For many homebuyers, the great real estate investing debate revolves around two equally sound investment options. When buying property, should you opt for pre-selling units? Or, should you put your money in ready-for-occupancy (RFO) properties instead? This question covers all property types: lots, houses and lots, and condominiums.
Let’s go over each option and weigh their pros and cons. We’ll also look into the reason for homebuyers to purchase property. Are they doing it to move in themselves, or are they buying property for investment purposes? Afterward, we’ll sift through the arguments and see where we stand. Are you ready for some real estate investing advice? Let’s get it on.
The Case for Buying Pre-Selling Property
Pre-selling developments allow homebuyers and investors to lock in on a unit before or during its construction stage. Developers, especially those with large projects, often need infusions of capital to continue construction. A common strategy is to offer units at a pre-selling rate, which is usually 30% to 50% lower than the finished version. If a pre-selling unit is years away from completion, this also gives property buyers a great amount of time to come up with the payment. In many cases, developers allow buyers to pay the downpayment (which is usually 20% of the total unit price) in monthly installments during the pre-selling period. Upon turnover (and completion of the downpayment), the buyer can now pay for the balance either in full or through a new round of financing.
The Pros of Buying Pre-Selling:
For many homebuyers, having enough money to pay in full is very difficult. For many first-time homeowners, getting mortgages is necessary to finally acquire their dream homes. They include young professionals with stable jobs that hope to finish paying off their homes during the middle of their careers. For them, monthly amortizations remain the best (and often only) choice. If their salaries go up over time, the monthly payments become more manageable.
Meanwhile, investors like the idea of buying pre-selling properties as this is the only time they can buy units at low prices. The intent is to flip these properties for a profit at the best possible time. Real estate investing 101 tells us that property values usually rise over time. Buying a house or a condominium at a discount of 30-50% becomes a great deal once the realtor completes the development. Whether they sell the unit at a profit or rent it out, they’ll get good returns. This is especially true if economic conditions cause the cost of building materials to increase faster than anticipated. Paying ahead saves the buyer from inevitable price increases due to higher construction costs.
Profitability is especially true for investors who have the foresight to purchase properties in developing areas. The first buyers at BGC during its earlier development stages are now proud owners and landlords of condominiums enjoying high traffic and occupancy rates. At present, new townships such as the Bay Area and Bridgetowne are gaining popularity for their potential.
The Cons of Buying Pre-Selling:
Pre-selling also means that buyers are already paying for something that’s not yet complete. Whether due to a lack of funds (due to lack of buyers) or complications in the construction process, some developers might choose to abandon the project. For early bird buyers, they may get their money (at least some of it) back after a while. However, the damage is done in terms of wasted money and time.
In addition, the final design of a pre-selling condo may be different from the original plans. The units might turn out smaller than expected, and some amenities may suddenly disappear from the final version. For buyers who specifically signed up for certain features and amenities that didn’t make it to launch, this can be a disappointment.
Sometimes, even the best-touted and highly-promoted locations lose value over time. A famous example would be the eruption of Mr. Pinatubo in the early 1990s. The subsequent ashfall damaged entire provinces in Central Luzon and stunted progress for decades. Between owners of existing properties versus those holding on to pre-selling units, the loss is more pronounced for those who end up with nothing. Losing your entire investment value even before you move in is a bit harder to swallow compared to an existing property that lost its value. In the latter’s case, you might have recouped at least some of your investment through rent or by using your property. This is the reason why when dealing with property developers and sellers, you should only deal with trusted reputable estate companies and trusted property platforms.
The Case for Buying RFO Property
Meanwhile, proponents of RFO property argue that they get to own real estate at the right time and at the correct valuation. In short, many buyers like the idea of getting what they paid for without the haphazard assumptions. Even as buyers pay full price, they also know that with the right choices, their properties will still continue to rise in value. Established business districts like Makati, Bonifacio Global City, and Ortigas are havens for buyers looking for RFO properties with excellent locations.
The Pros of Buying RFO
The ready-for-occupancy label means precisely that. As soon as the homebuyer puts in enough money for a downpayment, they can move in immediately. First-time homebuyers, in particular, will appreciate the convenience of moving immediately. For investors, this means they can accept tenants right away.
RFO properties also insulate buyers from the risk of abandoned properties or, delayed construction. Instead of having to worry about an investment that’s constantly experiencing delays in turnover, buyers get what they paid for at the time they wanted it.
The Cons of Buying RFO
For RFO buyers who missed out on pre-selling, they might have missed more than an opportunity for lower prices. Many of the choicest units often get sold during pre-selling. This leaves RFO buyers with fewer selections. However, they can always opt to buy turnover units from previous owners.
Without the risk of delays, cancellations, or higher overheard developers can now confidently present their development to the market in an RFO setting. This means units now come at full market value. Of course, they can console themselves with the fact that property values will continue at an upward trajectory. Even as they missed out on lower prices, they won’t miss out on all future appreciation.
Ohmyhome’s Real Estate Investing Verdict: You Can’t Go Wrong Either Way
For buyers without much liquidity and who would need some time to complete payments, going the pre-selling route is a good strategy. This is especially true for homebuyers with existing homes, which allows you to wait it out in peace. Investors looking to make a homerun investment would also benefit from buying a pre-selling property. However, they’ll need to do the research to see if the location’s potential matches their future expectations.
Meanwhile, buyers with ready cash or needing a house soon could plunge into an RFO transaction. At the least, you’ll be making a play for a tangible property investment that can be transferred to your name immediately (assuming you fully paid in cash). Retirees and working professionals who do not want the stress of waiting are also great candidates for RFO units in big cities. Meanwhile, Investors with a keen eye for the future can also play catchup by buying RFO properties at established locations. They know values will still go up.
For More Real Estate Investing Advice, Visit Ohmyhome
Which team are you playing for? Team RFO or Team Pre-selling? Of course, you don’t have to stay with one team throughout your real estate adventures. You can switch or even play both sides. But whichever team you’re playing for, Ohmyhome can help you get the properties you want at the choicest locations. The county’s premier pre-selling property portal carries an extensive property listing from 180 of the country’s best developers. Ohmyhome can also help you get the best financing options and advice on all real estate matters. We’ll also help out you by sharing advice and tips on real estate investing.Join the over 13,000 happy and satisfied clients who managed to buy, sell, or lease their property with us. Learn more by visiting us at Ohmyhome or download our iOS or Android app today. Real estate investing is easier with Ohmyhome!