Building Roots from Overseas: Why OFWs Should Consider Real Estate Investment

In the pursuit of greener pastures, many Filipinos have chosen to work abroad, making considerable sacrifices to provide better lives for their loved ones back in the Philippines. According to the Philippine Statistics Authority (PSA), there are 1.83 million Overseas Filipino Workers (OFWs) globally as of December 2022, with a significant number who are involved in low-status jobs.

In addition, despite their significant contributions to their families, the Department of Labor and Employment (DOLE) in the Philippines has expressed concerns about uninsured OFWs, as only 32% had insurance coverage. Given the general lack of insurance and the demand for financial stability, it is crucial for OFWs to explore viable investment opportunities to secure their futures. In recent years, cash remittances have grown at a faster rate, which has prompted many families to turn towards investments.

Awareness and participation in various investment opportunities are on the rise among OFWs, although challenges remain in terms of promoting financial literacy and access to suitable investment instruments. The current situation encourages overseas workers to seek strategic investment opportunities, such as real estate or establishing businesses in the Philippines, to secure long-term financial stability and create a better future for themselves and their families.

RELATED: Cultivating Passive Income: Rental Properties for OFWs in the Philippines

Understanding Real Estate Investment

Investment in Real Estate involves the purchase, ownership, management, rental, or sale of real estate property. It’s strategic, delivering potential benefits and offering a variety of investment opportunities, from buying rental properties to flipping houses, and investing in real estate investment trusts (REITs).

Real estate investments can take several forms, including direct ownership and indirect participation. The most common types of real estate investments are:

• Residential Rental Properties: Investors purchase residential properties—such as single-family homes, apartments, or townhouses—and lease them out to tenants. Rental income can generate a steady cash flow for the investor, while the property’s appreciation can provide long-term capital gains. However, investors need to manage their tenants and maintain the property.
• Commercial Properties: These commonly include office buildings, retail spaces, and other properties that can be used for business. Investors can lease these out to businesses and typically receive higher rental incomes than residential properties. However, commercial properties may involve larger initial investments, longer leasing periods, and more specialized property management.
• Real Estate Investment Trusts (REITs): A real estate investment trust (REIT) is a company that owns and operates income-producing real estate.. Modeled after mutual funds, they pool money from multiple investors to invest in real estate, providing investors with the opportunity to diversify their portfolios and gain exposure to the property market without directly owning or managing properties.
• House Flipping: In this strategy, investors buy properties in need of refurbishment at a low cost, renovate and improve them, and sell them at a higher price, aiming to make a quick profit. This approach involves considerable risk, particularly regarding construction costs and accurate market valuation, but can provide returns in a short period.
• Land Investments: Investors can purchase raw land and hold it for long-term appreciation or develop it (e.g., building residential or commercial structures) to generate income. This type of investment typically requires a significant amount of capital and may involve longer time horizons, but can yield substantial returns.
• Crowdfunding and Real Estate Syndication: These methods enable multiple investors to pool their resources together to fund a real estate project while providing partial ownership of the property. Crowdfunding platforms often target accredited investors, while real estate syndication is generally available to a broader range of investors. These investment methods grant access to more significant projects and opportunities for diversification, but investors must carefully assess the project sponsors’ credibility and experience.
• Real Estate Mutual Funds and Exchange-Traded Funds (ETFs): Similar to REITs, mutual funds and ETFs focused on real estate aim to give investors exposure to real estate through diversified portfolios. This approach allows investors to capitalize on the real estate market while maintaining the liquidity and diversification benefits of traditional equity investments.

Advantages of Real Estate Investment for OFWs

Long-term Financial Security

OFWs can attain long-term financial security through real estate investment. The steady cash flow from rental income acts as a reliable passive income stream, supplementing their regular earnings. The annual rental yield in Manila stood at 5.21% as of Q2 2023, making it a viable income source.

Asset Appreciation

Real estate properties often appreciate over time. Residential prices in the Philippines went up by 7.7% year-on-year in the fourth quarter of 2022, according to the Bangko Sentral ng Pilipinas (BSP). This is the fastest pace of growth since the second quarter of 2020. Hence, real estate investment for isn’t just about current gains – it’s about future benefits, too.

Diversification Potential

Adding real estate to an investment portfolio enables risk management. Investments in real estate usually have a low and, in some cases, negative correlation with other major asset classes^[4]. This diversification leads to higher returns and reduced risk.

Home for Retirement

For overseas workers planning to return home after years of hard work, having a place of their own can offer peace of mind. Buying residential property back home ensures a future haven on Philippine soil.

Getting Started in Real Estate Investment as an OFW

Starting a real estate investment journey can be an exciting prospect. However, it requires careful planning and execution. Here are some practical tips for OFWs interested in real estate investing.

1. Educate Yourself: Real estate investing doesn’t only involve purchasing property and waiting for its value to increase. It’s essential for would-be investors to educate themselves on topics like property valuation, market trends, property taxes, leasing and tenancy laws, etc. One can take part in seminars, read books, join online forums, or take courses to learn more about real estate investing.
2. Work with a Real Estate Agent: A professional real estate agent can be a massive help as they have the experience, knowledge, and skills to assist you in finding a suitable property, negotiate prices, and ensure legal compliance. Choose an agent who understands your investment goals, knows the area you’re interested in, and has a successful track record.
3. Research about the Market: Understanding the real estate market is crucial as it helps investors decide when and where to invest. Getting information about property price trends, potential rental incomes, property supply, and demand can provide clues about the investment’s potential success.
4. Choose Your Location Wisely: Location substantially influences a property’s value. It’s important to consider proximity to infrastructure, the quality of the local community, access to public transport, and future developments in the area. A good location can bring higher rental income and a better resale value.
5. Organize Your Finances: Identify how much you can afford to invest without hindering your financial stability or your capability to deal with unexpected expenses. Consider various factors like your income, savings, existing debts, and financial goals. Moreover, consulting with a financial advisor can be helpful in creating a financial plan that considers these factors.
6. Consider Other Costs: Don’t forget about ongoing costs such as insurance, property maintenance, taxes, and possible homeowner association fees. These expenses should be included in your budget planning.
7. Think Long-Term: Real estate is a long-term investment. Evaluate your financial goals, decide on your investment timeline, and be patient. The real payoff usually happens over a long period.

Common Challenges and Overcoming strategies

Just like with other forms of investments, pursuing real estate can also pose certain challenges. Here are some of the potential issues to look out for, along with some advice on how to address them:

• Managing Properties from Afar: One of the biggest challenges OFWs face is property management while being based overseas. From maintenance to finding tenants, property management can be demanding.

Advice: Consider hiring a professional property manager. These professionals can handle administrative tasks, tenant disputes, rent collection, property upkeep, and other related matters. It might cost extra, but the convenience and peace of mind are often worth the expense.

• Dealing with Tenants: Finding reliable tenants and handling their concerns can be quite challenging, especially when you’re not physically present.

Advice: A comprehensive tenant screening process will increase the likelihood of finding dependable renters. You can also consider setting up online payment systems to streamline rent collection. Moreover, hiring a property manager can also help with these matters.

• Handling Finances: Be careful about budgeting income and savings. Overseas workers can face the temptation of splurging remittances without proper financial planning.

Advice: Working with a financial advisor or a mentor can be immensely beneficial for proper budgeting and planning. This can help ensure that you have enough to cover the costs of investing in real estate, along with other expenses and future savings.

• Understanding Local Real Estate Market: Since OFWs are based overseas, they may lack firsthand knowledge about local real estate trends and market conditions, making it risky to make investment decisions.

Advice: Working with a knowledgeable local real estate agent or broker can help bridge this gap. These professionals have an in-depth understanding of the local market and can provide guided advice.

• Legal and Tax Implications: OFWs may find it difficult to navigate the legal aspects of property ownership and the tax implications of buying, selling, and renting properties.

Advice: Consult professionals such as real estate attorneys or tax advisers to understand these complexities. Regular contact with these professionals can ensure that you are compliant with local laws and regulations while optimizing tax strategies.

Proper planning and seeking professional assistance where necessary can mitigate potential risks and maximize investment returns.

Final Thoughts 

Real estate investment presents remarkable potential for OFWs looking to make the best of their income. It offers monetary rewards, security, and the opportunity to build roots wherever they may be in the world. Investing in properties isn’t just about building houses; it’s about building homes, building wealth, and ultimately, building futures.

So, while there are challenges associated with real estate investments for overseas workers as discussed earlier, the potential benefits are substantial and often make it a worthwhile endeavor. With the right approach, strategies, and professional advice, the road to real estate investment can lead to financial independence and stability for OFWs.

Read more here: AllProperties Latest Blogs