Financial freedom is one of the biggest eventual goal of every person seeking to be holistically wealthy but not everyone is aware of how pivotal our choice of investments is. Some would put money in a food park in Pasig, a retail franchise in Ortigas, a big time deposit in a very prestigious bank, or a condo beside MOA—but how does financial freedom really happen? Through passive income.
Today, we’ll be talking about passive income in two forms, pitting one against each other, namely investing in rental condo units and investing in bank savings.
You can typically open a bank account for less than Php 3,000. These are mostly in the form of savings account which grow at the interest rate of .25% per annum. The biggest interest rate in the Philippines is around 1.27% for a corporate account that has an annual average of Php 50,000. A condo unit, especially when close to important facilities like The US Embassy or beside malls like MOA, it could cost around Php 3M at the least (around Php 90M + for some premium units that have hotel-like amenities).
A savings account is always a safe bet but if you’re putting money on a personal capacity, you can only enjoy 1.25% interest for a personal account that needs Php 30,000 annual average. That’s around Php 372 per year. If you have 900,000 to put into a bank account, that’s a return of Php 11,250 per year.
On the other hand, Php .9M is already a good enough amount to get you started on a condo unit. If it’s beside establishments like MOA, or just in front of main thoroughfares like Roxas Boulevard, or near EDSA, a basic unit could be purchased for Php 3M at 30% down payment (.9M), the rest of which can be paid in monthly installments for 60 months (35,000). Now, if you put yours for rental listings, it could be occupied on the daily for at least Php 2,000 per night and at least Php 50,000 per month. In a month, you can pay for your monthly amortization for the condo unit and have a take home passive income of Php 15,000. Even though it seems like a big return, remember that you will need to find a tenant to occupy the unit for this to happen unlike in back deposits where your money will grow by itself as long as the average does not drop below the required amount.
Estimated Time Frame
Like previously discussed, a bank investment is going to only pay off after a year of maintaining a required daily average at a fixed rate of 1.25% or even lower for other modes of savings, typically at .25%.
For a condo investment, you can’t really say that you are passively making income from it until it has been completely purchased by you. If you aren’t going to make advanced payments on your condo unit, you’ll be waiting for at most 5 years or at quickest 2-3 years to have it fully paid and good for complete turn over. But you also have to consider that, if your condo unit beside MOA is used for tenant rentals, it could be possible that the unit will pay for itself—potentially, you could be only paying for the down payment at Php .9M in total for a Php 3M unit.
So we see that both aspects of these investments have their own pros and cons. Bank investment is safe and very secure but pays of slowly. There is a guaranteed payoff but it is also nominally small compared to owning a condo that you contractually rent. A condo investment needs a big capital but so does every other passive income generating investment; it pays off quite well (and may even pay for itself) but needs a little work to be able to gain tenants.