The appeal of passive income from real estate draws many to the Philippine property market. However, simply owning a property doesn’t guarantee healthy returns.
Rental Yield, a straightforward metric, compares a property’s annual rent to its acquisition cost. While Gross Rental Yield (GNY) is useful for quick comparisons, it doesn’t account for expenses. Therefore, investors rely on Net Rental Yield (NRY), which considers all annual operating costs, including taxes, maintenance, and insurance for an accurate return on investment. A high GNY indicates a positive sign, but NRY reveals the true cash flow.
In 2024, with Metro Manila’s average GNY ranging between five to six percent, enhancing every aspect of your net rental operation becomes crucial. Rental yield is primarily influenced by two key factors: rental income and property expenses. To maximize your yield, you have three options: increase your income, decrease your expenses, or ideally, achieve both simultaneously.
Revenue Side of the Equation
Select a strategic location. Look for properties near business districts like Makati, Bonifacio Global City, Ortigas Center, and emerging commercial hubs. These locations attract working professionals and expatriates willing to pay premium rents. Meanwhile, units near transportation hubs like MRT/LRT stations, bus terminals, or major thoroughfares are highly desirable for commuters.
Meticulously research the market. Compare similar units in your vicinity. Consider factors like size, number of bedrooms, furnishings (unfurnished, semi-furnished, fully furnished), amenities, and floor level.
Enhance property appeal and functionality. While unfurnished units appeal to some, fully furnished or semi-furnished units often command higher rents, especially in CBDs catering to expats or young professionals. Quality, energy-efficient appliances are a strong draw. Simple aesthetic upgrades like fresh paint, updated lighting, or modern fixtures can significantly enhance appeal. A well-maintained and spotless unit signals also professionalism and care.
Use effective marketing. Utilize high-quality photos and detailed, appealing descriptions to showcase your property. Use online property portals, social media groups, and local real estate brokers to reach a wider audience.
Screen your tenants. Conduct background checks, employment verification, and request references to ensure reliable tenants who will pay on time and take care of the property. A reliable tenant is invaluable in minimizing future costs and maximizing consistent income.
Optimize rental pricing. Set the right rent—too high and your property will sit vacant, too low and you’ll leave money out of the table. Be prepared to negotiate with tenants; a slightly lower rent with a reliable, long-term tenant is better than an extended vacancy.
Diversify income streams. Explore additional revenue opportunities. If your unit comes with a parking slot that the tenant doesn’t need, consider renting it separately. Similarly, if you have extra storage space, it could be an additional income source.
To be continued.
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Henry L. Yap is an Architect, Fellow of both Environmental Planning and Real Estate Management, and a Senior Undersecretary of the Department of Human Settlements and Urban Development.
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