I have talked a number of times about strategies about how I make money in the Philippines. To this point, I almost exclusively make my money through e-Commerce and advertising on my various websites. Any kind of investment adviser or financial planner will tell you one things when they advise you on how to build your wealth – DIVERSIFY. Put your money into a number of different venues and it will be safer for you. Let’s say that you decide to put your money into the stock market, and you put it all into one company. If you do that, you could be in for trouble. If that one company runs into trouble, your money could go down the tube. If you spread it around to a lot of companies that is safer. If you put some money spread out in the stock market, put some into real estate, put some into other investments – that is true diversification, and in doing so you are offering your money a chance to grow and be safe at the same time.
At this time, I have my money and my efforts tied up into the internet. It is diversified to a point in that it is spread out into different activities and subject areas on the net, but it is still on on the net. I realize that I need to venture into other areas to make additional investments for my own protection, and also to take advantage of growth areas that I am currently ignoring. With that in mind, lately I have been doing some thinking about what I would want to do with my money to help me achieve my long term goals and enable myself to be comfortable as I get older.
Let me sidetrack for a moment, if you don’t mind. About two and a half years ago, I moved to a new home in Davao. I am in a different part of town from where I used to live. When you move to a new location, you tend to shop around and see what kind of houses or apartments are available on the market. My wife and I did quite a bit of shopping around for a place to live. One thing we noticed was that rental property goes quickly. If you see something that you like, you better snap it up, because if you wait even a few days it may be gone already. We found this particularly true of apartments, and especially for upscale apartments. Our family is too large for an apartment, so we rent a house. We did look at apartments, though, because a friend was moving at the same time and wanted one. We figured that we might as well include apartments in our search, just to know what was available. Every time that we found a nice apartment, it was either already rented, or rented quickly after we looked at it.
So, going back to my search for the right investment vehicle, and combining that with my observation about apartments, it seemed to me that building a small apartment building might be a good strategy for me. One saying that I’ve heard often about real estate is this – “they aren’t making any more of it!” It’s true. Real estate can go up or down in price, but the trend is always up over time. Keep in mind too, if you are a foreigner you cannot own land here. In my case, I am in a long term stable marriage to my Filipina wife. We’ve been married nearly 18 years now. I have no fears of the marriage breaking up, even in the long run. Because of this, I have no qualms about buying the property in my wife’s name.
In my case, here in Davao City, there are number of foreigners. My target would be to rent the apartment units to foreigners. When renting to foreigners, you need to provide a more premium place, not just something that is built to the minimum standards. However, the rent will be higher. Generally speaking, a foreigner will probably take better care of the place as well. With the better building standards and the better care given to the unit, it will also mean that your investment will last longer. The units that I have in mind would be maybe 5 or 6 apartment units in the building. Let’s say 6 units. I would rent 5 of the apartments on a long term lease for around P20,000 per month (minimum one year lease). The sixth unit, I would reserve for short term rentals to foreigners visiting Davao. I get lots of e-mails from people planning to vacation here and want somewhere to stay other than a hotel. I would rent this last unit for P13,000 or P15,000 per week.
An apartment building like what I have in mind would probably cost around P7M for the land and construction costs. That is equivalent to about $166,000. Let’s say it costs $175,000. If I have full occupancy on the rentals, my monthly income would be:
Five units at P20,000 = P100,000
One unit at P13,000 per week = P13,000 x 4 weeks per month = P52,000
Total income for the month P100,000 + P52,000 = P152,000
Of course there will be expenses involved too. It is also possible that the unit for weekly rent may not be occupied all the time. Let’s just say that my monthly take from the building after paying expenses is P120,000. That is enough income for a family of 4 people to live on easily.
My personal goal is to build four such apartment buildings. Four units, with each earning me around $3,000 per month, and I have an income of $12,000 per month. Why did I choose four units? I have four kids. When my wife and I pass, it would be my plan to leave one building for each of my kids. I have one child who is mentally challenged, and I doubt that he will ever be able to hold down a job that will make the kind of income that he will be needing. Something like an apartment building would make perfect sense in providing an income to sustain him.
In the United States, I had friends who were into these kind of real estate investments, and did well. I had never thought of something like this in the Philippines. Given my experience in searching for rental property, though, I believe that this is a good strategy.
Hello Bob,
I think you have something interesting here and I encourage you to go this way. Real estates is good this time wherever you live. I do something like that but in a different way, I buy old house that needs repair and since I can do all the work myself, I renovate and sell them with a good profit. Renting is more complicated coz you never know what kind of people will end up renting your properties; however like you said (and I agree) foreigner will take more care (nothing against the people there it's just like that). The size is important too, if it's too big , you can loose control of it…. Being in a big city, I think you can go for it with no fear of failure…
Hi Patrice – thanks for your input on this. I do feel that it's a good opportunity. Your skill in renovating distressed property is also a great road to move down. On what I am considering, I still have a lot of options to think about, and a lot of different expenses to input into the equation. However, my initial thoughts make me think it is a good way to go.
hi Bob,
your right about your plan…..you got huge connection of foreigners visiting mindanao….and most of them ask about a place to stay……your the trusted "minadanao Bob", so no doubt they would like to rent your appartment….may be you need more than four units Bob :wink:…..mike
Bob,
I agree with Mike's comments. Perhaps you may want to add to the leverage of your credibility. What I mean is this. like many I have found the woman of my life in the Philippines, we now live in Columbus Ohio. Last year alone I made four trips to Mind. and once I got past the initial terrorist hype, i had a great time. I think many of the foriegn visitors are there many times to meet local women which they have met via the internet. Having been through that experience personally, it would have been great to have someone like yourself to help me to understand the cultural aspects that you and your wifes perspective must hold. Additionally while there are many very credible individuals seeking love via the internet there is always that perception of fraud. I think you could also add credibility to the backgrounds of people there who may meet foreign men, and help to facilitate their relationship based on sound values in the cultural blend of FilAm relationships. Additionally there is I think an opportunity to help preparing the necessary paperwork and clearences to prepare for Fiance' Visas and the Consulate interview process. Additionally I know that from friends I have met here, now at various points of bringing their intended here to the states that many of them provide financial support for living accomodations, internet connectivity etc. Perhaps along the lines of what you are looking at with apartment dwellings, maybe the idea of boarding accomodations, which could be funded by the income of established foriegn relationships. You seem like wonderful people, thanks for everything you do to share your experiences. Steve
Hi Steve – thanks for stopping by the blog and leaving your comments and suggestions. Some of the things you mentioned have already been in my mind, and I am considering. Others are new ideas that might be worth looking at. Thanks for giving me a little more to think about! 😉
Hi Bob …. I also have four kids and the eldest now 13 has adst … he just got kicked out of Stella Maris for his behaviour …. Do you know anywhere in davao where he could get a good standard of education (the kids smart) and the discipline and understanding this child needs.
Steve, i met my wife in Hong kong not on the net …. but when i spoke to the embassy in london they just told me … sort it out when you get to the philippines ….
Hi Alf – I haven't run into a problem like yours. Have you tried Ateneo? What about Southpoint Academy between Marfori and Maa? They both offer excellent education, but I don't know about disciplinary problems.
Dear Bob,
Thank you for posting this information. I do have some additional questions regarding owning rental properties in the PI as a naturalized US citizen. How would one set up the business; i.e. as a US or Philippine corporation or as a Philippine sole proprietorship? I would appreciate any resource links you can give me. Thank you.
Beth
Hi Beth, I think that as a naturalized US Citizen your very best bet would be to claim your dual citizenship in the Philippines, and then there are no restrictions against you owning land or a business. It does not jeopardize your US citizenship either.
Hi Bob – interesting idea. I see where you calculated the cost to have a unit built, but I don't see how you plan to pay for it. It doesn't seem to be in your calculations for the monthly income, as an expense.
If you finance, how much down and what monthly payments are you expecting?
Hi Bob! Ur observation that apts there tend to move quickly in the market is true. In Manila, it is an uncommon sight to see empty apts. It may very well be true there. There's not enough to meet the demand. I think it's bec most apts are built townhouse style and not like the three flats they have in the big cities in the states w/c could contain at least 6 units. What more if they build high rise apts just like here? Yes, it would not appeal to most Filipinos since those units are 3 bedrooms at best & for the most part, studios and one bedroom apts. Most Filipinos do not live like that.
But they are not ur market in mind, am I right? Ur looking to rent out ur apts to tourists who may stay there long enough to find hotel & condo hotel rates pricey. U might want to include transient renters who maybe balikbayans or domestic tourists.
Ur market may dictate the size of ur units. Of course, U have to think also of furnishing it w/ furniture and basic household appliances.
Wow…ur in for a lot of excitement. I wish U all the success. Ur just exactly what the Phil needs–more investors.
Electricty there though is so expensive. & Ull need a lot of that to increase water pressure to 3 storey bldgs.
Goodluck to you Bob!
Hi Bob,
You are on the right track here I am sure. In my area rentals … decent that is … are very hard to find. In your case many more foreigners come so the demand will be much smaller.
For Beth and others who are former Filipinos … I advocate evryone re-aquiring, my wife re-auqiured hers, it was easy enough here in the Philippines but it's very easy and cheaper to do so within the US. But if the person dosen't want to reaquire Filipino citizenship they may still own property sufficient to build an income producer as you have in mind, so wala (walay) problema.
Like you I have no fear of investing in property actually owned by my wife. Statisically I will go first, it will actually be a blessing to me to know she has something to carry her through old age. Note too, that in the event the owner-wife does go first the permanent resident foreigner husband can inherit, so most bases are covered.
Renting property can be a headache at times (see Jack reed's info on that ;-)) However, if you build 4 or 6 doo 2-story 'town home' type buildings it is also a viable idea to convert individual units to condominium ownership. Many 'condo' developments in the Philippines are mixed in that way .. some units are owned as condos and owner-occupied, some are condo-owened but rented out by the owners and some units are still owned by the builder and rented out by the week, month or year.
You have a sound plan here, Bob, much better than a restraunt or a jeepney fleet in my view, anyway.
Hi Randy C – For the most part, the Philippines is a cash society. This holds true especially for foreigners like you and I. Banks generally don't want to lend to people like us, because there is too much possibility that we will leave town, or whatever. So, when I speak of things like this, you can generally expect that I will either have a flat out cash payment in mind, or to self finance as the building project proceeds – in other words, build it as I have the money available.
Hi Roy – My target market would be (much as you say), foreigners who live here, foreigners who are here for short term visits, Balikbayans and more up-scale Filipinos. I know that there is demand, because I see it in apartment units all around where I live. Pricing would be premium, but still less than hotel rates. Thanks for your words of encouragement, Roy!
Hi Dave Starr – You have a great idea there, which I had not thought of. Do a combination of condo/apartment in the same building. Sell some units and self own others. While the condo side of it would not contribute to the monthly income potential, what it would do is to help finance the construction of the building. Nice thought!
Bob,
The only problem I can see in your plan to build rental units is that they are not built yet. I am planning to move to Davao and have been looking for rentals with help from my fiancee and you are right, the good ones go fast. I am retired military so we will have that money and I will be selling my house in the US and using that money to pay for rent until we decide if we want to buy someday. I read your blog daily and always find useful information. Keep it up.
Steve A.
G'Day Bob,
The old solid "bricks 'n mortar", eh! The solidity and presence of real estate (compared to financial assets and their propensity to evaporate) has always impressed me and they sure 'aint making any more land, however, the yield is always of concern in the West – unless you are getting good capital growth. Yields here may be say 6% whereas your 17% is so high that capital growth is of little concern. You always run the sovereign risk thing in a less developed country but that is an impressive yield. What really pushes it over the starting line for me however is your list of contacts and the ability to generate an almost unlimited future number of them. Rental of $115 per week would be comfortable for all but the most hard-up Westerner. I am an accountant and qualified investment analyst and my first impression is very positive for your proposal. You don't mention the debt/equity mix but with that yield it could be geared to a reasonable level. What are local interest rates like? You budding property tycoon. Bob!
Yes, Bob, there is no need to limit the business model to only one form of ownership … and condos _do_ contribute, because each condo would have to pay its monthly share of 'common area' expenses. Also, excuse my mistake, I said your demand would be smaller, I meant to type _larger_ … d'oh.
Bob, I have been a real estate investor for 20 yrs now, I have owned up to 6 apartment buildings and a dozen homes at one point. Currently have 4 buildings a 4 houses selling em off as to eretire early in PI.. be more than happy to share any info my feeble gray matter could provide. I have a low budget web site for landlords ( obscure) here in USA…commonsenselandlord.com take a peek if you care.
Hi Steve – when I first started reading your comment, I got concerned and interested to see what problem you had found with my plan. When I read further that the problem was that they would not be ready in time for you, I gave out a little sigh of relief and a chuckle! Good luck with your approaching move!
Thanks also for your kind words about my site!
Hi AussieLee – Thanks for that vote of confidence! Coming from an accountant, it's good to hear! I strongly feel that this is quite a viable business, because the housing market is so very tight for such rental units!
Hi Dave Starr – 😀 I kind of figured that is what you meant!
Hi Brian – I went and checked your website, and you have some good ideas there. One thing you say that I have always agreed with is that when the economy is down, that is the time to get into business, because you can pick up great deals when others are getting out of businesses, dumping what they have, etc. Thanks for the tip!
Hi Bob
What size will your apartments be? Will they have a oven?
Hi Neil – Are you just joking? My plans aren't firm yet, just voicing an idea. Just guessing – maybe each unit would be around 100 to 150 sq. meters or so. Oven? Hmm…
i actually have a similar idea as yours. i too noticed the high demand for rental units in davao. i guess it is an easy idea to come up with if you have the foresight.
when i was there, i talked about investing in a property & create multiple units comparable to US standards.
but i also thought about having a secondary adjacent property for retail. the lots would be reserved for businesses that would cater to the apartment units (also around 6 units). that way both thrive by depending on each other & make each of them more appealing.
i thought about this when i remembered that this setup is being used in new development areas all over the state. so why not in davao? especially foreigners who would probably be more comfortable with a convenient laundromat, grocery, car wash & a cafe just a walk away? add a nice enclosed park and it would quickly be a desirable area.
but that was just an idea. no plans on investing anytime soon. but i think davao is ready for that.
Hi macky – I really like your thoughts! It's similar to my idea, but you refined it a bit more than I did by adding the park area and the services. The property owner (you, me, or whoever) could pick up on a few more profits by operating the retail side himself too, if he wanted, although those units would, of course, be rented too generating more income. I agree with you completely that Davao is really ready for this kind of thing. As a matter of fact, I believe that if somebody put up a unit like this, others would follow, like wild fire.
Hi Bob,
You have an excellent idea, and is something I have always wanted to venture into as well. It is also an idea I had when I get to Maasin, to have apartments to rent. Rose had suggested renting existing building and renovating rooms to rent to the local students that go to school there at the college in Maasin. But I like the idea of renting to foreigners as well, and the tourism business there in Maasin seems to have increased the past few years in Southern Leyte. I believe the biggest attraction to the area is scuba diving right now, and will look into that when I get to Maasin, to what is needed in that area of business. I believe the possibilities will be endless, but tough as first as is with any business ventures. Another encouraging thing in Maasin, is they are building a new port in Maasin, so hopefully that will mean more people coming in there on the ferry boat system as well.
I also like the way you have e-businesses set up as well, I use to make quite abit of money on e-bay a few years ago, when I had the time to sit behind computer, and I actually miss doing that. So will also look into that as well in the upcoming future…thanks for all you do Bob.
Take care and be safe,
Danny
Hi Bob
When I asked about the size I was curious to know what you can build for 7m pesos especially since you have been thinking about this for a while and many of the costs to build it has gone up like cement, and if that changed some of your plans. Now I have an idea if I stay in Davao what size of an apartment you can rent for 20k. Since you want to rent to foreigners or balikbayans and how most places only has a portable small top frying burners, because most Filipinos dont use an oven even if they have one (at least my gf's family never used theirs). They had theirs for a year and had never used the oven once. This would be something that many foreigners will like to have and I'm sure would be a nice touch.
Hi Danny – I agree that renting to students is, in most cases, not the way I would want to go. The problem with students is that they are always on a tight budget. If the boarding house down the street goes down in price is is P5 per month less than you are, they will move! Foreigners, on the other hand, even if the place down the street is P5k per month less than you, they will stay if they are comfortable and happy with the place.
Another thing, Danny – having a big Internet Presence can also help you with the rental units. For example, me… a lot of people who go on the internet and surf Philippine related sites know who I am, and they are always asking me to help them find a place to rent in Davao. If I have my own units, that is then a no-brainer! 😆
Hi Neil – I just want to caution you that specific stuff like size of the place, what amenities it will have and such should not be considered too much, because honestly this is just something that I have been milling about in my mind. I have made no concrete plans.
By the way, I would venture to say that anybody who is paying P20k per month in rent would generally have an oven, either built into the house, or one that they own.
Hi Bob,
I am again in the Philippines, now in Dumaguette. I myself am in the business of buying properties and renting them in Australia. I would like to make you a suggestion. Why you do not make your first project for profit and also for rent. Lets say you build a block of 11 units and sell 5 of them to foireignres like myself (I am interested) and the rest (6)you rent. That way you will recover a lot of your invested money even before you start building and renting ( you ask for deposit from a potential buyers). I am also sure you will easy sell them if you get the right design and possition. The law in here is that 51% of an apartments building must belong to a filippino, If not for that I would build them here already myself as the demand is strong. My problem is that where will I find the 51% of Filipinos who will pay premium price for an appartment when they can buy themselves a house for the same price without having to worry about the corporate fees. I have a good idea how to do it, if you are interested in that I will gladly tell you what I know.
Bob,
You have found another idea that I have kicked around in my head over time. 😆 I am interested in building and renting/selling apartments in the Panglao area. It is growing fast now that the new airport plans are starting to physically take place. I have also considered building some of my own businesses (Roadside w/ large parking) in front of the flats. I have also considered offering a free shuttle service to and from some of the major areas in town.
I liked the oven question, myself, even though it's a bit too detailed for a strategy type plan. It's true that many don't have/uase ovens here but good stoves with ovens are cheap … in SM we looked at ranges with cooktops/ovens that were gas/gas, gas/elect, elect/gas and elect/electric. Since we don't have a good place in our current house for a range, we bought an electric wall-mount oven for P13,000 and just use it on the counter top in the back kitchen … plugs in a regular outlet and cooks a great apple pie. I missed an oven a long time but it's easy enough to have one/build one in.
Dave/Bob – not to derail the discussion but are those ranges with gas – LPG, natural gas or both? Is natural gas available there?
Hi markus – Thanks for sharing your thoughts! You have some interesting ideas there!
Hi Mike K. – An added attraction to doing something in the Panglao area is that it is a real tourist attraction, and thus would attract many potential clients! Could be quite a good business, I would think.
Bob
No worries you will get no Oven questions from me.
In the past you spoke about the cheap labor in RP have you given any thought to buying a existing building and use the cheap labor available to rehab it to make the Apartments?
Hi Dave Starr – Yes, we have a gas range complete with oven. It's a nice unit indeed. Got ours at SM Appliance center too! 😆
Hi Randy C – For our range, the stove top uses LPG, the oven is electric. I think that is pretty standard for ranges here. As far as I know, natural gas is not available here, at least I've never seen or heard of it here, but LPG, as far as I can tell, is a perfectly good substitute.
Hi Neal in RI – If I found the right building available, I would most certainly consider that as an option. The problem is, though, that these kind of multi-unit places were not too popular in the Philippines in the past, and thus you don't see any such units that need rehab. But, if one came along, I do think that would be a good option.
Bob
There are a couple of block developments here in central park which are not exactly like you are describing but they are similar, no idea really if they are financially succesful but a medium sized business i saw recently in Davao smacks of being succesful is red knights garden in lanang, run by a british guy, Ray, sure you know of it Bob, anyway it proves to me that this type of developoment is economically viable here in Davao. Ray himself told me his occupancy rates were pretty high, think yours is a good idea
I know a filipino who lives in Texas but was from Tagbilauren who has built 2 – 4 unit apartment buildings which I have not seen. My understanding is they are doing well. I recall he said he had an 8% ROI ( return on investment or cash on cash return ) not bad since he did not factor in appreciation. Would be very interested in knowing what land costs are Bob and per foot/meter building cost you approximate. Are property taxes a major concern? My plans were to seriously look into doing this since this is what I do here, a year after I reside there.
What do u think the market would be for short term corporate stays? You need to have fully furnished units dressed up well , the turn overs a bit higher but the rate of rent for this is usually very very good if you can get the corporate clientel.
Hi rick b – Yeah, I know Ray. I haven't been out to Red Knight for a while, but you can have a nice meal poolside there! He has an excellent steak pie!
What I am thinking of is something quite a bit smaller than what Ray has, maybe only about 6 units. I would guess that Ray has maybe 40 or 50 units there at Red Knight.
Thanks for sharing your thoughts, Rick.
Hi Brian – I have to look further into all of the costs before I could give accurate answers. Right now, this is just more of a thought than a real project! 😆
I do believe that there is a fair demand for the type of corporate clients that you mention. The type of clients (that are of a similar nature) that I know are available are tourists who come here and want more of a home than a hotel room. I get dozens of e-mails every week asking me for such a place to stay.
Bob,
I think you already know, I am working for a firm that has an Architect and all the engineering disiplines, Civil, Structural and MEP (Mechanical, Electrical and Plumbing) and also a Construction department here in Davao.
They do a lot of outsourcing in the US but also do projects here. They like how I do plans on AutoCAD so I am doing all the local projects. Currently we have a client doing 2 houses and a 3 unit apartment building.
If you like, let me know and I can arrange a meeting with my superiors. With me there, I will understand the level of confort you want in the design.
I have a friend that built a small hotel (9 rooms) above a really nice restaurant in Barrio Baretto (Between Subic City and Ologapo). He stays busy year round with expats and tourists. Check the place out if you are ever in the area Dryden Restaurant and Hotel. In fact I see it is listed on the RAO Subic website… I am thinking of a restaurant a lot like this. Only I would add more variety to the menu i.e. American/ Mexican/ European and Filipino foods. I had a chance to buy a big piece of land next door to one of the next shopping malls being built here, but, I messed around with it to long and lost the opportunity (then again maybe I should check back on it before I say its not available anymore).
Hi Bruce – I'll certainly keep you in mind. Remember, though.. I am nowhere near the stage of doing this, it's just a thought that I'm kicking around.
Hi Mike K – Sounds like your friend is doing well! Congrats to him!
Bob,
Just remember, with all the building here in Davao, prices are going up.
Hi Bruce – When building an investment property, the rising costs are not a big concern. If the cost of the building goes up, the cost of the rents you charge will also go up, so you'll still make money.
It just is not something I am ready to move ahead on at the moment. It's something that I will be considering.
Bob –
I think you have a good plan here mainly because you said you already have experience in this area. If I planned such a thing it would meet with certain disaster because it is outside the scope of my experience/skills.
You just might have those units up in time for me, as wifey and I are stepping up our planning for a move to Davao! almost 100% of our Fil/Am friends are planning the same thing …. all of American guys are salivating at the idea of packing it in by age 45 and living modestly in the PI.
How about this …. turn this web page or another into some sort of relocation clearing house. Having a rental place is priority number 1 as wifey and I plan on how we could possibly do this move (we're still young nd have kids.) Perhaps other landlords will want to list their places/businesses with you.
I'm working out my own mojo for money making but it involves the stock market which is something more in my comfort zone than renting out/running stuff.
Hi Thomas Shawn – Thanks for your vote of confidence! It's funny how your Fil/Am friends are all planning to make the move too. When we came here in 2000, all of our Fil/Am friends thought we were crazy! I wonder now, with the economy in poor shape and such, how they would feel about making such a move!
hi bob,
my husband and i recently purchased a property in davao for the same investment idea. proud to say we got a pretty good deal considering how expensive other neighboring properties are. once our house here in the states will be paid off completely (3 years more), we should be able to start building our apartments in the philippines. i'm excited.
Hi jan – Congratulations to you and your husband! I think that you are doing a great thing, and taking a great step toward financial independence here in the Philippines! Good luck!
hi bob..,i love ur writing..and i find it good and interesting….that is also one of my dreams to own a dozens door of apartment units..Just continue the good work..
More Power
Considering what happened to real estate in USA I would be very cautious about investing in real estate.
Even China has problems
http://www.youtube.com/watch?v=0h7V3Twb-Qk
I would also be wary of real estate investing on a large scale. But, if you pay cash for an apartment building, not a large one.. the rental market here in the Philippines is quite good. I don’t think it’s a losing proposition at all. Just my opinion.
hi bob,
have you started building apartment units already? even if the writeup is 2 years old, the prospects are still good ” )
cheers,
I personally have not pursued it, although I do think it is a good investment.