Claire considers herself lucky. After graduating with a degree in Information Technology, she was offered a well-paying job in a major pharmaceutical company. Claire embodies every trait an employer wants in an employee. She’s dedicated, driven to improve everyday, and respects her work. After just 2 years on the job, Claire’s career is at full throttle. She’s thinking about stepping up her lifestyle with the significant salary bump that came with her promotion. “I’ve always wanted to explore condo living. My friends told me all about the benefits of living in a condo community that has everything you need, from 24/7 security to a well-equipped gym.”
Condo living in the Philippines allows hard working millennials like Claire to live a healthy and balanced lifestyle. The proximity of condo communities to business districts and transportation networks cuts travel time, easing one’s schedule. Condo living also presents an opportunity to increase one’s passive income through condo investment.
Passive income 101
Passive income is one you earn from sources in which you don’t actively exert effort. This is in contrast to active income that requires your direct involvement such as salaries and consultancy fees. Some familiar examples of passive income sources are real estate for lease, earnings and dividends from stocks, and profit from a business. Initially, these can provide an extra boost to your regular salary, but eventually, these can be your main cashflow reservoir.
How to achieve financial security through passive income? The key is in choosing the investment vehicles that suit your risk profile. You can assess your aversion to risk by speaking with a financial adviser or using a financial calculator available online. Generally, a millennial in his 20s is more willing to invest in higher-risk investments than a middle-aged employee. A younger investor has wider investment horizon, thus a greater flexibility to recover from short-term losses.
Ready yourself to invest
Before diving into any passive income venture, there are things you should work on. You need to assess your financial standing. Are you in the position to invest right now? Here’s a straightforward way of knowing if you’re ready to invest:
Get your debts under control. This doesn’t only mean that your credit cards are up-to-date. You should have at least three months of advance payment sitting in your bank account for all your payables. Better yet, pay off all your debts before signing an investment venture.
Make sure that you are sufficiently insured. Whether you’re a bachelor or a married breadwinner, a health insurance is a must. It’s non-negotiable because medical expenses can easily damage your finances. A life insurance can also protect your family and dependents against unforeseeable events.
Create a six-month cash fund. This pot will cover your monthly expenditures in the event you lose your income for whatever reason.
Build a savings pot. There’s a misconception that a deposit account is an investment tool. A deposit account offers low interest rates that’s way below the current inflation rate. The cash in this account is for short-term expenses.
Once you’ve fulfilled all these “prerequisites,” you’ll be ready to explore and try out investment tools.
Choose a feasible real property investment
Real estate properties are a reliable source of passive income. The rental payment can be a steady stream of income, if managed well. Choose a property that’s accessible to your target market. Brixton Place, a DMCI condo in Pasig City, is surrounded by schools, hospitals, and transport networks, making it a viable residence for professionals and families. The major advantage of investing in a family-friendly residential community is the high probability of sealing long-term leases that can ensure a steady cash flow.
Let the specialists help you out
Comparative advantage is a concept in economics created by 18th century economist David Ricardo. It occurs when “one country can produce a good or service at a lower opportunity cost than another.” Although comparative advantage is commonly applied on international trade, its core value is application in various scenarios including investing. Specialize. Reading a financial and investing books for a month, or a even year, cannot turn you into a stock market wizard. Let the professionals help you out. Mutual funds hire portfolio managers and real estate companies work with a leasing firm. Whether you’re venturing into the stock market or renting out a condo unit, you can maximize your passive income sources by letting the specialists guide you through.
Spread the risk. Diversify.
One of the basic rules in investing is diversification. “Don’t put all your eggs in one basket.” If you’re investing in stocks, avoid investing more than 10 percent of your money in one stock. You can adjust to 15 to 20 percent, as your financial adviser may suggest. Diversifying is a way of spreading risks. The paper losses on one or two stocks may be offset by the paper gains in your other holdings. This strategy can also work on real estate investment. Consider leasing out your condo unit to a number of lessees to spread the risk of vacancies. Lucky for you, condo sharing is a trending accommodation for young professionals.
Reinvest your passive income
Maximize your passive income by reinvesting your dividends, rental income, etc. If you’re investing in high-risk stocks, you can “secure” your gains in a low-risk vehicle like corporate bonds or a time deposit account. This tactic will help you lock in your earnings but still earn more than just letting your money sit in a deposit account. Apply rental payments in the mortgage until you have fully paid your condo. Once you’ve fully paid your mortgage, you can save up the subsequent rent for a new condo unit. Before you knew it, you’ve already fully paid your second DMCI Properties condo unit.
Remember: be consistent
Consistency is important to succeed in any endeavor. If you pledged to put monthly additional investment into your mutual fund, then stop finding excuses of doing otherwise. Think of it as working on a fitness program. Skipping a workout session may negate all your past efforts. Moreover, it’s easier to quit when you’ve lost your momentum. In investing, the money is not the only resource you’ll waste if you don’t observe consistency. Money can be replaced, but not the time and effort you’ve already invested.
You’re fortunate to live in an era where wealth is democratized through technology, new investment products, and accessible capital. Take advantage of these benefits. Jumpstart your investment journey.