ROI on a Luxury Real Estate Investment
ROI or return on investment is the profit you could gain from your investment. It is vital to know how to calculate the money you can gain from your real estate investment.
Based on ROI
Note that the purchase price and property value aren’t necessarily the same.
Imagine buying a luxury property for P6 million and spending P1 million on upgrades. While the purchase price is P6 million, your total investment would be P7 million (purchase price plus cost of upgrades).
As you can see below, knowing the difference between the property’s value before and after improvements will help with your ROI calculations.