by: RJ Armas
Hello mga Kailyan! Happy new year sa inyong lahat.
What we are going to discuss today is the question why saving for a property is not the best strategy that you think?
We all had this idea that when we start working and earning, we’re going to set aside a few % of our income into a savings account where we will be setting that aside so that after a few years we can save enough and find the dream property we want and buy for cash. Right?
Turns out, that this is not the best strategy in my experience both as a Real Estate Broker AND when I became Real Estate Investor.
To explain why, we have to explain INFLATION. Inflation is the % increase in the cost of goods every year. Which means that what our PHP 1,000,000 can buy now is different from what our PHP 1 Million can buy 30 years ago and 30 years from now.
Source: https://www.investopedia.com/personal-finance-4427760
It used to be that when people say “Oh, he’s milyunaryo!”, everybody will awe at this achievement, but now as long as you have a car paid up and some savings you can be a milyunaryo. So, it should be a “Oh, he’s a multi-milyunaryo!” That should be a better compliment. Maybe 200 years from now, only a bilyunaryo will turn heads.
So, one of my friends saw this post online that the best strategy to buy your dream house is to be part of the game early. Specifically, you should be buying small properties first and then trade your way up to your dream house.
By doing this you do the following critical tactics:
You let inflation work for you. So, whatever you buy into, should be growing in value at the least the same pace as the inflation of your dream home. That would make it a fair fight. You let your savings grow with the inflation.
You force yourself into saving money by buying real estate. Trust me, when your savings hit a million it will always be tempting to spend it on some things that are “miniscule” compared to your millions in the bank, hence making it harder for you to control yourself.
You let banks work for you, instead of giving your money to the bank and they invest it for a 15-20% return while you get less than 1% of your money every year. Borrow a portion of the price of the property you will acquire if you can’t afford it yet, this is way better borrowing than using your credit card which charges 17%-20% per year for personal purchases, or Lazada.
In my personal experience, this is the best “insurance” I have done. Just have to make sure that I am buying a clean titled property in a growth area or buying a property from a reputable developer like Ayala.