MODULE 4
Republic of the Philippines
NORTHERN BUKIDNON STATE COLLEGE
(Formerly Northern Bukidnon Community College) R.A.11284
Manolo Fortich, 8703 Bukidnon • 0975-3032951• nbscadmin@[Link]
Creando futura, Transformationis vitae, Ductae a Deo
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION
Subject Code: Investment and Portfolio Management
First Semester of A.Y. 2024-2025
Rationale
The benefits of investing in real estate are numerous. With well-chosen
assets, investors can enjoy predictable cash flow, excellent returns, tax
advantages, and diversification and it's possible to leverage real estate to
build wealth. Real estate investors make money through rental income, any
COU
profits generated by property-dependent business activity, and appreciation.
Real estate values tend to increase over time, and with a good investment,
RSE
you can turn a profit when it's time to sell.
MO
DUL
Specific Learning Outcomes
At the end of the session, the students will be E
able to:
o Explain real estate
o Identify the types of real estate
o Differentiate the advantages and disadvantages in stocks investment
o Discuss the Important Factors To Consider Before Investing in Real Estate.
Activating Content
Manny Villar Life Story
[Link]
Manny Villar The Richest man in the Philippines Tips and Advice to be Successful in Life.
[Link]
MODULE 4
How to be a SUCCESSFUL Real Estate Agent in 7 Steps | Ryan Serhant
[Link]
Big Reveal ! How I Sold 35 House Properties sa loob ng 60 DAYS!!!
[Link]
COU
RSE
Discussion
MO
DUL
Real Estate E
Real Estate has been a favorite long-term investment vehicle because it appreciates in value with the passage
of time and as the saying goes, “people come and go but the land is always there”.
Real estate refers to land and all permanent improvements thereon including buildings. It may be agricultural,
industrial, commercial, residential or in the form of rental units. In addition to the foregoing, real estate may
also be in the form of raw land. Rental units include condominiums and apartment. In investing in real estate,
the properties with the best potential for future appreciation is chosen, good tenants are accepted, and value
is maintained through periodic maintenance.
The terms land, real estate, and real property are often used interchangeably, but there are distinctions.
Land refers to the earth's surface down to the center of the earth and upward to the airspace above, including
the trees, minerals, and water. The physical characteristics of land include its immobility, indestructibility, and
uniqueness, where each parcel of land differs geographically.
MODULE 4
Real estate encompasses the land, plus any permanent man-made additions, such as houses and other
buildings. Any additions or changes to the land that affects the property's value are called an improvement.
Once land is improved, the total capital and labor used to build the improvement represent a sizable fixed
investment. Though a building can be razed, improvements like drainage, electricity, water and sewer systems
tend to be permanent.
Real property includes the land and additions to the land plus the rights inherent to its ownership and usage.
Types of Real Estate
COU
Residential real estate. Any property used for residential purposes. Examples include single-family homes,
condos, cooperatives, duplexes, townhouses, and multifamily residences.
RSE
Commercial real estate. Any property used exclusively for business purposes, such as apartment complexes,
MO
gas stations, grocery stores, hospitals, hotels, offices, parking facilities, restaurants, shopping centers, stores,
and theaters.
DUL
Industrial real estate. Any property used for manufacturing, production, distribution, storage, and research and
development.
E
Like any investment, there are pros and cons to investing in real estate, in addition to the potential for
significant profits. As a result, due diligence is very important, whether you do everything yourself or use
MODULE 4
industry experts to help.
Here are some of the advantages and disadvantages of real estate investments, which the best investors use
to their advantage to increase profits.
Advantages
Real Estate Can Be Easier to Understand. When you start investing, it can be difficult to understand
everything you need to know to make a profit. Many types of investments rely on abstract concepts and
complex algorithms, which are especially difficult to understand.
Real estate, on the other hand, involves the purchase of physical property and most people are familiar with
real estate to some degree. Investing in real estate can be much easier to understand than complex
investments developed by mathematicians.
COU
RSE
Real Estate Is Improvable. After you buy a stock, you hold it for a period of time and hopefully sell it for a
profit. The success of the stock depends on company management and their corporate success, which is out
of your control.
MO
In contrast, real estate investments are directly under your control. Though you can’t control demographic and
economic changes, or acts of God, you can DULcontrol many things relating to the physical property and tenants.
With good management of your overall real estate portfolio, you can tangibly improve the value of your
investment and build wealth. E
Real Estate is a Hedge Against Inflation. Real estate is one of the few assets that reacts proportionately to
inflation. As inflation goes up, housing values and rents go up.
Though real estate in general is a good hedge against inflation, rental properties that are re-leased every year
are especially effective, since monthly rents can be adjusted upward in inflationary periods.
For this reason alone, therefore, real estate is one of the best ways to hedge an investment portfolio against
inflation.
Real Estate Properties Exist in an Inefficient Market. Unlike the stock market, the real estate market is full of
inefficiencies. There is a lack of transparency relating to individual property values and also the strength of
different markets, which means that real estate investments have the potential for very high profits.
Real estate investors who do their research, especially with help from industry experts, can find great real
estate bargains.
Real Estate Can Be Financed and Leveraged. You can technically purchase stocks and other assets using
debt, but this can be very risky because the financing is not to purchase a hard asset. Real estate, on the
MODULE 4
other hand, is a market where products are usually bought with debt.
Real estate investments purchased with hard money or a mortgage can be structured in ways that are rather
safe and affordable, so that large purchases can be made with a relatively small initial investment. The result
is the purchase of a hard asset that appreciates year-over-year, and paying for it primarily with other people’s
money.
Disadvantages
Real Estate Has Higher Transaction Costs. When purchasing shares of a stock, the transaction cost for the
trade is very low, often just a few dollars. But when purchasing real estate, the transaction costs are
considerably higher.
Unlike other types of investments, real estate transaction costs can significantly affect the value of the
COU
investment and make it more difficult to turn a profit.
RSE
Real Estate Has Low Liquidity. Many investments are highly liquid, and can be bought and sold for a profit in a
MO
fraction of a second, as with high-frequency stock trading. But real estate investments are comparably illiquid,
because properties can’t be quickly and easily sold without a substantial loss in value.
Real estate investors must be prepared toDUL
own a property for months and years, especially if it will be leased
out.
E
Real Estate Requires Management and Maintenance. Once an investor purchases a property, it must be
rehabbed, maintained, and managed. Financing payments, real estate taxes, insurance, management fees,
and maintenance costs can add up quickly, especially if the property sits empty for extended periods of time.
Real Estate Markets Have Significant Inefficiencies. As we’ve already discussed above, the market’s
inefficiencies can be advantageous to investors. But here we want to also mention the disadvantages, which
can be illustrated by investors purchasing properties sight unseen at auction.
The most aggressive investors purchase real estate based on minimal information, and don’t know whether
they’ve made a good deal until paying for the property and then inspecting the property. Likewise, investors
with rental property deal with fluctuating demographics and volatile economies, which can either add or take
away from their bottom-line profits.
Real estate investing involves dealing with market inefficiencies, which can be mishandled to result in financial
ruin.
Real Estate Creates Liabilities. Real estate investing involves taking on a great deal of financial and legal
liability. All the disadvantages mentioned above add to the liability a real estate investor takes on when
purchasing, financing, rehabbing, leasing, managing, and maintaining a property. Even though investment
MODULE 4
properties may be in a corporation, there are often personal guarantees associated with the business, and the
risk of losing the income and profits generated by the company.
Important Factors To Consider Before Investing in Real Estate
Type of Property. One of the first things you need to understand is that the type of property you carefully
choose should not only make for a good investment, but should fit within the budget you’re willing to spend. It
would help to take a look at a complete guide to purchasing real estate to help you decide what type of
property you’re looking for.
Budget. Before you consider buying a property, you need to know what budget you’re willing to spend. The
COU
budget not only helps you determine what type of property you can afford, but it can also help you narrow
down in terms of space and location, too. Knowing your budget, you’ll be able to understand whether you’ll be
RSE
able to afford a studio apartment, two-bedroom apartment or a standalone villa. So, before you call a real-
estate agency, you need to sort out your finances, know what you can spare to help you be more realistic in
MO
what type of investment you can go into. When you’re calculating the budget, it is also important to factor in
any hidden costs you might need to pay to agencies, banks or even other costs such as renovating, furnishing
DUL
or getting a property ready to be rented out.
E
Location. Many factors are determined, based on the location. Are you looking for a central option where it will
be more expensive, or are you looking for suburban property with a more beautiful view that provides more
space for the same price? Depending on the location, these factors will differ and will help you take the
decision according to the purpose of investment, price, property value, and the type of property you’re looking
for.
Investment Purpose
Understanding what you plan on doing with the property makes a huge difference on what type of property
you need to buy as well as where to buy it. If you’re looking to turn it into an office, it needs to be in a specific
area. However, if you’re looking to turn it into something commercial, you need a bigger space. Determining
the purpose will help you make the right decision and help you get a better vision of what you’re looking for to
narrow down the options available to better suit your exact needs.
Property Value. Getting an estimated value will help you know whether the investment is worth it or not.
There’s no point in buying a cheap property only to find out you need to spend hundreds of thousands in
restoration and renovation. Always get an estimated value in advance, and make the decision based on the
plan you have for it. You can do this by asking about other properties with the same characteristics in the area
you’re looking for or even going through advertisements or asking your real estate agent to show you
the market value for the type of property you’re looking for within a specific area. Doing your research
MODULE 4
thoroughly will not only help you make a valid decision, but could also open up better alternatives.
Expected Return on Investment. If you’re thinking of buying a property just for investment purposes, then the
return on investment is an important factor to consider. Ask yourself whether you’ll be able to rent it out
immediately, or how long it would take to set up for your future plans. You should also consider how much
profit you expected, so you can determine the best choice for your investment. Other than that, the
appreciation of the property you’re investing in is another essential element, which determines whether it’s
worth taking the risk and be a key factor in putting together a proper plan.
Payment plans.
After considering your budget, you need to figure out what the best payment plan for you would be. Will you
be able to get the liquidity you need by getting a loan from the bank? How long will it take you to pay up the
loan? What risk will you be handling? All these factors are essential for you to thoroughly understand before
COU
taking this huge step, especially if you’re not sure whether or not the property is worth it. In other cases, you
could find that it’s best to pay for the property in installments rather than a one-time payment, which gives you
RSE
the flexibility to generate the cash flow needed without having to pay ridiculous amounts in interest to the
bank.
MO
DUL
Real Estate Laws. Before you make such a huge investment, you need to be familiar with the laws of the area
you’re purchasing property is, as well as the taxes you’ll be paying. In cases like these, it’s always best to hire
procedures that need to be taken to avoid E
a lawyer who is familiar with the ins and outs to help familiarize you with the entire process, and the
paying fines or finding yourself in an inconvenient situation,
especially when it comes to taxes.
Before you invest in real estate, you need to fully understand what you plan on doing with the property, as well
as the future plans you have for it. All this will help you determine the other factors that best fit your needs,
while making a decision with the property value in mind, and the payment plans you would need to make it a
good investment option.
Setting Application
Watch the video: Zhang Xin: China's real estate mogul
[Link]
Reflection: in not less than 10 sentences
What are your realizations after watching the video?
MODULE 4
Establishing Feedback
Send to our google classroom ‘establishing feedback’ if you have any questions or clarifications about the
module.
Resources and Additional Resources
Arshanapalli, B., T. Goggin, and W. Nelson. (2001). ‘‘Is Fixed-Weight Asset Allocation Really Better?’’
Journal of Portfolio Management, Spring: 27–38.
COU
RSE
Brown, W. (2000). ‘‘Convertible Arbitrage: Opportunity & Risk.’’ Tremont Capital Management. Rye,
New York.
MO
DUL
Lee, C. F. (2018). Advances in Investment Aanalysis and Portfolio Management. USA. Seibundo
Publishing Co., Ltd..
E
Stewart, S. D. (2019). Portfolio Management Theory. New Jersey. Wiley
