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Rental property formula,... turning a profit?


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Brucewayne

I am trying to figure the formula of rent versus investment on homes in the Cebu area.

 

 

Hypothetical question; a 100sq.m. property is bought for P160,000 and a 60sq.m house is built for P90,000 that is a P250,000 investment.

What is the formula for deciding the rent on this house?

I have heard one should bring in 100% of the original investment within 3 years and with maintenance, taxes and insurance, one should start turning a profit at about 5 years.

That would mean that one would have to charge about P83,000 per year, or P7,000 per month (roughly).

Sounds a bit high to me, but this is what someone in Philippine rental properties told me.

I was thinking it could be that the property is too expensive to support the P90,000 house at a rent that would justify the investment, or the property investor I talked to has the wrong figures.

It could also be that I am just thinking too frugally, but I really would not be able to see myself paying rent at that level for such a small house and lot.

Hopefully someone can set me straight here, as I have not got a clear picture as to how the rental business is done here.

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I see you are trying to get your 50 posts in !!

You intend to build a 60 m house for 90,000 pesos ? My cost to build a 70 m house is over 750,000 pesos and i do it for a living

? No, that figure is to simplify things. I am just trying to figure the formula out, if a different amount is necessary or would make things easier, be my guest. I am just trying to figure out how

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Davaoeno

You intend to build a 60 m house for 90,000 pesos ? My cost to build a 70 m house is over 750,000 pesos and i do it for a living

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RepsakNivek

A standard formula in the USA for the rental decision is to take the value of the land plus building, divide it by 100. That would be the rental price you would ask for.

 

That would give a 100% return of investment every eight years and four months, (assuming you spent the rent instead of putting the rent into another investment which would raise your rate of return higher).

 

Assuming the land and building go up in value 5 to 10 per cent per year, even if you don't re-invest the rent you receive, you will end up with approximately a 15% to 20% annual rate of return. That's a lot better than the stock market, or anything any bank will give you.

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Brucewayne

You intend to build a 60 m house for 90,000 pesos ? My cost to build a 70 m house is over 750,000 pesos and i do it for a living

 

 

?

No, that figure is to simplify things.

I am just trying to figure the formula out, if a different amount is necessary or would make things easier, be my guest.

I am just trying to figure out how they make a profit on rent here.

I mean, we pay P8,000 per month on a house that costed a million to build, but I don't know how they acquired the property.

Just for the house alone, it would take 10 years or so just to pay for this house without the property.

A local who does this for a living tried to explain his formula to me, using what he buys and builds, but still I am having a hard time swallowing it.

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Brucewayne

You intend to build a 60 m house for 90,000 pesos ? My cost to build a 70 m house is over 750,000 pesos and i do it for a living

 

Also, you probably build high end homes, not low rent for depressed areas as this guy does, he says there is faster turnover renting to the poor and still I am not sure if that is true either.

I'm just trying to learn something new here as that is what I do when I am bored.

No work here today and I hate it.

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batman2525

You intend to build a 60 m house for 90,000 pesos ? My cost to build a 70 m house is over 750,000 pesos and i do it for a living

 

Hypothetical question; a 100sq.m. property is bought for P160,000 and a 60sq.m house is built for P90,000 that is a P250,000. investment.

 

Didnt read anywhere that he said he intended....

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Brucewayne

Okay, further clarification, but even more confusing.

He showed me one of his units and it appears to be about 18' X 30', but they are 2 family units and they are about 18' X 15'.

1 toilet, very tiny living area and a bedroom that looks like about 7' X 7' and there is an outdoor area for cooking behind each unit.

He does have electricity run and water, but that's it.

His figures don't jive either because his tenants (2) are paying P1,500 per month each = P3,000 per month, not the P7,000 he said he needed to make the profit he claims he can make.

Maybe he is being wishful, but I don't see where he can possibly be making any money at all.

At least now I see why it costs him only P90,000 to build these, but it still seems that the P2,000 per Sq.m would eat his lunch.

Surely I am missing something, but I don't know quite what it is.

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Davaoeno
Also, you probably build high end homes,

 

actually @ 750K that is low cost housing. Mid range is about 1.4 m for 70 m and high end would be 2.4 M

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tobster

I bought a house next to the airport and Giasano in mactan for 1.1 million and the rent is P7500 per month........So i think you gotta go back to the blackboard and think again.

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WONINTWO

You do not need a formula.Do you know where the property is,and how big the house is going to be,yes?Then just look at what other comparable places in the area are being rented for....simple.ayosdito.com.ph or sulit.com.ph have rentals all over the country for your perusal.

 

The only formula I have heard of in the Philippines,and it works on all business's,is if you want to make a small fortune in the Philippines...you must start with a big fortune.

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Davaoeno

I see you are trying to get your 50 posts in !!

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Brucewayne

I bought a house next to the airport and Giasano in mactan for 1.1 million and the rent is P7500 per month........So i think you gotta go back to the blackboard and think again.

 

 

That's what I mean, how do these landlords ever pay for the houses if the rent is so low?

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thebob

I see you are trying to get your 50 posts in !!

 

I thought he had a stutter.

 

This whole thing is academic anyway because unless you are a citizen you can't buy the land in the first place.

 

Buy to rent here, isn't a very feasible proposition unless you are willing to do some very imaginative accounting like the big property corporations do.

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there is no simple formula,

 

once you have the property, don't forget you need to have it full every month, paying taxes, insurance,

tenants whom not pay, repairs etc etc etc..

 

then you have to decide if the price is inc .water, gas , electric, telephone cable,

 

if you not get those connections its going to be very expensive for the renters, hence they might look for a other place...

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WONINTWO

I see you are trying to get your 50 posts in !!

I do not know what you mean but I am having a problem of the technical sort and I do not know if it my PC,this site,my connection or what, but it is not done on purpose.

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