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Investment vehicles that yields 15 % return – Part 2 »

Investment vehicles that yields 15 % return – Part 1

February 7th, 2010 | Author: zigfred

In my last post, entitled “What is the ideal rate of return for investments?,” I have cited the reasons why an investor should target an investment that gives at least 15 % return per annum.

In this post we are going to answer the difficult question as to where we are going to get a vehicle of investment that gives us an interest rate of 15 % return per annum compounded.

Ruling out scams, as of the time of this writing there are only two vehicles of investments that I know of that gives a return of 15 % per annum. Bonds are out of the question as the highest return I know in the Philippines is about 12 %, and this was almost a decade ago. I don’t know if it will ever return to that level or even exceed 15 %.

Anyway, the two vehicles of investments I am referring to are Real estate and business. Let’s discuss them one by one.

1.) Real Estate – When we talk about Real estate as an investment vehicle, there are many variations. Now I am not talking about brokering, since this is pure selling. I am talking about investing in real estate.

The most common form of real estate business is buying a piece of property and waiting for the price to go up. (Read – speculation) Other variants include buying beat up houses, renovating them and selling them outright or selling them in a buy to own scheme ala Robert Kiyosaki style. This model has already been tried in the Philippines and I heard that it works. The Robert Kiyosaki of the Philipppines, is Larry Gamboa and in his two books, I’ve read how successfully he has applied the Robert Kiyosaki path to financial freedom in the Philippines.

Real estate is fine with me. In fact, for most Filipinos “real estate” immediately comes to mind as the only form of investment aside from ordinary savings account. I have no quarrels with those in the real estate industry when they claim that real estate is the ticket to financial freedom and even riches. In fact my parents and grandparents have always argued with me about this. They firmly believe in real estate and argue that since it is something that is tangible, it is considered relatively safe. Most Filipinos believe that real estate prices always go up. (Tell that to the Americans!)

However just like any other vehicle of investment, it’s not all a bed of roses for those who use real estate as their ticket to riches. Real estate also has its disadvantage. (Read – Problems and headache) Here they are:

a.) Illiquidity – First of all real estate is not very liquid, it will probably take months or even years for you to sell your investment. Worst you might even be force to sell your property at a bargain if you desperately need the money.

b.) Expensive – You will have to spend more to “maintain” the investment. You will be paying taxes and you will be hiring a guard or an administrator to take care of your property. If you are engaged in the ala Kiyosaki business, you will have to spend for renovation etc. Take note that you will also need a lot of money to invest in real estate.

c.) Complicated - There’s so much paper work involved in real estate. You will have to make deed of absolute sale, register the property, work out the taxes, transfer the property in your name etc.

Add to this are the problems about squatting, the risk of buying a problematic property, (Read – submerged properties – ask Governor Gwen Garcia and Board Member Juan Bolo of Cebu Province as they have a lot of experience about this) and the risk of acquiring enemies, especially if you brought the property from a family that has been quarrelling over it.

Well with all the negativity about real estate I have mentioned, why is real estate still considered a good vehicle of investment. Well mostly because it gives you a return of more than 15 % per annum compounded, there’s always a demand for it and besides what vehicle of investment does not have its disadvantages?

Next post we are going to talk about Investment vehicles that yields 15 % return – Part 2. Stay tuned!