The Big Jump

It was 9:48pm and I’m in front of a Bloomberg Terminal in my office…alone…on a Sunday. A few years back, I was a financial analyst of a local bank. During that time, I’d normally spend 13 hours a day in the office—not including the weekends.

 

Despite being rewarded well (in local bank terms), I came to the point where I wanted more. See, I dreamt big; and I mean BIG. Problem is, I didn’t know what I wanted exactly (though the usual dreams such as living in a mansion, driving a sports car, affording ivy league education for my kids did sound really enticing.) I was willing to sacrifice time, if it meant getting what I want. So there I was, thinking of what route to take. Eventually, I was convinced that boxing it out with ex-pats and playing politics was a dead end. So what’s next?

 

Whenever things bothered me, I think out loud in front of friends, hoping I’d get suggestions on how to solve problems. A few months later, I bumped into an old friend of mine who, after a long conversation, invited me to join his venture of putting up a real estate brokerage firm.

 

Initially I thought, I didn’t know much about real estate only that land prices were soaring in Manila and that developers were making a killing. Moreover, I never thought of myself as a salesperson. Actually, I hated talking to strangers (except when there’s liquid confidence, AKA alcohol). What attracted me though is the financial success brokers achieved. I heard (and verified) stories of how some of my broker friends were earning millions (north of Php5 Mn–net) a year! Consistently! That’s a full blown salary of local firm’s CEO! Some of them were even younger than me; people who even barely passed school! I thought if they could do it, so could a person who worked long hours and had a corporate background such as myself. Should be a walk in the park. Or so I thought.

 

And boy was I wrong.

 

Six months down from the time I became a real estate broker, I haven’t closed a single deal. I was living on my credit card, paying the minimum amount possible. I didn’t want to run to my dad for money (though I did a few times; thanks dad!) especially since I was in my 30s. I started to feel desperate. I worked on  Php11,000-a-month leases just to get by. There were times when I thought about going back to the corporate world where things may not be as exciting but provided a regular paycheck. The company we put up wasn’t going well either. We were running on fumes and we were scrambling to find ways to pay for rent.

 

Apparently, being a real estate broker or putting up a business wasn’t as simple as I thought. No, real estate brokerage was never rocket science (not anywhere as complex as financial derivatives). Real estate, however, requires a whole different skill set: patience, perseverance, humility. As my partner puts it, “this ain’t a job for the weak.” I never understood what he meant up until I was down.

 

Just to give you an idea of what I had to deal with:

 

Imagine dealing with government officials who claim, “o expired na yung SPA mo dahil two years ago pa yan!”  To which you reply in a VERY nice manner, “Ma’am, saan po naka lagay sa batas na nag e-ex-pire yung SPA?” And to which she answers in a very condescending tone, “Saan nakalagay sa batas na hindi nag-e-expire?”

 

Or the time when you thought you have a done deal since the seller accepted an offer but changed his mind, come signing day. Or your buyer backs out from a deal (which is very normal). The industry and the income was UNPREDICTABLE!

 

When you’re broke, have bills to pay, and not getting any younger, you’ll start to question everything. You’d be so lost you start to lose confidence.
How can I provide for a family when I can’t even afford to pay for myself?
How can I afford to go on a date or should I even try to “settle down”??
What happened to the MBA I took???

 

I felt lost; a failure. I reached the point where liquor no longer helps. I’d down a sleeping pill just to help me forget about my problems and fight another day. Sometimes, I  wished unfortunate things to happen just to make everything stop.

 

At the peak of my depression, a small deal closed (the ice-breaker). Two weeks later, another closed. Then another. And then a fat one.

 

Just like that, I was able to zero my credit card bill, pay back my dad and gain the self-confidence I lost.

 

Our real estate firm was somewhat a different story. While I recovered financially, our small company kept bleeding money. I seriously couldn’t get it. I applied everything I learned from graduate studies from Switzerland! Sales Force Management, Human Resource Management, Strategy, etc. We had to infuse additional capital to keep the company afloat.

 

During the dark hours, you can’t help but blame other people for things not working out. Heck, I even thought about leaving and just practice brokerage by myself, otherwise I’m going to end up broke infusing capital and continue to burn relationships!

 

I don’t want this article to sound dramatic, but honest to goodness—the one thing that kept me from leaving were the people behind me. If you take time to get to know the people around you, you’d be saddened by the stark realities of life. But here we were, providing livelihood to our employees, helping aspiring brokers get out of the same situations we were in! We were building something! Something positive!

 

And just as with the success of my new endeavor, the company began to shape up a few months later. Our associates went through the same ordeal until they landed deals; and then some big ones. Later on, we got more people to join the bandwagon. The business model was finally working. Three years from when we started the business, we achieved a LOT. At this time, we knew we were doing something right. I realized that business plans took time to work.

 

Just like in any business, the ebbs and flows are natural. The entrepreneurial path is a roller coaster ride: you think everything’s all well and dandy and then (BOOM!) another sink-or-swim problem comes by. The pictures that come out in social media or newspapers is never a testimony to life achievements. They are for the small successes.

 

On the financial aspect of things, I’m definitely earning more than my corporate job (even with the bonuses). I’m happy that, despite the problems I encounter, the sleepless nights, the drama, I know we’re on to something great. This is when I realized that it was never the fancy things that were going to make me happy. It was the “building-something” part—the feeling of building something and seeing it work; the joy that comes with having happy employees and associates; the shared success that is being celebrated with people who are happy for the group’s success; and the assurance that the success resonated even to the lowest people in the company.

 

After everything’s been said and done, I’m happier where I am now.

 

My dream is for our firm, RE/MAX Capital, to grow to more than a hundred agent strong; to unite a fragmented industry; to professionalize an industry coined to be the “Wild-Wild West”. We have a long way ahead of us, and we’ll need all the help we can get.

 

To those who want to earn more but can’t afford to leave their corporate jobs, RE/MAX Capital, offers a program that can earn you as much as 20% referral fee. That’s 10% more than the industry average. This is especially beneficial to those who have relatives buying properties left and right. Or those who are well connected with people who invests in real estate.

 

To those who are willing to take the big leap and jump to a promising industry, let’s talk and explore options.

 

To those planning to do real estate brokerage alone, ask yourself an honest question: which do you think people would trust more: a broker backed up by a successful global brand or a broker with none?

 

If any of these criteria fit you or if you were simply inspired and sparked by my curious mind, let’s sit down and talk about options.

 

Juan Patag
PRC Reg. No. 23114
RE/MAX Capital
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati
M: 0917 520-5826
E: jpatag@remax.ph

 

Ntoe: Special thanks to my friend, Katrina Calderon, for proof reading this article. 🙂

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FAQs on the Government’s T.R.A.I.N.

Question: Can I just choose to “donate” a property to a buyer (who’s a stranger) since the tax base for donations is USUALLY lower?

Tax Base for Capital Gains Tax/Donor’s Tax with TRAIN
  • Capital Gains Tax (6%) – higher of the selling price (typically the base), zonal value, or the fair market value as determined by the City Assessor
  • Donor’s Tax (6%) – higher of the zonal value or the fair market value as determined by the City Assessor
No; you’ll have a hard time depositing the proceeds (of the sale) in a bank. When the Buyer/Donee (the supposed buyer) gives the payment to you, the payment, if and when deposited, will likely be flagged due to the Anti Money Laundering Act (AMLA — deposits Php1 Mn and above are automatically flagged and questioned by the bank). Without any Deed of Absolute Sale to show, I’m not sure how you would be able to deposit it in a bank.

Question: Would it be better for me to just hold on to my real estate properties up to death than donate them to heirs especially since estate taxes are at 6% AND I can use certain deductions to lower the tax base?

While you may use certain deductions to the gross estate, chances are zonal values/FMV have gone up as well, consequently increasing the tax base. Unless you hit the bucket soon, the increase in the determined/assessed land values may ultimately increase the estate tax to be paid).

Question: My lolo passed away 10 years ago and we still haven’t settled his estate. Does this mean that we only have to pay 6% of the value of his estate? Which value for the estate should we use, the value when he died or the value today? Also, what happens to the penalty for non-filing/interest charges?

For now, the estate tax portion of TRAIN only covers deaths that occur beginning January 1, 2018. What you’re talking about is probably the tax amnesty. Please note that the Tax Amnesty is separate and distinct from the TRAIN. Drafts have been routed and they project for the tax amnesty program to be released within the 1Q2018.

Question: The BIR Revenue Memorandum Circular No. 3-2018 issued on January 4, 2018 mentions that BIR Form 2000-OT, the Doc. Stamp Tax Declaration/Return One Time Transactions increased by 100%. Does this mean that Doc. Stamp Tax for real estate transactions is now at 3%?

No. BIR RMC 3-2018 does not mention Alphanumeric Tax Code (ATC) No. 122, which is the Doc. Stamp Tax for real estate transactions. Simply put, the Doc. Stamp Tax for real estate transactions still remains at 1.5%.

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, any other RE/MAX franchise, or of Rockwell Land. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

CAPITAL GAINS TAX TO BE INCREASED TO 20%?

CAPITAL GAINS TAX TO BE INCREASED TO 20%?
DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, any other RE/MAX franchise, or of Rockwell Land. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.
Published: December 4, 2017
Okay, we’ve been hearing rumors that the Capital Gains Tax (CGT) would be increased from 6% to 20% in the new Tax Reform Program of the government. They say this will be effective January 2018. While contacts in Regulators’ Offices claimed that this is a rumor, we’re surprised that even our clients heard about this. So let’s analyze what happens if they do decide to push through with this reform:

1. If CGT were increased to 20%, property owners would be better off putting all properties in a company where owners would just pay a total of 18% tax (12% VAT and 6% Creditable Withholding Tax [CWT]–both of which are deducted from the VAT-exclusive price, a lower base). Moreover, VAT and CWT can be offset by VAT-input and expenses. These give property owners the reason to put assets under a corporation.

2. In lieu of the previous insight, people would be setting up companies to put their properties in. Before, it took 2-3 months to setup a company; however SEC recently moved its office to Manila and I would assume this would make things slower as they adjust to the new office–4-6 months in my assumption. This would mean less secondary market sales in the following six months.

3. Given that sellers would get less proceeds (approximately 14% less from what they originally expected before the reform), they will make up for the decrease in proceeds by increasing the selling price. In effect, this would slow secondary market sales as less buyers can afford the higher prices. This would definitely greatly affect sales of secondary market properties in areas that have seen recent increase in zonal values (i.e. Makati).

4. Finally, what better way to avoid getting taxed by 14% more than by selling your property before the tax reform is implemented? It would be a natural decision for property owners to liquidate assets before the tax reform especially because, I believe, it would take a few years to recoup the expected loss (in case they choose to stick with their selling prices) if they had not sold their properties before. Prices in the Metro are already at their historical peaks (QC condo at Php145,000/sqm, Makati condos at Php330,000/sqm). It’s hard to imagine that the same amount of people would be willing to buy if prices increased even higher.

In sum:

Unlikely but possible. It is unlikely that legislators would pass this part of the reform (especially because I believe a lot of them own a significant amount of real estate). They would get affected in the process. However, history has proven that even the remote things may happen (minority winning the elections). Philippine politics is one of those uncertain things.

Price decline in the near future. We can’t undermine the fact that people will anticipate the possibility and act faster than the market. General prices would decline in the near future, especially in areas that have seen significant increases in value in recent years because they would want to take profit.

Invest in developing areas. With this amount of uncertainty, I would suggest investors to focus  or divert to their investments to developing areas which present higher capital appreciation potential where prices remain low and would be affected dramatically lesser since the tax bases are lower. Examples of which are Cavite and Nuvali.

Agree? Disagree? Would love to hear your thoughts. Email me at jpatag@remax.ph

A Commentary on Land Prices in High-End Villages

Land-Values

Just my two cents: General increase in land prices in prestigious villages mainly due to:

  • Prices shown in the graph are “highs”, average prices should be 10% to 15% lower.
  • Lots in these Makati villages are very rare. The low supply allows sellers demand exorbitant prices for their properties in these villages.
  • In the past 6/7 years, more people are entering the “ultra high net worth individual” space which in turn is attributed to bustling businesses/booming Philippine economy (it’s more common to see Ferraris and Lambos in recent years).
  • These are the people buying at those prices.
  • Optimism on Philippine economy have influenced the current ultra high net worth individuals to land bank.
  • What would be interesting to see is data prior to 2010. My guess is, the uptrend shown in the graph is also a recovery of prices from the dip in prices from the Global Financial Crisis back in 2006/2007.
  • Dip in prices in Green Meadows is due to the earthquake scare. Green Meadows is found near the fault line.
  • Increase in prices in Ayala Alabang due to the completion of Stage 2 (exit to Alabang’s South Station) back in April 2011.

Here’s the original article from Entrepreneur: http://www.entrepreneur.com.ph/news-and-events/which-high-end-villages-tripled-average-land-prices-in-the-last-6-years-a00200-20170925

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

The Complete Step-by-Step Guide to Buying Real Estate in the Philippines: A Guide for First-Time Investors or Property Owners

The Complete Step-by-Step Guide to Buying Real Estate in the Philippines: A Guide for First-Time Investors or Property Owners

Buying real estate anywhere in the world can be exciting, whether it’s going to be for your own use (like an exotic beach home for retirement) or for investment (like a condominium unit you rent out on AirBnB).

However, the acquisition of a real estate investment can vary from country to country. So if you’re looking to buy here in the Philippines, look no further than this article!

In this step-by-step guide, I’ll walk you through the important details you need to know when you’re looking for and buying real estate in the Philippines.

Let’s get started!

Buying Real Estate

Step 1: Have an idea of what you’re looking for

There are thousands of properties available to purchase in the market right now. And that’s just in Metro Manila! Having a short checklist of the kind of property you’re looking for can help you narrow down your search, and aid your broker in finding the perfect property for you.

A general checklist could include:

Approximate size

You can give a minimum, maximum, or range of sizes. Sizes would largely be determined by the number of bedrooms you require. Studio units are the smallest type, which typically range from 22 square meters to 36 square meters and are characterized by just an open layout and a bathroom. One-bedroom units can range from 32 square meters to 52 square meters and two bedroom units can range from 50 square meters to 175 square meters. However, these also still vary depending on the developer of the condominium and the year the condominium was constructed. Older condominiums would tend to have bigger cuts.

Alternatively, you can also just mention how many bedrooms you prefer.

Also tell your broker if you’ll need a separate maid’s room and maid’s bathroom. The number of bedrooms depicted in ads excludes the maid’s room and maid’s bathroom.

Type

The type of property you’re looking for can sometimes determine the broker you will be working with, since brokers tend to specialize in either residential or commercial. Most brokers have access to databases of available properties for both types, but tend to stick to selling one type because the sales and paperwork processes are different from one another.

Budget

  • Provide your broker with a minimum and maximum range you’re willing to pay for the property so that they do not show you options that are too shabby or too expensive. This also gives an idea on the geographical area and building that your broker can start your search with.
  • Usually, when a broker mentions a price, it includes capital gains tax and the professional fees of the broker but does not include the documentary stamp tax, transfer taxes, and registration fees (which aggregately equate to roughly 3% of the contract price). If you want those included, you can just inform your broker that this is your “all-in” price. A good broker would clearly explain to you the fees and taxes that buyer would need to shoulder, apart from the total contract price.
  • Decide also early on your preferred payment term: cash or bank financing. This is also important, as some sellers prefer cash buyers. Sellers shy away from bank financing since this usually involves transferring the Title to the buyer’s name even before they get full payment. Moreover, bank financing tend to take 1 to 2 months longer than a straight cash purchase.

Amenities

  • Should there be active community events hosted by homeowners or the village association? Some villages also have a community gym and/or pool, along with a basketball court and a playground. Others have only one or two of these. Decide what’s important to you and what you can do without.
  • If it’s a condominium unit, is a gym or a pool important to you? How about a jogging path, children’s playground?

Location / general area

  • This is considered to be one of the most vital considerations in your search. Having to decide on a particular area helps you and your broker narrow down properties and as well as managing expectations in terms of prices and availability of inventory.
  • It would help to choose a particular village (Bel-Air 2, Salcedo Village, Legazpi Village) than an entire city (Makati City).

Accessibility and security

  • How easy or difficult is it to access the property via main roads and highways?
  • Are there multiple points of entry from the surrounding area? Are these points of entry secure or unmonitored?
  • Are there any security risks in the surrounding area? If so, how has the village association or building administration addressed these risks?
  • Have there been any major breaches of security in the past? If so, what happened and how was it handled?
  • Ask about the history of flooding and the proximity of the nearest fault lines. For condos, make sure they have elevated parking areas if the building is located in a flood-prone area.

General Preferences for Residential Lots

  • If you’re planning to sell the property later on, make sure to stay away from lots that:
    • are found along the perimeter of the village,
    • are found at the end of T-junctions,
    • are near a creek,
    • are found at the bottom of a hill,
    • have irregular shapes, and
    • have an elevated terrain

as these are significantly harder to sell.

Purpose

  • Are you going to live, flip, rent, or lease the property? Some sellers only allow certain purposes. For example, some tenants have gotten away with subletting a property out through AirBnB. Not all condominium associations/lessors allow this. It’s important to respect the wishes of the owner of the property on how it should be used when you are only renting. Some condominium associations also prohibit AirBnB setups.

Pets

  • For condominium buildings, you will have to inform your broker if you intend to have pets in the unit. Sadly, not all condominiums allow pets.

Property Provisions

  • It would also be good to check the provisions of the village or the condominium building.
  • Some villages have design themes that you have to follow (e.g. Mediterranean) or have height restrictions (e.g. 9 meters from the highest point of the lot).
  • Some villages also prohibit cutting the trees found on the lot (even if they’re found in YOUR lot.
  • Also make sure that the lot you purchase does not have any immovable structure (e.g. Meralco transformer) that would be difficult or impossible to take out later on.
  • For condos, check how many occupants are allowed in the unit.
  • It would also be good if to check:
    • If there are enough air conditioning units in the property to keep the place cool;
    • Whether the condo building is fiber-ready for ultra fast internet connection; and
    • There’s a provision for a washing machine/dryer and dishwasher.
    • There’s a trash chute (some condos don’t have one and unit owners simply leave the trash bags outside their door for them to be picked up at certain times of a day).
    • If the building can still accommodate foreigners as the law dictates that foreigners can only occupy a maximum of 40% of the floor area of the building.

Bear in mind that you don’t have to fill out this entire checklist. Sometimes viewing properties will help you get a better idea of what you are looking for, so refining this checklist is a gradual process.

Now, if your checklist ends up being too specific, it may be difficult to find exactly what you’re looking for. In this case, keep an open mind and trust your broker when they recommend a property that may be a “wild card” or not exactly what you’re looking for, at least on paper. You might be surprised once you view the unit that you like it or would view similar units.

 

Step 2: Share your checklist with your broker

Now that you know what to start looking for, share your checklist with your broker so they can get to work on finding you options. Brokers usually collate a list of properties for you so you can view options that would fit your requirement.

If you don’t have a local real estate broker yet, don’t fret. Here are the top 4 best ways to find and choose independent licensed broker:

  1. Search for listings in the internet and contact the listing agent for those properties. The broker you choose should be able to answer your query within 12 hours (or at the very least tell when they will be able to get back to you if they’re busy).
  2. Ask the broker if they’re associated with any group (e.g. Pasay Makati Realty Board, RE/MAX, etc.).
  3. Communicate with the broker through email and see how formal/professional his writing is. This person will be drafting your contracts and you want a very sharp person for this.
  4. Ask for his opinion about certain developments. Not all properties are made perfect and the best brokers will be able to highlight both the good and the bad points of properties.
  5. Ask for a broker who knows how to do transfer works himself.
  6. Look for a broker who knows how to calculate potential rental yields.

REMEMBER! Working with a licensed real estate broker that you trust can literally make or break your real estate investing experience. When things get complicated, especially with legal or financial matters during the paperwork process, you need to be able to rely on your broker and believe that they are making the right decisions for you behind the scenes. It is your broker’s goal to protect your interests as a buyer.

 

Step 3: Go shopping 

Once your broker gets back to you with a list of properties that fit your criteria, it’s time to schedule viewings and see the properties. For some real estate investors, this is one of the most exciting and fun parts of the entire process despite also being the most time consuming.

Aside from the Top 5 Essential Tips When Shopping for Real Estate in the Philippines that I’ve already shared, it’s also best practice to:

Ask for an signed Authority to Sell agreement and any proof of ownership (i.e. Title) from the broker showing you the property to make sure that:

  • The broker is indeed authorized to sell the property;
  • The seller is the owner/sole owner of the property to avoid cases of misrepresentation;
  • The real asking price (sadly some brokers increase the selling price beyond the asking price of the owner to earn more from the transaction).

Getting these documents beforehand prevents any unfortunate surprises later on.

  • Take photos of all the properties you view, even the ones you’re not sure about. Some properties don’t always make the best first impression. Other times, what you’re looking for can change. Keeping photos of every property helps you look at them again with fresh eyes, and you may notice a few things you didn’t notice before. Properties that you turned down at first might be just what you’re looking for after a change in your checklist. Also, try to take a picture of the number of the house or the number of the condo unit before everything else. This way you know which property the series of pictures belong to.
  • Write down your questions about each property, even if you broker is already taking them down. This is you to remember what is important to when you attend a second viewing or go through the photos you took. Your broker should coordinate with the seller and make sure all your questions are answered, but again, sometimes what you’re looking for can change. Sometimes your questions will change! Keeping track of the Q&A between yourself and the seller can provide some key insights about the seller’s personality and motivations (yours too!) that may be useful further into the process.
  • Be patient. Some days, you will look at many properties that just don’t fit the bill. Don’t be disheartened. Your broker will find more options for you to view. Remember, this is the most time consuming part of the process, but it can also be the most fun.

 

Step 4: Create a shortlist and schedule second visits

After viewing a few options, you should already have at least one or two that you really like. After the seller gets back to you on your questions, it doesn’t hurt to schedule a second viewing of the property. A second viewing will give you the chance to see if the seller addressed any of your immediate concerns or not.

TIP: Schedule the second viewing on a day and time that is different from when you first viewed it, so you can check what the surrounding area and accessibility is like. For example, if you viewed the property on a weekend afternoon, try going on a weekday or at night. This will give you new insights into the quality of the property and the general area, as well as your potential future neighbors and association/administration.

 

Step 5: Decide if it’s time to choose, or keep shopping

By now, you might have a standout property you’d like to move forward with, or none at all.

If it’s the former, great! If everything checks out, make sure your finances are ready then let your broker you’re ready to start the paper work. Don’t forget to let your family know too – in some cases, they will be affected by your purchase. Don’t blindside them!

If you still aren’t convinced by any of the properties you’ve seen, that’s okay. Go back to Step 3. You can always advise your broker to continue your search until you find the right property for you.

REMEMBER! Don’t be pressured to buy something you are not 100% sure about. Don’t feel obligated to keep working with brokers who you feel you’re pressured with. Save yourself the headache and restart a professional relationship with another broker. It will be cheaper and more time efficient in the long run, trust me.

 

Step 6: Make an offer!

Once you’ve finally chosen a unit, make an offer! Avoid offering too low as this might insult the owner. If the property is among the lowest priced in the market and your budget can meet the seller’s asking price, lock it in! Time is of the essence and you want to prevent other buyers from coming in to steal the purchase. In this regard, it is also advisable to do verbal offers first since drafting an offer letter might take time and other buyers may come in and steal the purchase. Once your offer is accepted, that’s when you have your broker prepare a written offer letter to formalize what was agreed on. Also prepare payment of earnest money (typically 10% of the purchase price or Php1,000,000)

In the offer letter, be sure to include clauses to cover events of forfeiture and refund of the earnest money especially in cases of fortuitous events (e.g. destruction of property due to earthquakes, civil war, etc.). If there are more than two tranches of payments, it is advisable to draft a Contract to Sell (CTS). A CTS is a more detailed agreement (compared to an offer letter and a deed of absolute sale) that would indicate the step-by-step process for completing the sale.

Make sure to state in the offer/CTS who would shoulder the Value Added Tax (VAT) in the event that the Bureau of Internal Revenue decides that the sale should be subjected to VAT. It is very important to include this clause even if the seller and broker believe that the sale will not be subjected to VAT.

 

Step 7: Due diligence of documents and Preparation for Closing 

Your broker should be able to conduct the due diligence for you. But just so that you’re aware, here are some of the important things to check:

  • All owners of the property (if more than one) have consented to the sale of the property;
  • All owners listed in the Title still live (you can check this by asking for copies of IDs that need to be renewed on an annual basis);
  • Names of the owners listed in the Title are spelled properly;
  • Technical details of the Title don’t have typographical errors;
  • Special Power of Attorney naming their representative have been executed at least one owner resides abroad;
  • Owner’s copy of the title exactly matches the certified true copy of the Registry of Deeds;
  • Property is mortgaged or encumbered;
  • Owner is up-to-date with all subscription, bills, taxes, and dues; and
  • Tax declaration on the improvement is up-to-date.

These things aren’t necessarily deal breakers. Knowing these would manage expectations and help you prepare for extra steps to take to finalize the transaction.

It is also good practice to prepare the following documents and items before the closing day:

Broker to Prepare:

  1. Acknowledgement Receipt of SELLER for Full Payment (4 copies)
  2. Approved Draft of Deed of Absolute Sale
  3. Closing Cost Breakdown (delineates various payments deductible from Total Contract Price)
  4. Certified True Copy Condominium Certificate of Title (2 copies)
  5. Certified True Copy of Tax Declaration of Unit (2 copies)
  6. Certified True Copy of Tax Declaration of Parking (if applicable) (2 copies)
  7. Tax Clearance from City Treasurer’s Office (2 copies)

Seller to Prepare:

  1. Owner’s Copy Condominium Certificate of Title of Unit
  2. Owner’s Copy Condominium Certificate of Title of Parking (if applicable)
  3. Owner’s Copy of the Tax Declaration of Unit
  4. Owner’s Copy of the Tax Declaration of Parking (if applicable)
  5. BIR Certificate Authorizing Registration (CAR, if purchased after 2007) from when they acquired the property
  6. Seller’s TIN and verification whether he is subjected to VAT
  7. Special Power of Attorney to be able to secure documents, transact, and make payments on behalf of the SELLER and BUYER with BIR, Treasurer’s Office, Registry of Deeds and Assessor’s Office
  8. SELLER’s valid government ID’s with 3 original signatures of all signatories (3 copies each)
  9. Official Receipt for Realty Tax for the Year
  10. Official Receipt Most Recent Utility Bills
  11. Official Receipt Condo. Association Dues for the Month
  12. Colored photos of property (Door no., interiors and building facade) for new Tax Dec. purposes
  13. Keys to the property
  14. If SELLER is represented by Attorney-in-Fact:
    • Notarized Special Power of Attorney (SPA) from SELLER assigning their Attorney-in-Fact
    • Attorney-in-Fact’s valid government ID’s with original signatures (3 copies)
  15. If SELLER is a company:
    • SEC Certified True Copy of Articles of Incorporation & By-Laws
    • SEC Certified True Copy of Latest Audited Financial Statement
    • SEC Certified True Copy of General Information Sheet
    • Official Receipt of SELLER for full payment (should have BIR ATP)
    • Secretary’s Certificate of Authorized Signatories (Notarized)
    • Board Resolution authorizing to engage in a sale (Notarized)
    • Certified True Copy of BIR Certificate of Registration of SELLER (Form 2303)
    • BIR Withholding Tax Remmitance Return (Form 1606) – For remittance of Creditable Withholding Tax
  16. If property is mortgaged:
    • Release of Mortgage Certificate from Bank
    • Cancellation of Mortgage Fee payable to the Registry of Deeds
  17. Affidavit of one and the same person (if there are discrepancies in the names of owners/directors/shareholders)

BUYER to Prepare:

  1. Manager’s Check / Cash Payment
  2. Refund of Association Dues for unused portion of the year
  3. Refund of Realty Tax for unused portion of the year
  4. BUYER’s TIN
  5. Special Power of Attorney to be able to secure documents, transact, and make payments on behalf of the SELLER and BUYER with BIR, Treasurer’s Office, Registry of Deeds and Assessor’s Office
  6. BUYER’s valid government ID’s with 3 original signatures (3 copies)
  7. If BUYER is represented by Attorney-in-Fact:
    • Notarized Special Power of Attorney (SPA) from BUYER assigning their Attorney-in-Fact
    • Attorney-in-Fact’s valid government ID’s with original signatures (3 copies)
  8. If BUYER is a company:
    • SEC Certified True Copy of Articles of Incorporation & By-Laws
    • SEC Certified True Copy of Latest Audited Financial Statement
    • SEC Certified True Copy of General Information Sheet
    • Secretary’s Certificate of Authorized Signatories (Notarized)
    • Board Resolution authorizing to engage in purchase (Notarized)
    • Certified True Copy of BIR Certificate of Registration of SELLER (Form 2303) 

 

Step 8: Closing

Schedule the date of signing to be on an early part of the calendar month to give you ample time to settle tax payments before deadlines and prepare you for any surprises. For example, it would be ideal to schedule signing between the first to tenth days of the calendar months. Moreover, schedule signing in the morning and within banking hours as a precaution so each party has ample time to review all documents especially since closing can take as long as a few hours. Never schedule the closing after banking hours or on weekends.

On signing dates, make sure that the documents brought by the seller are the same documents presented to you beforehand. The brokers are also present on signing date to make sure all documents including receipts and transmittals.

 

Step 9: Transfer Works

Once that’s complete, all you have to do is sit back and wait. Your broker will take it from here and update you on the status of your papers being verified, as well as the seller’s.

If you’re sure that all your paperwork is complete and valid, you should have nothing to worry about here. Delays may arise because of the seller, the village association or building administration, and/or government offices. That is normal and just part of the process that could take anywhere from 5 to 8 weeks.

Once the new title (which will be in your name) comes out, make sure to check if your name is spelled correctly and if the technical description of the property is perfectly the same as originally written in the old title. These details are manually typed by people so it is prone to human error. If there’s a mistake, bring it immediately back to the Registry of Deeds so they can be revised. Safekeep ALL documents which include receipts and architectural/building/floor plans.

If this is also your first time to complete a real estate purchase, then you are now officially a real estate investor! Nothing can compare to the feeling of successfully going through the purchase process and now being able to enjoy the fruits of your labor.

Pat yourself on the back and take some time to enjoy your brand new real estate property in the Philippines.

So, there you have it!

If you’ve ever thought becoming a real estate investor or owning property in the Philippines was a confusing or intimidating task, I hope this guide helped shed some light on how easy it can be with the right broker.

Everything you want to accomplish becomes 10x easier if you work with an independent licensed real estate broker that you can rely on and trust. Behind the scenes of this process is countless other tasks that your broker will take care of on your behalf.

That’s why this entire process becomes 10x harder when you try to do it yourself, but 100x harder when you work with a broker you don’t trust.

So my last piece of advice to you is this: be careful when choosing a broker. ALWAYS check their PRC license, and ask around about their reputation if you can.

Of course, once you choose someone as your broker, give them a chance to earn your trust if you do not have a personal relationship with them before working together. Trust is a two-way street and you have to give it to get it.

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Top 5 Things First-Time Real Estate Investors Forget to Do Before Buying A Property

Top 5 Things First-Time Real Estate Investors Forget to Do Before Buying A Property

One of the things that can discourage investors from real estate investing is the fact that the “transaction” – the act of purchasing the property and becoming its legal owner – can take at least a few months. This happens during the Due Diligence stage of the purchase process, after the seller has agreed to your price.

First-time investors have a tendency to jump the gun because of their excitement in finding what they believe is the “perfect” property for them. In doing so, they forget to check certain things that sellers might neglect to disclose. This can range from something minor like needing to replace some fixtures to major like the property having been flooded before or the fact that it is built on a major fault line. For the record, sellers are not legally required to disclose any of this information, so the fault of finding out certain facts too late rests solely on the buyer’s shoulders.

All that can be mitigated if you’re already working with a trusted independent licensed real estate broker. He or she should already know everything to check for and will be the one to pre-screen units and sellers for you.

But if you haven’t found a broker yet, and would like to start shopping around anyway, it’s important to know the top 5 things first-time real estate investors forget to do before buying a property:

 

1. CHECK if the property is on a fault line or has been flooded before.

  • Don’t find out the hard way! Your broker and the seller are NOT required by law to disclose this information. If they neglect or forget to do so before closing the sale, you can’t file a lawsuit against either of them for damages or compensation.

For Floods:

  • Check in http://nababaha.com, ask current residents, the village association, maintenance and security staff, etc.
  • For a condominium, check if the parking area is elevated or basement and check if whether it was flooded during the typhoon season

For Earthquakes:

 

2. REQUEST for a copy of the property Title and Tax Declaration and CONDUCT your own research into its authenticity.

  • Get a certified true copy from the Registry of Deeds of the City where the property is located (You will need an authorization letter from the owner to do this)
  • Check if the contents of the certified true copy (CTC), owner’s copy (OC), and Tax Declaration (TD) are exactly the same on all 3 documents. More specifically, check if:
    1. Title number, technical descriptions, lot size, signatories, dates are the same;
    2. All owners are indicated;
  • Spelling of owners name are the same, by the letter:
    1. If a second name appears in the CTC, the second name should also appear in the OC
    2. If the maiden name of one of the owners appear, the maiden name should also appear in the OC
  • The property is clean or if it is not (mortgaged or has any other encumbrance, annotation, or lien);
  • Check if the persons listed in the Title and all their spouses are alive;
  • The Tax Declaration of the Improvement (if any) is up-to-date and reflects all improvements (e.g. swimming pool);
  • Important Note: When the new title is transferred to the buyer’s name, make sure this information is also correctly written in the new OC. The Registry of Deeds manually types all these and as such it is prone to human error.

 

3. ENSURE that all the title owners are currently residing in the Philippines for the duration of the sale.

It is a legal and logistical nightmare to transfer a title while one or more people involved are not in the country because:

  • The person abroad must appoint an attorney-in-fact by executing a Special Power of Attorney that he must have notarized then sent to the nearest Philippine Consulate for consularization.
  • This is a process that can take anywhere from one week to several months. There wouldn’t be any delays if all parties are in the Philippines and able to execute the legal decisions on-the-spot.

 

4. ENSURE that the owner is currently settled (paid) on all property and utility bills which include:

  • Real Property Taxes
  • Internet
  • Homeowner’s/Condominium Association Dues
  • Utility Bills
    1. Electricity
    2. Cable TV
    3. Internet
    4. Phone Bill

 

5. Get a copy of the House/Village Rules to ENSURE that what you’re planning to install, change, or build on the property is allowed by the Homeowner’s / Condominium Association. Some usual things to check are:

Commercial Properties

  • 24 hour operations
  • Building is Fiber-Ready
  • Provision for air conditioning systems (e.g. where to place condensers)
  • Number of telephone lines allowed

Condominiums

  • Water/Electrical Provisions for Appliances (e.g. Dishwasher)
  • Small/Big Pets are allowed
  • Letting more than 2 people stay in the unit

Houses

  • Design of the house (for villages with themes)
  • City Restrictions on Height of Structure

 

Bear in mind that this is not a comprehensive list. The things you have to check for will change depending on the type of property, its location, and the seller’s background. The process can easily get overwhelming, especially if you have other priorities and investments to manage. This is where your trusted independent licensed broker comes in.

 

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

In-House Brokers vs. Independent Licensed Brokers

In-House Brokers vs. Independent Licensed Brokers

Going through an independent broker for properties sold in the primary market

As I’ve mentioned in previous articles, the one factor that can make or break your experience in real estate investing is your broker. When buying properties from the primary market (or properties that are yet to be built), you may choose to go with an in-house agent/broker or an independent broker. It’s common practice for buyers to go through an in-house agents since, after all, they’re the most convenient to approach. This article will argue why it’s better to go through an independent broker.

In-house broker

An in-house broker is a real estate broker who is employed by a real estate development company to help sell their inventory of properties. They get a basic monthly allowance (more or less based on minimum wage) and sales commissions for each property they sell. They also have to hit sales quotas to continue to be employed.

An in-house broker may be a licensed broker or an accredited sales person (For simplicity, we will refer to salespersons as “agents”). Agents are accredited with the Professional Regulation Commission (PRC), and are allowed to perform the simpler tasks of brokers such as property viewings and general paperwork. Only licensed brokers are allowed to sign legal documents related to the real estate investment transaction. An agent’s job generally ends after the buyer has paid the 20% downpayment since it would be the developer’s back-office (e.g. Amicassa of Ayala Land) who will take care of the rest of the requirements.

More likely than not, when you visit a real estate developer’s showroom, you will be approached by an agents instead of a licensed broker. You will likely only deal with this broker throughout your transaction, unless major issues arise in which the licensed broker will need to step in. Some developers have a ratio of as many as 20 accredited brokers to 1 licensed broker. This makes it easy for the developer to reach more potential customers for their properties.

Generally, in-house agents have access to all the properties of their developer. Their focus in particular projects/developer makes them more knowledgeable with the technical details and more up-to-date with the availability of units. However, in-house agents are not allowed to sell properties in the secondary market.

One disadvantage of in-house brokers is that they are not allowed to sell properties of other developers. As such, they have a limited view on the general property market. They may know some facts, but they would unlikely reveal facts that would put their property on a disadvantaged. Typically when asked, they will argue that their properties will always be superior to comparable properties in surrounding areas.

Moreover, sales of in-house agents are also limited by the number of projects their employer has to offer. Once the developer runs out of new developments, agents are left with nothing else to sell and they’re forced to move to another developer.

For these reasons, it’s not surprising that the turnover rate of these agents is quite high. The agent you have been coordinating with may transfer to another company. Problems arise when your agent promised you certain things that he/she will deliver. In this case, you’ll be passed to a new agent to whom you will have to initiate discussions with. Things previously agreed on will likely be forgotten.

Independent licensed broker (ILB)

An independent broker (hereinafter referred to as “ILB”) is a licensed real estate broker who is not tied to one particular developer. Aside from pre-selling properties, ILBs can sell pre-owned properties or properties in the secondary market. ILBs do not get any fixed salary and is rewarded solely with sales commission. They may or may not be associated with real estate groups such as PAREB, or RE/MAX. Some independent brokers may hire their own accredited brokers who will act as their agents, in the same way real estate developers do.

Because ILBs have a much broader view of the general real estate market, they can give you multiple recommendations depending on what you’re looking for, and are not limited to one developer alone. ILBs even have access to private individuals and companies who may be selling their properties at attractive prices that a developer could never sell at. ILBs can also help facilitate loan applications for the banks they are accredited with.

The disadvantage of ILBs is that they are less knowledgeable with the technical details of particular projects given the sheer number of other projects that they can offer. To address this problem, developers (e.g. Rockwell, Ayala Land, Megaworld, etc.) have established broker relations groups that aid ILBs in project presentations.

Another advantage of ILBs is their expertise in the secondary market. Clients who intend to re-sell or lease out properties they bought from the primary market, ILBs can guide them with the whole process: pricing of the property, legal and procedural requirements, etc.

Why go with ILBs?

Luckily, you can choose the best of both worlds. You can get an ILB to represent you and have him/her coordinate with the in-house agents. This option will NOT cost you anything since it will be the developer/seller paying for their professional fees.

This model has been so successful that developers (i.e. Ayala Land, Rockwell Land, Ortigas & Co. etc.) have established Broker Relations Groups to handle leads from independent brokers. In fact, sales of ILBs have reached as much as 30% of total sales for certain projects.

Let your independent broker do the follow-ups, legwork, review of paperwork, etc. Get an unbiased opinion with regard to the property. Since ILBs handle pre-owned properties, they know what to watch to check (see article on What to Check for Newly Turned Over Units). Simplify your life by having your ILB take care of leasing out or re-selling the property you bought. Work with an ILB.

Disclaimer: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.