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Depending on the bank or financing institution, this can also be arranged in terms of a fixed monthly amortization and a lump sum payable at the end of the loan. However, this arrangement is often reserved for commercial or industrial properties. A longer-term will lead to a lower monthly amortization, all else equal. A lower quoted interest rate will lead to a lower monthly amortization, all else equal.
Repricing Period The repricing period is how often the interest rate on the loan changes. Of course, as the interest rate changes, the monthly amortization also changes. Depending on the bank or financing institution, the interest can be repriced annually, every three years, every five years, and so on.
The repricing terms are often negotiated between you and the bank, but this will ultimately depend on your appetite. A yearly repricing will lead to a lower initial interest rate, all else equal, but it will also give you greater uncertainty. If market interest rates increase a year from now, your monthly amortization will also increase. This is called interest rate risk. Conversely, a longer repricing period makes your monthly costs more predictable, but you will also give up any chance to save on costs in case market interest rates decline.
It also often leads to a higher starting interest rate because, in this case, the bank is absorbing the interest rate risk for you. Collateral The bank or financing institution often asks for proof that you own or are expecting to own the property you are borrowing for.
The specific documentary requirements depend on the bank, but this can be in the form of the property title, a deed of sale , or a contract to sell. Collateral serves as protection for the bank in case you fail to repay your debt. Even if you own the property, when it is mortgaged, the bank has the right to take possession of it if you default on the loan. Select the Desired Property The first step is going shopping.
For real estate investors, this is usually a two-step process. Initial search There are many ways to go about your initial search. If you already know a broker or two, you can ask them for any properties they have for sale. If you are interested in a particular developer, you can check out their website and see what projects they have under development for the area you are interested in.
If you are more interested in an area than a developer, you can rely on property listing services like Lamudi or DotProperty. They also have one for repossessed cars. If you plan to rent out or sell the property, you need to know if the property comes with any damages or problems and whether those problems are fixable or beyond repair. You can conduct multiple inspections of a property. The first inspection could simply be to see and get a feel for the property and the location.
This is typically where you assess the quality of the location and whether it is accessible—basically determining whether you can sell this later on, either to buyers or renters. You can also confirm through the first inspection if the property has any illegal occupants. For the second and subsequent inspections, you can conduct the inspection in the company of professionals like foremen, contractors, or utility experts to better assess any damage and the cost of repair and renovation.
In no way does an ocular inspection represent a commitment to purchase the property. Conduct Due Diligence The due diligence process is important because this is where you can ensure that you will be able to do what you plan to do with the property without any legal roadblocks. The below due diligence steps only apply if you are purchasing pre-owned or foreclosed properties.
For pre-selling properties, there is no due diligence to conduct because the property is not yet complete. Thus, your due diligence will be limited to the developer and its track record and reliability. Step 1: Verify Documentation Before purchasing the property from a seller, you must confirm that the property is indeed unconditionally owned by the seller.
If you are purchasing a foreclosed property, you can request these documents from the bank. Aside from confirming ownership, the title is important because it can be annotated with details that tell you whether the property will be a problem after purchasing it. For example, if the property is the subject of an ongoing court case, this will be annotated in the title.
If a title comes with attachments such as the one above, the time and effort required from you to eventually re-sell the property legally could be immense and not worth the investment. This due diligence step is important because it empowers you to decide if you have the appetite, competence, and resources to deal with a problem property. Step 2: Check for an Encumbrance on the Property The title can also contain information on whether the property comes with an encumbrance like a mortgage or if someone has put a hold on that property.
If so, that means that your ownership of the property will be conditional on that encumbrance. Especially for starting investors, it is best to focus on unencumbered properties. For RPT, you must double-check if there are unpaid dues on the property because you will be liable for those unpaid dues once you take ownership of the property.
The same process applies to utility bills, except that you request the SOA from the service providers. In conducting the due diligence steps above, ensure you have an authorization letter from the property owner or bank in case of foreclosed properties. Since you will revisit these government offices anyway when you finalize the sale, visiting them as early as the due diligence stage is good practice.
Nevertheless, the process of purchasing a property generally follows the following essential steps: Step 1: Negotiate Terms At this stage, you will iron out how much you have to pay and how you will pay it. During the negotiation stage, you will communicate mainly with two parties: a.
The Seller This communication will typically occur through your broker unless it is a direct sale i. You will iron out the final purchase price of the property, along with any discounts the seller may offer. You will also iron out the payment terms for the purchase.
If the buyer is amenable to an installment scheme where you pay your downpayment throughout a period of time, such an agreement will be settled at this stage. The Bank or Financing Institution This communication will occur mainly with your relationship manager or any bank officer assigned to handle your loan application.
At this stage, you will finalize with the bank the size of your downpayment, the term of the loan and the amortization schedule, the repricing period, and the applicable interest rate. In the case of foreclosed properties, getting financing from the same bank that is selling the property is not necessary.
In practice, the negotiation stage often comes as a back-and-forth that can span a few weeks to a few months. The exception is if you are purchasing a pre-selling property. In this case, you will only communicate with the developer the seller through their representative the agent or salesperson. You will also only iron out the payment terms of the downpayment. Because the property is pre-selling, it does not have to be paid in full immediately. Thus, the terms for bank financing will only be ironed out much later, when the project is near completion.
Step 2: Document the Purchase Once the terms of the sale are finalized between you, the seller, and the bank, these agreements will be put in writing. The sale will be documented through a Deed of Sale for pre-owned and foreclosed properties. If you and the seller agreed to an installment sale, the agreement will first be documented through a Deed of Conditional Sale. For pre-selling properties, since the property is not yet constructed, you will be issued a document called a Contract to Sell, which is equivalent to a Deed of Sale for pre-selling properties.
That is, the developer has an obligation to sell the property to you once completed. Step 4: Close the Purchase Finally, to finalize the transfer of ownership 13 , you as the buyer must ensure that the property title and its tax declaration are updated in your name. Hold the Property a. As the project nears completion, you can start looking for buyers with the help of your broker.
For pre-owned or foreclosed properties, holding a property entails doing the repairs and renovations you had planned when you first inspected the property. This entails hiring contractors and experts to implement your desired improvements on the property. Holding Properties for Leasing For long-term and short-term rental properties, the first step to holding the property is to bring it to a habitable condition.
For short-term rental properties, an additional step may involve working on the interior design of the space, so potential guests are enticed to select your property for a short stay. Some lessors opt to hire property managers, but this is unnecessary and only makes sense for larger portfolios like low-rise apartment buildings.
Re-sell the Property When re-selling, the buying process discussed above is simply mirrored. Negotiation In this stage, you agree with your buyer regarding the payment terms of the sale. If the property is still mortgaged, you notify your bank of your intention to sell the property so they can prepare to re-assign the loan to the buyer.
Documentation The sale will be documented through a Deed of Assignment if you are re-selling a pre-selling property. As mentioned, the property is not yet complete, so there is no title yet. Instead, what happens is that the Contract to Sell that you have with the developer will be re-assigned to your buyer.
Therefore, once the project is completed and ready for occupancy, the developer will sell the property to your buyer. For pre-owned properties, the sale between you and your buyer will be effected through the Deed of Sale. If the property is still mortgaged, this document will be in the form of a Deed of Sale with Assumption of Mortgage. This is why you must coordinate with your bank during the negotiation phase. The bank must sign off on the documents because it has a conditional claim on the property.
However, as before, you and your buyer can agree on which party shoulders which costs. Closing the Purchase The buyer usually handles the clean-up at the end because it is in their interest that the sale and transfer of ownership are properly documented. However, you must ensure this on your end as well. For pre-selling properties, if you do not have a copy of the Deed of Assignment and the re-assignment is called to question later by the developer, you may be liable to pay for the property once it is ready for occupancy.
For pre-owned properties, if the property becomes subject to a court case, you may be tied up in a court case in which you had no involvement. Avoid Occupied Properties Properties with illegal occupants make for tricky business. This is often a problem with foreclosed properties or land that has been idle for a long time. Even large and well-known landlords have difficulty with them 14 because illegal occupants, having established some territoriality over the property, can be hostile in evictions.
It is also a politically complicated issue, so evictions are not just a matter of law enforcement. Purchasing properties with illegal occupants can render the investment unusable or unsaleable. Choose Between a Spot or Installment Arrangement The disadvantage of a spot arrangement is the big hit on your liquidity because of such a large upfront payment.
However, on the flip side, sellers often encourage spot arrangements with large discounts. How do you compare which is more advantageous? The choice often boils down to your appetite and liquidity needs, but a professional would decide by comparison. If you had the money to pay the spot, how much could you earn if you opted for the installment arrangement and just invested the idle money passively in the meantime?
Is that passive yield greater than the savings from the discount? If so, go with the installment arrangement. If not, go with the spot arrangement and avail of the discount. Invest in Change The key to successful investing is identifying mispricing, which occurs when the price of an asset does not adequately reflect its future value.
In real estate, the best way to hunt for such catalysts is to monitor potential changes in traffic flow brought about by key infrastructure projects. At its core, infrastructure projects change the flow of people. Undoubtedly, infrastructure projects improve access—but from where and to where? In addition, these infrastructure projects will likely move traffic away from certain areas, which is also important to note. The government keeps a page about its infrastructure projects 15 , but this can change with the changing administrations.
It also helps to monitor the initiatives of private corporations that are active in infrastructure, like San Miguel Corporation 16 and Metro Pacific Investments A noteworthy trend in recent infrastructure is the apparent move to open up access to areas north of Manila. Interesting as it may be to ruminate on the future of infrastructure, it is good advice to remember the risk. Not all infrastructure projects live up to their promises, especially as the priorities of the National Government change.
Thus, it is most beneficial to buyers of pre-selling properties who are in financial distress. Unfortunately, the Maceda Law does not apply to mortgage loans. Frequently Asked Questions 1. Are real estate investments taxable? Is it financial freedom? How do you define YOUR financial freedom? What is it in in terms of money ex. Is it about time freedom? Is it about having the freedom for you to pursue your real purpose in life? Is it about all of the above? Actually this is probably the hardest part of the process of getting started, and yet without this, one might end up running around in circles for 48 years.
Seriously though, this is the first thing you should do, but it can get complicated. Learn as much as you can about real estate transactions in the Philippines. If you want to focus on investing in foreclosed properties, you can try attending a real estate auction as an observer and learn as much as you can, before actually buying any foreclosed property.
Whether foreclosed or not, you also need to become familiar with the legal aspects of property ownership, real estate taxation, real estate laws in the Philippines, etc. If these sound like what you would find when attending a seminar or review as part of the requirements to become a licensed real estate broker, give yourself a pat on the back because that is my next tip… 3. Find your niche. When I say near, it should be no more than 30 minutes to an hour away.
Anything farther might lead to wasting your precious time, money, and effort. No, you cannot just say you want to invest in Metro Manila. You need to find something smaller, like a village, a barangay, a municipality, or whatever area suits you.
I believe it is hard to get into this level if you focus on an area that is too big, like the whole of Metro Manila for example. If your problem is the lack of money, maybe your problem is the way you handle money.
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