Filipino investors are always on the lookout for higher yields and better returns to grow their wealth. While many believe investing in real estate makes excellent returns, not everyone has the time, experience, expertise and resources to be directly involved in actual management of the business. As a result, indirect investments in real estate have continued to be popular all these years. Here are some options for you to invest in real estate but with less headaches.
Variety of investments
Investors have participated in a variety of options according to their desired growth objectives.
Stock. Listed in the Philippine Stock Exchange (PSE), a stock gives you partial ownership in publicly listed companies. The trading of stock is convenient, especially if you have an online account, as you can do it in real time. To earn, stocks must appreciate in value above your acquisition cost. Although price volatility forms part of the risks, stocks can be disposed of easily, if needed, to reduce losses.
Real Estate Investment Trust (REIT). A REIT is a stock corporation established principally for the purpose of owning income-generating real estate assets that produce income streams from rentals, toll, user’s fees, tickets sales, parking fees, storage fees, etc. Lately, there are seven REIT companies in the PSE, six of which are property-related.
Equity notes. Sold through banks, financial institutions and intermediaries, these notes are debt instruments that pay dividends. Preferred shares issued by property companies are examples of these notes.
Commercial paper/corporate bond. Among the safest investments, they are also debt instruments but more stable as earnings are gained through regular interest payments. However, the principal amount may end lower if redeemed ahead of the maturity date due to pre-termination penalty.
Funds (Mutual Fund, UITF, ETF). Funds from institutions and individuals are pooled together by investment companies and or the trust department of banks/financial institutions so they can be professionally managed and invested in diversified portfolios.
a. Mutual Fund (MF). There are four basic types of mutual funds – Stock, Balanced, Bond and Money Market Funds. In addition to these basic MF, Equity Index Funds and Feeder Funds are also available.
b. Unit Investment Trust Fund. UITF is “an open-ended pooled trust fund denominated in pesos or any acceptable currency, which is operated and administered by a trust entity and made available by participation,” the Trust Officers Association of the Philippines explains in the UITF Resource Center website. Like Mutual Funds, UITF may also be classified according to their underlying assets, i.e., equity fund, balance fund, fixed-income fund, money market funds, bond fund, equity index funds and feeder funds.
c. Exchange Traded Fund (ETF). Traded in the PSE, the ETF mimics the index’s performance by providing exposure to the country’s top 30 equities. Presently, First Metro Philippine Equity Exchange Traded Fund (FMETF) is the only ETF available locally. It allows investors a cost- effective and efficient way of diversifying their portfolio, although not necessarily into real estate only.
Pros
You can enter the market with less capital and slowly grow them if you have extra money to invest. You can easily diversify or re-adjust your portfolio and if needed, liquify. Also, since investment opportunities around the world are within easy reach with digital connectivity, investors can buy and sell stocks and funds online, even if they traded outside of the country.
In general, they give better returns than ordinary savings accounts as many pay out dividends or higher interests.
Cons
As with any indirect investments, you do not have direct control on how they are managed. You also need to be careful with the investment you choose as some stocks lack liquidity. Thus, if you are in a hurry to dispose of a particular investment, it is possible that you may have to take a hit.
As most are traded in te stock market, previous performances are never a 100 percent guarantee of future outcomes.
Bottomline
Weigh and analyze the asset classes and types’ benefits and risks according to your desired investment objectives. Do not put all of them in one basket. Diversification is key to managing your risks.
Do not follow others for the sake of making a quick profit without understanding what you are investing into. Consult a financial adviser or tap a fund manager.
Money is made based on informed choices, hard work, and rarely on pure luck.
References used include Real Estate Investing 101 by Michele Cagan and Unit Investment Trust Fund Resource Center (uitf.com.ph).
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Henry L. Yap is an architect, environmental planner, real estate practitioner and former professorial lecturer.