Start smart: 5 Foundational investing principles for beginners
In both life and investing, principles provide us the direction for smart, confident decision-making.
For beginners in the world of investments—especially in real estate—understanding and applying basic investing principles can mean the difference between mere speculation and long term financial security. Here are five investing principles to consider.
Invest when you’re financially, mentally ready
Before investing in any asset class—real estate included—you must first assess your overall financial health. Here are two clear signs you’re ready to begin.
You’ve built a financial safety net. Make sure you have paid off high-interest debts (like credit card balances), have at least six to 12 months’ worth of expenses in an easy-to-access emergency fund, and can comfortably meet your monthly expenses. In real estate investing, it is practical to factor in maintenance costs like repairs, vacancy periods, monthly dues, and property taxes.
You have clear financial goals. You need a goal and a realistic timeline. Are you investing for capital appreciation in booming areas outside the greater Metro Manila area, or for steady rental income from condos in central business districts? Your objective will determine your strategy, time horizon, and financing options.
Rule of thumb: Never invest money you’ll need within the next three to five years, especially in real estate where liquidity is low. No matter how attractive and time-tested real estate investments are, understand that it’s not everyday that you come across a ready buyer for an asset class worth millions and financial commitment worth decades.
Do your homework
Not all investments are equal because not all investors are created equal. The ideal situation is for you to identify what type of investor you are to pinpoint what type of investments suit your personality and situation.
Learn the fundamentals of what you’re investing in. In the case of real estate, this means understanding location trends, property valuation, tenant demand, market cycles, and even local government infrastructure plans. The “Build Better More” program, for instance, has measurable impacts on surrounding land values and investor interest.
Research the developer, broker, and even the legal processes. In the era of social media, it is easier for investors to do their homework and even ask clients and property owners for their honest-to-goodness feedback. If you’re investing in real estate investment trusts (REITs), study asset mix, occupancy rates, dividend policies and dividend history.
Know the risk-return trade-off
One of the golden rules of investing is simple: Lower potential returns come with lower risks, whereas higher potential returns come with higher risks.
For example, flipping houses can offer quick profits but comes with timing and liquidity risks. Long term rental income may be more stable but requires a more active property management approach.
REITs, meanwhile, offer real estate exposure with lower capital requirements, more liquidity coupled with regular streams of dividends, but their value can be affected by market volatility.
Evaluate any opportunity using the “Rule of 72”. Divide 72 by the expected annual return to estimate how long it will take to double your money. If a property promises 12 percent return on investment (ROI) annually, expect your capital to double in around six years, provided the risk factors are managed well.
Red flag alert: Be cautious of anything offering “guaranteed high returns with no risk.” If it sounds too good to be true, it probably is.
Risk management
Real estate investing comes with unique risks—tenants might default, values may stagnate, natural calamities might damage the property or interest rates may rise. But you can manage these risks through smart strategies.
Diversification. Don’t put all your investable funds in a single asset class. Do not just invest in one property or one type of real estate. Combine residential, commercial, and even land banking if it fits your goals and budget.
Asset allocation. Mix real estate with other asset classes like stocks, bonds, stocks, or funds. If you’re heavily invested in physical property, a portion of your portfolio can be in cash or bonds to cushion market swings and to ensure you have ample liquidity.
Rebalancing. Markets change, and so will your goals. If your real estate holdings become too dominant in your portfolio, consider shifting profits to other assets or reinvesting in higher-yielding properties elsewhere.
Tip for beginners. I teach newbie investors to follow my “30-50-20” budgeting strategy—30 percent for your crisis-proofing war chest (emergency fund) and future-proofing investments (growth fund); 50 percent for your needs and obligations (survival fund); and 20 percent for wants (sanity fund). Realistically speaking, you will never get it right every single time, but tweak your strategy one payday at a time and you’ll find yourself getting used to the process as you build confidence and familiarity in building your portfolio.
Harness the power of compounding and time
The best time to invest? When you’re ready. The second best? As early as possible.
Real estate, while not compounding in the same way as deposits, stocks or mutual funds, benefits greatly from capital appreciation, equity buildup, and rental income reinvestment. The earlier you start, the more time you give your assets to grow and work for you.
Consider this: If you invest in a rental property at age 30 and reinvest the net income consistently, you’re setting yourself up for a steady cash flow in your 50s—even with just one or two properties.
Investing is not about being lucky—it’s about being prepared, informed, and consistent. Whether you’re buying your first property, exploring REITs, or simply starting with a real estate fund, these principles apply.
