4 perfectly legal ways to be a real estate investor with the RESA Law

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This is a guest post by Ronald Cagape of LivingCasflow101.com

paydayThe RESA law is a comprehensive law intended to professionalize the ranks of real estate service providers – brokers, agents, appraisers, assessors and consultants.

However, this law has cast some doubt on the practice of buying and selling real estate. Let me share with you some reasons why you should go ahead and continue being a real estate investor.

1. Owners are still allowed to sell their property.

So, be the owner. Learn how to find good deals, raise capital and buy properties cash. Then sell the property as the owner.

2. If you can’t see yourself as an Owner then think of yourself as a Dealer.

Dealers are still allowed to sell property. RESA does not cover the business of being a real estate dealer. It really is a mindset.

You are not a broker or an agent and should not represent yourself as one if you are not. You are a Dealer. Therefore, buy then sell real estate. Use an Option-To-Purchase or a Contract-To-Sell to buy real estate and make sure you can Assign the contract.

Tell everyone that you buy and sell real estate. You’re not a marketer, you’re a dealer. In fact, while attending a review class for the Broker’s licensing exam of a well-known broker, I announced that I buy and sell real estate in front of the class. Even the broker wanted to hear about good deals!

The law is meant to prevent the practice of “colorum” agents and brokers. It’s not meant to discourage dealers. When you get to your 6th deal, just make sure to register your business as a real estate dealer with the HLURB and BIR. The game changes tax-wise on your 6th deal. But worry about your first 5 first.

3. Setup a Corporation and hire a licensed Broker

If you still insist on just selling real estate then setup a Corporation and hire a licensed Broker to represent the company. Your company will now be allowed to practice brokerage as if You were the broker. Your corporation, which is a legal entity of its own, is treated as if it’s a licensed broker as long as you have a licensed broker in your payroll.

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4. Get a Broker to accredit you as a Real Estate Salesperson

The broker gets the authority to sell, you get a share of the commission.

As you can see, you don’t need to be a broker to sell real estate. But you do need to recognize the solutions. Have a mindset shift. You are a dealer not a broker/agent.

Why I took the real estate brokers  licensure exam

By the way, you might be wondering why I took the real estate brokers  licensure exam myself if there’s nothing to fear about the RESA. Here are my three reasons:

  1. A broker can only have 20 accredited salespersons under him. I’m getting a license to increase the limit to another 20 for our team.
  2. Networking. Brokers have their own buyer’s lists so I’d love to access their lists as well. Also, to access that list, it would normally cost me 5%. As a broker, I can lower down my cost to 2.5%.
  3. I personally like using an Exclusive Authority to Sell to control a property for sale without risk on my part. An Option-To-Purchase still works but I like putting an exclusive clause to my agreements. That’s just me. :-)

What do you think?

Ronald Cagape is a real estate investor and president of Cashflow Realty, a real estate brokerage company specializing in office space for sale or rent in Ortigas Center, Pasig.


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  • concernowner

    good day sir ronald! :)

    like to ask you sir about how someone become a real estate dealer? are there particular guidelines of BIR for that matter? what if i bought in the same year 5 real properties under my name and sold it immediately will the BIR tax me as a real estate dealer or real estate investor? what is the holding period before some will be recognize as real estate dealer?

  • http://www.cashflowrealty.net/ Ronald Cagape

    Wow, thanks for sharing that.

    I don’t have the full mechanics of the case but reading through the article, it says he has 10 lots so that’s the thing that tipped the BIR off. It was likely 10 transactions in a span of 8 months. It’s very difficult to conceal these things from the BIR because they now employ data mining techniques to flag these transactions.

    That’s why I don’t recommend doing 5 transactions now and doing 5 transactions next year. It could work but I just don’t recommend it.

    Now on to capital assets vs ordinary asset. It’s a huge thing. Capital Gains Tax (CGT) on capital assets is a Final Tax of 6% – meaning you don’t pay any more income taxes.

    If you sold an ordinary asset, you pay a 0-6% Witholding Tax during the sale and then an Income Tax of 32% (less Witholding taxes) at the end of the year plus VAT where applicable. That’s why Mr. Gaw declared those lots as Capital Assets because he won’t have to pay the income taxes at the end of the year.

    That’s why the game changes after the 6th transaction.

  • John

    Hi Ronald,

    The news today of the P5.5B Tax evasion filed against a trader brought my thoughts up again on your post.

    Ronald Cagape April 2, 2011 at 11:50 am

    Hi John. No, when you get to the 6th deal in a year, you’re already considered habitually practicing real estate. By that time, you should be making money anyway so just factor in the tax changes.

    Carefully reading both the BIR capital gains tax article and news article, won’t the definition of a “habitual practicing real estate” vis-a-vis tax changes be moot?

    To clarify, the 6 deals in a year just considers/classify you as a real estate dealer. The tax consideration is based whether the property sold is a “capital asset” or “ordinary asset” as pointed out in the news. That is, “capital asset” is 6% capital gains; “ordinary asset” 32%.

    So, whether we have 1 to 5 deals in a year or, 6 or more, we still have to pay 32% income tax since we are dealing with ordinary assets.

    Kindly share your take on this.

    Thanks and regards,

    John

  • Rodrigo O.Yabut

    Hi.John. I just registered a real estate corporation. I have a business permit from the LGU and BIR. What are the advantages and disadvantages in terms of taxes, inBUYS and in SELLS, if the transactions are done using the corporation or my name?Will the corporation be treated as habitually engaged in real estate transaction even if it has not reached yet the 6th deals per year?What transactions are charged with VAT? Will a private owner be charged with VAT if he sells his property at a price exceeding P2.5M to a corporation like mine even if he is not habitually engaged in real estae activities?Which entity is advisable to use,taxwise, in buying property?Tnx – Jhe

  • http://www.realestateofcebu.com Basil

    thanks Ron, its very clear info.

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  • http://www.PagIBIGFinancing.com Carlos — http://www.PagIBIGFinancing.com

    I think you are inconsistent. ;-)

    First, you mentioned about having other brokers share their listings to you.

    And then you said, you want to be using an Exclusive Authority To Sell.

    • http://www.cashflowrealty.net/ Ronald Cagape

      It’s not inconsistent at all if you’ve been practicing brokerage or dealership for quite some time. What I shared are my personal preferences and not hard-and-fast rules.

      I like to use the exclusive authority to control a property. When I get that exclusive authority, I wouldn’t mind sharing the property with other brokers and dealers to sell it quickly. That’s how I access their buyers lists.

      I just prefer to get the exclusive authority but there are times that I just don’t get it. I still carry the property anyway. Like I said, it’s not a hard rule just a preference.

      It also happens sometimes that I don’t have a property that fits a buyer’s need. I’m not that good a salesman to sell someone a property they don’t need so, I go through another person’s list to see if there’s something that fits and sell that property instead.

  • http://www.cashflowrealty.net/ Ronald Cagape

    Getting someone’s trust is a process. You really have to establish rapport first before trying to sell someone anything and the single most effective approach I know when it comes to establishing rapport is listening. If you listen first before you talk, you have a better chance of getting their trust.

  • http://blog.joelchua.com Joel Chua

    Some folks are wary of licensed brokers and would rather deal with direct buyers. What strategies do we have to get around that?

  • http://technotch.com Shaun

    Hi Ronald,
    please correct me if I’m wrong, does this mean I can make the first 5 transactions, then assign the next 5 transactions under my wife’s name, then my brother -and worry about building a corporate entity until one of us have to take the 6th?

    • http://www.cashflowrealty.net/ Ronald Cagape

      I’m not sure about the 5 transactions under your wife’s name unless you have a pre-nup with your wife. You can do that with your brother or any number of people but there are also advantages of using a corporate entity as early as possible. You have to weigh the pros and cons and not just look at the tax situation (which in itself is not necessarily a bad thing).

  • Vic Enage, Jr.

    Hi Mr. Ronald,

    Our company is not relatively delved into real estate dealings. Does provision no.6 suggests that we can hire a broker, practise real estate transactions and legally perform as a brokerage?

    • http://www.cashflowrealty.net/ Ronald Cagape

      Hi Vic,

      You should also check with the SEC regarding existing companies. The RESA law is not meant to supersede other relevant rules. You may need to make changes to your Articles of Incorporation to change the purpose of your business, for example.

      Or, if it’s too much a hassle, you can always setup a new company, with your old company as a major shareholder. There are many ways to go about it depending on your particular situation.

  • John

    Hi Ronald,

    A point of clarification on: “When you get to your 6th deal, just make sure to register your business as a real estate dealer with the HLURB and BIR. The game changes tax-wise on your 6th deal.”

    Is the above yearly? For example, the 6th transaction for 2011. Do you start again on deal #1 on 2012?

    Thanks.

    John

    • http://www.cashflowrealty.net/ Ronald Cagape

      Hi John. No, when you get to the 6th deal in a year, you’re already considered habitually practicing real estate. By that time, you should be making money anyway so just factor in the tax changes.

      • John

        Hi Ronald,

        What if you stop on the 5th deal for the year? Then the 6th or 1st deal for the next year? Since taxation is yearly, the 6th deal is actually the 1st deal for the taxable year.

        Thanks.
        John

        • http://www.cashflowrealty.net/ Ronald Cagape

          Hi John, technically yes. According to the BIR, the 6 transactions should be for the one year. For now you can do it but I wouldn’t count on it too much though because the BIR can always change their mind.

          Here is an excerpt from the FAQ of the BIR website.

          iv) All real properties acquired in the course of trade or business by a taxpayer habitually engaged in the sale of real property shall be considered as ordinary assets.

          Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall be sufficient for a taxpayer to be considered as habitually engaged in the sale of real estate.

          If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or developer, he/it may nevertheless be deemed to be engaged in the real estate business through the establishment of substantial relevant evidence (such as consummation during the preceding year of at least six (6) taxable real estate sale transactions, regardless of amount; registration as habitually engaged in real estate business with the Local Government Unit or the Bureau of Internal Revenue, etc.)

          • John

            Hi Ronald,

            Thanks for the BIR info and additional clarifications.

            Regards,

            John

  • http://www.classifiedads.ph Anton

    Thanks for the post.. cleared up a few of my questions about selling properties..

  • http://propertyinvestmentsph.blogspot.com/ dianne de castro

    Hi Ronald,

    Same reasons why I took the board. Furthermore, I want to have a license so that brokers would see that I know what I am doing. They won’t fool me because I have the same knowledge as they have. PLUS MORE :)