Foreclosure Philippines » Real estate investing

4 reasons why we need to be financially literate real estate investors

Jay — Mon, 06 Sep 2010 06:45:51 +0000

In a recent post where I tackled the frequently asked question: “Are foreclosed properties good deals?”, I mentioned that financial literacy is a prerequisite to real estate investing, and with good reason. I believe that the lack of financial literacy will certainly lead to financial failure! Sometimes we need to fail but not like this!

Let me give you four reasons why I believe we need to be financially literate real estate investors.

Reason #1: You will eventually be able to save enough money to finance your own deals

As I have said in my series on managing finances, you need to learn how to manage your finances to get ready for your first real estate deal, and you do this by taking care of your finances by becoming your own Chief Financial Officer, who is always on top of one’s cashflow by properly tracking income and expenses and proper money management.

Still have nothing to invest? Buried in credit card debt? Living paycheck to paycheck?

As Rich Dad would say, “It’s not how much money you make, it’s how much you keep.”

Why not take a deep hard look at how you manage your money and take the next step?

Reason # 2: You will become trustworthy when it comes to money

Think about it, would you do business with someone who is not trustworthy?

This not only applies if you do decide to get other people’s money or OPM to finance your deals, you also need to be able to trust yourself. If you trust yourself, I’m assuming you really are trustworthy and you act in a trustworthy manner.

As they say, “If you want people to trust you, be trustworthy.”, and you start by being trustworthy with your own money, not with OPM.

If you can’t even trust yourself to handle your own money well, don’t even try to get into real estate investing.

Reason # 3: When you get your own deals, you will be on top of your finances with regard to your investment properties

So you got a deal, finally! But how do you know that you are doing good? You’re an investor and you need to know if you really are making money!

If you are financially literate and manage your finances the way you should, you will know at any given time if you are really making money or losing money, you will be on top of your cashflow.

What if you eventually got your very first real estate deal but never really learned how to manage your money? You might lose track of your expenses and then you end up wondering what’s happening to your cash, or even worse, you might even lose track of important payments like monthly amortizations or you simply have no money left to settle your obligations and end up facing foreclosure.

On the other end, you might lose track of your receivables and end up NOT getting the money that is rightfully yours, some if which are meant for mortgage payments, maintenance, etc.

Things get even more complicated once you acquire more and more deals, so without financial literacy, you might end up with nothing but a financial mess.

Reason # 4: When you do start earning money from your investments, you will certainly not end up like a lot of Lotto winners

In a recent talk during The Feast at the PICC, Bo Sanchez mentioned stories of Lotto winners who lost all of their money, get buried in debt, ended up with broken marriages, etc. (Actually Bo also wrote an article that mentioned this and you can read it here: How To Use Your Pain To Achieve Great Success). These are perfect examples of what can happen if one who is not yet financially literate gets a big amount of cash. Sad but true.

Earning money from real estate investing, though not as big as Lotto winnings(at least not at the start ), can still be considered as a big windfall of money, especially, if your real estate investing strategy is more focused on capital gains. If you are not financially literate, you might not be able to handle the sudden windfall, and you may end up just like those Lotto winners mentioned by Bo, where money became a curse.

On the other hand, imagine if you were financially literate, and you earned a lot from your real estate deals (or if you won the Lotto), you will be able to handle it well, you won’t go into a shopping spree, you won’t go for instant gratification, you won’t accumulate liabilities, you will focus on real income generating assets, you will be generous, you will spend wisely, you will be in control. You will be able to manage it well and put your new found wealth into good use, it will become a blessing.

There you have it folks…

You need to start by working on your financial literacy first, it cannot be just an afterthought.
To be someone who can be trusted, you need to become trustworthy, and that definitely applies to money and real estate investing.
Financial literacy will let you know if you are really making money with your deals, and help you run your business through proper cashflow management. Yes, real estate investing should be treated as a business. The importance of managing your finances well will get magnified as your business grows.
If you are financially literate, more money will be a blessing to you and the people around you, it won’t be a curse.

Remember we are just stewards of the wealth and abundance that come our way, and being financially literate helps ensure that we become worthy stewards.

“From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked.” – Luke 12:48

What do you think?

To our success and financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter:http://twitter.com/jay_castilloFind us in Facebook:Foreclosure Philippines facebook page

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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Are foreclosed properties good deals?

Jay — Sun, 29 Aug 2010 22:00:36 +0000

It depends! Obviously not all foreclosed properties are good deals.

It’s common sense that not all properties are good investments, foreclosed or otherwise, you don’t need to be a real estate investing guru to know this. However, based on the number of times I’ve either heard people ask or get asked this very same question, I feel that a significant number of people out there either have a misconception about foreclosed properties, or they are simply clueless.

Let me make it clear, NOT all foreclosed properties are good deals, and it would be foolish to think all of them are.

Don’t ever expect all foreclosed properties to be good deals because if you do, you are setting yourself up for frustration, disappointment, and failure, especially when you start finding foreclosed properties that turn out to be horrible deals. More on this later.

“Hey Jay, are you saying foreclosed properties are no good?”, you might be asking.

As I said, it depends. No, I’m not discouraging you, I’m just trying to help with managing expectations. Admittedly there are more bad deals out there than good deals, but there are still more than enough hidden gems out there that can make worthy real estate investments, and the key is finding them. One needs to look at a lot, and when I say a lot, I mean a lot of properties, to find those hidden gems, after all, investing in foreclosed properties is a numbers game.

Investing in foreclosed properties is a numbers game

I’ve said it before and I’ll say it again, investing in foreclosed properties is a numbers game.

: Image by nickhall via Flickr

The greater the number of foreclosed properties you look at, the greater the chance that you will find those good enough deals, and even some great deals. However, you will find a lot of bad deals in the process, but that’s just part of the game. It’s okay to find horrible deals, as long as you find out before you bought the property, and move on.

Keep in mind that one cannot just give up after looking at a few properties. I often hear people get frustrated with foreclosed properties after looking at just one or a couple of properties, or even with just one listing that really did not have many properties to begin with. And then they give up and say things like “I’ll never find any good deals…” or “The numbers will never work…” or “This is too hard…” or “I’m just wasting my time…”. Sorry, nobody said foreclosed real estate investing is easy! It may sound simple, but it isn’t easy.

The 100-10-3-1 Rule

You basically need to look at a significant number of properties to find those properties that are worth a second look.

How many would that be? The general recommendation would be to find about 100 properties worth a second look, after doing initial shortlisting. Out of those 100 properties, you will probably find 10 worth inspecting. Out of those 10 worth inspecting, you might find 3 properties that are worth giving offers for or bidding for, if they were for sale through a public auction. Out of the 3, you may end up buying 1.

That’s a brief overview of the 100-10-3-1 rule. I’ve read many variants of this rule from books and also from some of my mentors but they are basically the same. You analyze 100 properties, inspect 10, submit offers on 3, and end up buying 1. These are just average numbers, but you’d be surprised how accurate this average can be in real life. Been there, done that!

Other numbers to consider

Of course there are other numbers to consider when applying the 100-10-3-1 rule and when “doing the numbers”.

Numbers like After Repair Value (ARV), projected repair costs, target profit, Maximum Allowable Offer(MAO), Cash on Cash Return (CCR), Return-On-Investment or Return Of Investment(ROI), Net Operation Income(NOI), Cashflow, etc., to name a few, also need to be considered. For each of these numbers, you as the real estate investor will ultimately have to decide what is acceptable for you. These numbers will determine if a foreclosed property is a good deal or not.

If this sounds too daunting and tedious for you, I would be the first to say that this might not be for you. But there’s no harm in trying right?! Imagine what could happen if you consistently did this until doing the numbers became a habit and you actually became good at it!

No, I won’t have time to explain all of these numbers now, but one by one, they will be covered here soon.

Sometimes it’s all in the mind

I still remember during the early part of 2008 when I found myself unable to find any good deals in any of the listings of foreclosed properties that came my way.

I was still recovering from feelings of being betrayed after how Dinna Revilla, a former real estate mentor, got arrested and became a “fallen real estate guru”, and in disgust of what she allegedly did to those who trusted her(as far as I know, the case is still pending), I just decided to invest in mutual funds instead of real estate.

My respite from real estate investing however was short-lived because I eventually met another mentor, Doctor Jon Abaquin, who was also featured in Larry Gamboa’s book “Think Rich Pinoy”(see page 155), who later challenged me and a couple of my friends to each buy a property within 90 days.

Lo and behold, from the same listings lying on the table in my bedroom where I could not find any suitable properties, all of a sudden I was able to pinpoint at least 3 very promising foreclosed properties from 3 banks and I ended up submitting an offer for the most promising one. Later, that one offer got accepted. That experience opened my eyes and from that point onwards, I truly believed that there were good, and great deals out there, I just had to look a little bit harder!

But what if I do find a good deal but have no money to invest?

My take on this: Financial literacy is a prerequisite to real estate investing. Being financially literate leads to proper management of one’s money and finances, which should then help one save enough capital for investing. When that right deal comes, you will be ready. If you think that would take too long, then another option would be to find investors for your deal, although personally, I would recommend that beginning investors do it by themselves, especially on the first few deals.

I believe you should build your track record with your own money first before risking other investors’ money. If you can’t even handle your own money, how do you expect to be able to handle the money of investors?! Sorry if I may sound harsh, but hey, this is just my opinion.

So how many properties have you looked at?

Have you looked at 1, 2, 3… and have given up already? Are you looking hard enough?

Remember, the more you look and do the numbers, the greater the chance that you’ll find that real estate investment for you.

Next time someone asks you, “Are foreclosed properties good deals?”

I’m pretty sure most of you out there will eventually encounter this question once you decide to invest in foreclosed properties and people learn what you do. Well, I hope to help save you the trouble of coming up with your own answer, which can turn out to be a very long one, just like mine. If you want, you can just send them over here, and I hope my answer above will be of help.

Next question please!

Good luck and happy investing!

To our success and financial freedom!

Jay Castillo

Real Estate Investor

Real Estate Broker License #: 20056

Blog: http://www.foreclosurephilippines.com

Follow me in Twitter:http://twitter.com/jay_castillo

Find us in Facebook:Foreclosure Philippines facebook page

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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How to buy foreclosed properties blueprint

Jay — Thu, 12 Aug 2010 04:00:49 +0000

My mentor Trace Trajano interviewed me recently and the interview was all about how to buy foreclosed properties from banks, which are also often referred to as bank acquired assets, bank owned properties, ROPOA’s, ROPA’s, non-performing assets, etc. We basically covered buying foreclosed properties from banks:

Before the auction (pre-auction)
During auctions
After the auction (negotiated sale)

Near the last part of the interview, Trace even shared a brief overview of how some of his students were able to do a short sale on a property that was in pre-foreclosure, here in the Philippines.

Trace actually created the “blueprint” while he was interviewing me, everything was spontaneous, and he even recorded everything in a video. I’m glad that Trace is sharing the video to all real estate investors out there. If you are new to real estate investing and want to start with foreclosed properties, then this video is for you.

Here’s the video interview which contains the “blueprint”:

Since the video was quite short, I’m assuming a lot of you out there might have questions about the topics we discussed briefly. In case you do, just ask your questions by leaving a comment below.

By the way, Trace will be making a follow-up interview, but this time around, I will be joining other students of Trace, and we will be interviewed during a webinar, where a limited number of people can join in. Since this is a “live” webinar, attendees will get the chance to ask questions and be answered “live”.

The free webinar will be on Saturday, August 14, 2010, and starts at 8:00pm sharp, Philippine Time. If you want to join the webinar, register through the following link:

https://www2.gotomeeting.com/register/356236771

I was a bit late to post this (sorry about that) and Trace already invited everyone in his mailing list, so please register now to secure the few slots left.

Please make sure your computer has a microphone, we’ll talk to you soon!

To our success and financial freedom!

Jay Castillo

Real Estate Investor

Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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How to be a proactive real estate investor

Jay — Thu, 15 Jul 2010 07:00:49 +0000

I suppose all of us have an idea on being proactive, unless you have been living under a rock. We often hear it, but do we really know what it means to be proactive? How can we apply this to real estate investing? Read on to find out just some of my ideas on how we can all be proactive real estate investors.

Definition of proactive

Wikipedia defines proactive behavior as follows:

“Proactive behavior (or proactivity) by individuals refers to anticipatory, change-oriented and self-initiated behavior in the work place. Proactive behavior involves acting in advance of a future situation, rather than just reacting. It means taking control and making things happen rather than just adjusting to a situation or waiting for something to happen. Proactive employees generally do not need to be asked to act, nor do they require detailed instructions.”

In his book “The Seven Habits of Highly Effective People”, Doctor Stephen R. Covey defines it as something more than just taking initiative, as it means that we are ultimately responsible for our own lives. We behave based on our decisions, not based on the conditions around us, where we take the initiative and the responsibility, and make things happen.

For me, it simply means we always have a choice, and through the choices we make, we are giving ourselves the ability to respond accordingly to whatever comes our way, and that includes the challenges that we face as real estate investors.

We cannot blame others because everything is a matter of choice and these choices dictate our ability to respond, and not just react.

Rich Dad was proactive

In the book “Rich Dad Poor dad” by Robert Kiyosaki, Rich Dad’s way of thinking where he forbade words like “I cannot afford it…”, and encouraged words like “How can I afford it?” was really a perfect example of being proactive. He wanted Robert and Mike to make a choice to find ways and the means, rather than just blame the lack of money.

Proactively investing in real estate

In real esate investing, there are countless ways of being proactive. I would even look at being proactive as a prerequisite as I believe that it is needed at the very start of one’s real estate investing career.

The mindset of believing that real estate investing can really be done here in the Philippines and taking the initiative to do what needs to be done to turn this into reality is being proactive. Deciding and taking action is being proactive. If you want to start, I encourage you to first learn the habit of being proactive.

Examples of being a proactive real estate investor

Here are just a few examples of being proactive when it comes to real estate investing

When looking for suitable foreclosed properties

Instead of saying “If only there were really cheap properties that can produce positive cashflow…” why not ask “How can I find properties that can produce positive cashflow?” Why not take charge and analyze more properties instead of giving up after looking at just a few listings of foreclosed properties?

Instead of saying that “If only ejecting tenants was easy and not costly…”, why not avoid properties that are occupied to begin with? There are just too many unoccupied properties out there and the proactive thing to do would be to decide to focus only on unoccupied properties.

We should take the initiative and set the criteria for properties that we would be looking for, along with the options that we can take.

When buying a foreclosed property

When we intend to buy a property using our own money, we can take proactive steps like making sure that the numbers work, checking the physical and legal condition of the property, finding out what we can or what we can’t do, with regards to our contract with the bank, finding out if we can we assign the contract, finding out exactly what taxes do we need to pay, what expenses are for the account of the bank and for the buyer, etc. This is part of due diligence and doing due diligence is really being proactive.

When dealing with contractors

Proactively ask for quotations from several contractors before you even consider buying a foreclosed property. Check for their track record by talking with other investors who got their services in the past, and look at their past projects, etc. Make sure everything is itemized and as detailed as possible in a written agreement that gives you more than adequate protection.

When paying for a foreclosed property

Proactive steps to take when paying for a foreclosed property would be through post-dated checks, ensuring the checking account is funded accordingly, and replenishing the post-dated checks before they run out. This prevents surprises that might happen if due dates happen to fall on holidays or if a typhoon has made it impossible for you to pay over the counter.

When investing on other people’s deals

Whether we are looking at partnering with an investor as an equity partner or just funding other people’s deals by loaning them money, we should take the initiative to check if a deal really makes sense, if we can really get the return of our investment(the return of our capital), if it can produce the returns being promised to us(the return on our investment), and making sure all parties are more than adequately protected through a contract that is duly notarized.

We should also take the initiative and check the track record and the credibility of the person asking us to invest in his/her deal. We can ask for feedback from other people, who have invested their money in the past, or you might even consider asking for an NBI clearance, one can never be too careful right?!

Accepting that you made a mistake

Being proactive also means being able to accept that you have made a mistake, accept that one cannot change past mistakes, and move on and just keep moving forward. I suppose the only thing one can do is take action to correct things which are still within your control, learn as much as possible from the mistake, and take steps to avoid such mistakes in the future.

How about you, do you have anything in mind that is a good example of being a proactive real estate investor? Please share them below. Thanks!

Happy investing!

To our success and financial freedom!

Jay Castillo

Real Estate Investor

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

PPS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

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3 types of income in real estate investing and which strategy to use

Jay — Tue, 06 Jul 2010 08:56:13 +0000

Welcome to the fifth and last part of this series on the 3 types of income one can get through real estate investing. Before you begin reading this article, I recommend you review the first four parts:

How to get portfolio income through real estate investing

Earned income through real estate investing

Passive income through real estate investing – the path to financial freedom(Part 1)

How passive income through real estate investing can lead to financial freedom(Part 2)

In this series finale, let me share some final words and how one can use all three types of income to achieve financial freedom. Here goes…

Recap and some afterthoughts…

Portfolio Income

In a nutshell, portfolio income in real estate is basically income on paper in the form of equity. You still need to either sell or refinance a property to make use of your equity. Any property bought below market value should have a big potential for a gain in equity, if it really was bought below market value.

Portfolio income may boost one’s net worth and may give one bragging rights, but as Rich Dad would put it, someone’s net worth is often “worth less” than they think. In other words, if one’s equity cannot be turned into cash, or if the property cannot generate any positive cashflow, then those properties are “worth less” as they really are not assets that put money in your pocket but are rather liabilities that take money away from your pocket.

Speaking of paper assets, one may soon be able to invest in a Real Estate Investment Trust or REIT here in the Philippines, which I believe is a form of paper asset. More information about REIT in the Philippines can be found here: Real Estate Investment Trusts (REIT) – The next big thing in real estate

Earned income

Earned income that one can gain through capital gains, and commissions(now referred to as professional fees because of the RESA LAW) is a relatively quicker way of earning from real estate investing, but should not be looked at as a means to get rich quick.

I believe that the earned income one can get through capital gains from flipping properties should be used to acquire passive income generating assets later on.

Although it may appear that earned income through flipping properties received a bashing from me when I compared it to the rat race, make no mistake, I still believe that we still need to flip properties for capital gains as it is a great way to build capital. This can then be used later on to buy bigger deals that can produce bigger positive cashflow, much like lesson #2 in the Top 7 lessons I learned from playing Rich Dad’s Cashflow 101 game.

Passive income

Passive income, considered by many as the holy grail of real estate investing, can really help one become financially free, but there are a lot of things one should remember when investing for passive income. Let me summarize them below.

Proper pre-screening of tenants is needed to avoid “tenants from hell”. Failure to do this can spell disaster.
Rental properties require competent property management and maintenance.
It is the hardest real estate investing technique to do because finding properties that can generate positive cashflow is more difficult than finding properties that can be flipped for a profit, and this applies whether you buy foreclosed properties from banks, or those that are for sale by owners or FSBO’s.
It may sound simple, but is definitely not easy.
Although it may not be easy, it is easier than most people think. It is definitely easier than spending most of your life stuck in the rat race as an employee.
Negatively geared rental properties can become positively geared eventually through rental escalation(Thanks Gio for reminding me about this through your comment), provided the property is in a good location. Of course, it would be ideal to have a rental property produce positive cashflow from the very start.

Which investing strategy should you use?

Do you invest for equity and build you net worth, or for capital gains through flipping (wholesaling and retailing), or for passive income by acquiring rental properties? If you ask me, I believe it would be better to combine all of them! let me try to explain as follows:

1. “Make money when you buy, not when you sell…”

In other words, make sure you buy properties below market value. How much below market value? That would depend on your profit targets but a safe target would be to acquire properties between 40% to 50% below market value. In effect, that discount would translate to a bigger potential for equity gain. This would help ensure that a deal will really be profitable, provided you were able to arrive at a fairly accurate estimate of a property’s market value.

2. Raise capital through earned income/capital gains

As mentioned earlier in this post, one can potentially raise capital faster by flipping properties that are bought at a price below market value for capital gains, or even through the accumulation of “professional fees” by acting as a real estate broker or agent. These can then be used later on to buy bigger deals that can produce bigger positive cashflow.

3. Use the capital to acquire passive income generating assets

The capital that can be raised through flipping properties can then be used to acquire income generating rental properties. It was quite an honor for me when my mentor Trace Trajano actually left a comment in part 4 of this series explaining this, which I have posted below:

“…One idea to accelerate becoming financially free is to combine wholesaling AND rentals (which is what I do). I buy and sell houses and I buy and keep apartment buildings. Kiyosaki calls this POWER INVESTING.

Since you’re an engineer like me and you love math (as I do), here’s a simple example how you can accelerate becoming financially free…say in just two years!

Year 1: focus solely on wholesaling houses

buy-and-sell 1 house a month at P200K profit/house

total profit: P2.4 Million

Year 2: invest P2.4M as 20% downpayment for a 10-door townhouse

worth P12M; cashflow per unit: P10K/month x 10 doors = P100K per month

Here’s another comment:

I don’t like buying and renting single family houses or condos. The reason is if it becomes vacant, it’s 100% vacant and you’re responsible for paying all the expenses specially the mortgage. If 1 of the 10-door apartment becomes vacant, it’s 90% occupied and you will still be in positive cashflow territory.

A multi-door apartment, bought correctly, if it’s in a good location and you get good long term financing is the way to build wealth the fastest with lower risks than single family houses. Another benefit of multi-door apartment is that because of the cashflow, you can afford to pay a caretaker or professional property manager who will deal with tenants, maintenance and other issues. In contrast, the economics of owning single family houses and condos is that, generally, you cannot afford to hire a property manager. Managing 25 rental houses is a full time job and is NOT at all passive. In fact, I spend a lot less time “managing” my 133-unit apartment complex (the only time I spend is cashing my cashflow check) vs. my rent to own houses. My 133-unit apartment is completely passive while my houses are NOT.

Makes sense?

Your mentor,

Trace”

Yes, I believe this makes sense! Thanks Trace!

Honestly, I still have a lot to learn when it comes to wholesaling and I’m glad we have Trace as our mentor.

There you have it folks…

I hope you have enjoyed reading this series as much as I enjoyed writing it. I would like to believe that I have this burning passion for real estate investing and I wish that somehow, I was able to share this passion of mine through this post. Feel free to let me know what you think by leaving a comment below. Thanks!

Let me leave you all with a quote from Herbert Spencer, which I often hear from Ebb, a teammate of mine in the RYP team:

“The great aim of education is not knowledge but action.”

Herbert Spencer-English philosopher (1820 – 1903)

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

PS. Want to grab the chance to win a Cashflow 101 boardgame for free? Just leave a comment on this blogpost of Trace Trajano and if we reach more than 100 comments on or before July 7, 2010, Trace will raffle off a Cashflow 101 boardgame to a lucky commenter. Leave a comment now! (only 2 comments needed!)

PPS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

PPPS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

That is why I say someone’s net worth is often “worth less” than
they think

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How passive income through real estate investing can lead to financial freedom

Jay — Thu, 24 Jun 2010 06:22:54 +0000

Welcome to the fourth part of this series on the 3 types of income one can get through real estate investing. This is actually part 2 the third type of income which is passive income. Before you begin reading this article, I recommend you review the first three parts:

How to get portfolio income through real estate investing

Earned income through real estate investing

Passive income through real estate investing – the path to financial freedom(Part 1)

In the first part about passive income, we defined what passive income is, showed some examples of it, listed down advantages and disadvantages, and some key points we should remember about it. Now let’s continue…

Before I talk about how passive income from real estate can lead to financial freedom, let me first try to define what financial freedom is for me.

What is financial freedom?

For me, financial freedom is having the freedom to do the things that are truly most important in life for you, the things that you really want to do, not the things you have to do, the things that you would do if you had a choice, and you can do all of these without worrying about where to get money to provide for your family, because there is more than enough cashflow in the form of passive income that can sustain all of your needs, without the need for job or a life where you are stuck in the rat race.

More importantly, financial freedom also means having time freedom, and if you think about it, time is really the most precious commodity we have. Once it passes, it cannot be brought back, and it is gone forever. I’m sure most of you out there would agree that when you are stuck in the rat race, there is no such thing as time freedom.

What is the “rat race”?

Just what is the rat race? Wikipedia defines the rat race as an endless, self-defeating or pointless pursuit, often used to describe work, particularly excessive work; in general terms, if one works too much, when one is in the rat race. Most often in the rat race, one can expend a lot of time and effort, but ultimately achieve nothing meaningful.

Another way of looking at it would be to realize that living life in the rat race becomes pointless if it becomes detrimental to your family, relationships, health, and to your life in general. What’s your rat race?

How much passive income do we need to be financially free?

Okay, so how much passive income does one need to get out of the rat race. The answer is simple, it should be more than enough to cover one’s monthly expenses.

Going back to our previous assumption that we need to earn at least Php100,000 per month to cover our monthly expenses (and also have enough for our other “money jars“), how many passive income deals like our previous example do we need? The number of deals would be equal to our monthly expenses divided by the monthly positive cashflow from passive income which we computed as Php4,057.41/month

Number of passive income deals = Php100,000 per month / Php4,057.41 per month

=24.6 deals or 25

You might be saying “What the… it would take that many deals just to get out of the rat race?!“.

But don’t forget that if you focused on flipping, even if you made 25 deals already that each made Php100,000, you will still have to continue flipping properties, and it would be an endless cycle, much like that in the rat race.

If you focused on true cashflow generating properties, and even if each only made a measly Php4,057.41 of positive cashflow per month, your 25th deal can be your last because you already have accumulated more than Php100,000 of positive cashflow from passive income! You can stop and retire if you wanted to because you are already financially free!

Getting out of the rat race faster

I know I know, a lot of you out there might still be saying “I need to buy 25 rental properties just to get out of the rat race?! That could take forever!”.

But there are ways to get out of the rat race faster, let me show you a couple of examples:

1. Instead of rentals, go for a rent-to-own scheme

What if you bought a foreclosed property for Php1Million by putting down 20% downpayment or Php200,000, with a remaining loan principal balance of 80% or Php800,000, let’s assume the balance is payable in 10 years at 12% annual interest rate(this is the current rate for most banks).

This results in a monthly amortization of Php11,477.68/month( You can verify this by using our mortgage calculator). You will notice this is even higher than our previous example.

This time however, instead of renting out the property, what if you sold it through a rent-to-own scheme at a contract price of Php2M @ with 10% down with the balance payable in 15 years at 15% annual interest rates? Your tenant-buyer would then be paying you Php25,192.57/month for the next 15 years.

Assuming monthly expenses all add up to about Php4,000/month just like ion our previous example, the resulting monthly positive cashflow would be:

Monthly Cashflow = Monthly Rent-to-own payment – Monthly Expenses – Monthly amortization

=Php25,192.57 – Php4,000 – Php11,477.68

= Php9,714.89/month

How many passive income deals like this do we need to get out of the rat race?

Number of passive income deals = Php100,000/month / Php9,714.89/month per deal

=10.29 or 11 deals

Wow, from 25 deals down to 11 deals, now this is more like it! But wait, there’s more! What if you and your tenant-buyer agree to shorten the payment period?

2. Shorten the payment period

What if instead of having a rent-to-own agreement that has a payment term of 15 years, you go for 10 years instead? Your tenant-buyer would then be paying you Php29,040.29/month for the next 10 years. The resulting monthly cashflow would be

Monthly Cashflow = Monthly rent-to-own payment – Monthly Expenses – Monthly amortization

= Php29,040.29 – Php4,000 – Php11,477.68

= Php13,562.62/month

How many passive income deals like this do we need to get out of the rat race?

Number of passive income deals = Php100,000/month / Php13,562.62/month per deal

=7.4 or 8 deals

Wow, from 25 deals down to 8 deals! Actually there are a lot more things one can do to get out of the rat race faster. One way is by increasing the net monthly cashflow by lowering maintenance/property management expenses. another way would be to refinance your loan with another bank at lower interest rates, etc.

I won’t discuss them here for now, I would not want to get anyone out there to become overly optimistic and want to get rich quick. Keep in mind that investing for passive income is not a get rich quick scheme!

Again, we also need to consider that for rental income, taxes range from a low of 3% percentage tax to a high of 12% VAT, which are mutually exclusive. You pay one or the other, depending on which is applicable. As mentioned previously, the taxable income can be reduced through allowable deductions, thereby lessening the payable taxes. Let’s discuss more about taxation of rental income in a future article.

Another thing about rent-to-own deals, keep in mind that your cashflow stops at the end of the payment term as you no longer own the property. But still, your cash comes in all throughout the duration of the rent-to-own agreement, which is 10 years in my last example above. Anyway, I believe one can “create” a lot of other passive income streams in 10 years time to replace one rent-to-own deal right?

Passive income will help you stop living life passively

One thing I failed to mention in the first part about passive income is it really helps one to stop living passively. When I say living passively, it’s like one is going through life like a zombie who just accepts what’s happening, instead of taking charge of our lives.

For example, one just goes through the motions of being an employee, yet there is more to life than just being an employee. There is a way to live where you don’t need to spend most of your time making a living and you can actually focus on the “living” part. One does not need to live life passively because we always have a choice. Bo Sanchez explains this best in his article “Don’t be a Zombie”

Can it really be done?

Yes, it can really be done, you can trust me on this. The key is persistence, commitment, perseverance, bias for action, the drive to keep moving forward in spite of failure, having courage to face your fears and get out of your comfort zones, and the will to succeed! If you don’t believe it is possible, then you might be surprised when you read this!

Where do I start?

“All this talk about passive income and financial freedom sounds nice but how does one start?” you might be asking.

Most focus on “how”. Just like what most of my mentors and books I’ve read say, I believe you should first focus on “why”.

Why would you want to start this journey to financial freedom?!

That “why” should also be big enough to sustain you and see you through until you succeed!

You need a big enough reason to start, an emotional why, a higher purpose, something worth fighting for. Think about your rat race and why you would want to get out of it. What would you do once you are free? Find that purpose and use it to fan your burning desire and your passion to achieve financial freedom.

If passive income is easy, everyone would be doing it right?

Yes, if it were easy, everyone would be doing it. But I did not say getting passive income is easy, because it’s not. It may sound simple, but it is not easy, and it is probably the hardest of all real estate investing techniques to do, and with good reason. It is harder to find those positive cashflow generating properties than properties that can be flipped for a profit.

But let me tell you something that I have learned through firsthand experience. Sure it may not be easy, but it is definitely easier than most people think! This is coming from someone who is doing it.

I also believe that you can do it too!

Coming up next: Summary and wrap-up on the three types of income one can get through real estate investing

Yes, you read that right, there will be a fifth and last part of this series where I will summarize everything and add some more of my insights (yes, there’s more!), and yours as well, along with any other questions you may have.

Go ahead! Please write them down in the comments section below. Thanks!

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in Twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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A financial independence day story: Cross-over from IT to RE

Jay — Sat, 12 Jun 2010 08:08:08 +0000

It’s hard to believe it’s already been a year since I first greeted you all here with a financial independence day greeting. This time around I would like to greet you all again by sharing a story of how an Information Technology professional was able to cross-over to Real Estate investing. I hope this inspires not just IT professionals but also just about everyone out there that it can really be done.

Cross-over: from IT to RE

(The Philippine Star) Updated June 11, 2010 12:00 AM

MANILA, Philippines – For Jay Castillo, crossing over from heading the IT department of a multinational company to investing in real estate seemed like a very big risk at first glance. But there’s no denying now that he’s enjoying real estate investing and making good money out of it.

Jay wanted to get his feet wet in real estate investing after reading Think Rich Pinoy by Larry Gamboa. He still had a lot of unanswered questions, though, on how exactly he could start investing. Fortunately, he was able to attend Urban Institute of Real Estate’s Investing in Real Estate Series. “I also attended Urban Institute’s Comprehensive Real Estate Seminar and Review (CRESAR) to gain knowledge in real estate and I also passed the real estate broker’s licensure exam a month after,” Jay shared.

At present, Jay continues to look for bargain and foreclosed properties to buy and sell. He is also considering buying lots where he can build townhouses which he could sell or rent out afterwards.

“This would be a big departure from what I did last year which was to buy and renovate foreclosed house and lots and then sell them through a rent-to-own scheme” Jay said.

According to Jay, the real estate business can be very lucrative if one focuses on bread-and-butter properties or single-unit houses and lots priced at P2 million and below. “These are the kinds of property many buyers are looking for.”

The other more saleable properties are single family homes below P2 million with 2-3 bedrooms, 1 toilet & bath, with a floor area of 50 to 60 square meters (sqm), and lot areas of around 100 sqm.

Jay’s first completed deal is always the most memorable for him. “For my first completed deal, I bought the property through an auction after many attempts in bidding for properties at public auctions and not winning anything. After I won a bid for the first time, I was very happy, but a feeling of anxiety also began to set in: “What if I am not able to rent out or sell this property?” “What if I encounter a problem with the title of the property, the taxes, the house’s structure, etc?”

His fears were unfounded after all. That property was a perfect example of a great investment as he was able to have it tenanted in just 55 days. “I learned so much from that deal,” he enthused.

One of the more important considerations a serious buyer asks is whether the property is flood-free and was not affected by Ondoy. “Of course, buyers would also want to know if the property is accessible to public transport and near their place of work, in a safe and secure location, and has good investment potential.

Is it true that to be able to sell a property, you must be able to fully explain or answer all the questions a buyer may ask? “Yes, and one also has to be able to answer sincerely,” replied Jay. “I credit Urban Institute of Real Estate for giving me the kind of training and know-how that gave me a lot of confidence in dealing with clients,” he added.

Jay believes that Filipinos have become more intelligent and discerning buyers seeking more value for money and looking for sound investments like real estate.

Before enrolling in Urban Institute, all Jay knew were general concepts on real estate investing but had no idea how exactly they can be done.

“At Urban Institute, I learned exactly how real estate transactions are conducted considering the laws, rules and regulation, taxation, etc. When there’s a difficult question I encounter, I can ask Urban c/o Engineer Enrico Cruz “Engineer Cruz has probably encountered just about everything there is in real estate investing so he is able to answer all of my questions quickly.” Cruz is the president of Urban Institute of Real Estate and has more than 40 years of working experience in the field of engineering, construction, real estate, and education.

(For details about real estate courses at Urban Institute, call 509-7402 or 796-8019, or CP# 0916-426-9174 or 0939-137-9242 or email at info@urbanet.ph or urbanet.ph@gmail.com.)

Article source: Philippines Star, June 11. 2010 (page C-3 on the printed edition)

Here’s a little trivia, if you will notice my picture on the printed edition, I appear to be very serious and somewhat concerned. This was because I was checking what was my maximum allowable bid as I had a lot of competitors who were also bidding for the same properties during this auction of UCPB foreclosed properties. I did not win in any of my bids for properties I was bidding for during that auction but I was able to win three months later with another bank. I guess persistence really pays off!

Happy financial independence day to all!

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

PS. What are you waiting for? Learn from 16 successful entrepreneurs, investors, best-selling business authors, sales superstars, and money experts including Trace Trajano and Eden April Alemania-Dayrit. How? Attend the Money Summit and Wealth Expo 2010, the BIGGEST wealth building and income opportunities super conference and expo in the Philippines, on July 2-3, 2010 in RCBC Plaza, Makati City. Click here for details! I will be attending this and I hope to see you there!

PPS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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Passive income through real estate investing – the path to financial freedom (Part 1)

Jay — Thu, 10 Jun 2010 04:02:55 +0000

Welcome to the third part of this series on the 3 types of income one can get through real estate investing. This was supposed to be the third and last part which is about passive income, but it has turned out to be a huge article in itself (more than 4000 words) , which is why I will have to split it in two. This will be the first half .

Before you begin reading this article, I recommend you review the first two parts about portfolio income and earned income:

How to get portfolio income through real estate investing

Earned income through real estate investing

Next we continue with passive income…

What is passive income?

Wikipedia defines passive income as income from “trade or business activities in which you do not materially participate.” Furthermore, the IRS website defines that “in general, all rental activities are passive activities, even if you do materially participate. You materially participate in an activity if you are involved in the operation of the activity on a regular, continuous, and substantial basis.” These may sound complicated so I would rather stick to the simpler definition that passive income is income that comes in consistently without having to do much physical work.

Examples of passive income are dividends from paper assets like stocks, bonds, and mutual funds, interest income from certificates of deposits, mortgages, income from advertisements on the internet, income from a business where the business owner need not work in the business, residual income from royalties from the sale or use of intellectual property and multilevel marketing activities, and of course, rental income from the leasing of real estate.

Passive income from real estate investing

: Image by Jeremy Burgin via Flickr

In real estate, you get passive income by investing for cashflow. This is when you focus on buying properties whose rental income exceeds all expenses, including taxes, and any payments for loans, if any. Basically, the monthly cashflow would be the monthly rental income less monthly expenses less the monthly amortization you pay to the bank if the property was bought through financing.

Using our previous example again, where I bought a foreclosed property for Php1Million by putting down 20% downpayment or Php200,000, with a remaining loan principal balance of 80% or Php800,000, let’s assume the balance is payable in 20 years at 8.5% annual interest rate(this is the current rate for Pag-IBIG for a loan of Php800,000).

This results in a monthly amortization of Php6,942.58/month( You can verify this by using our mortgage calculator)

For this example, lets also assume that my monthly expenses as the landlord are monthly homeowners association or condo dues, maintenance, property management, real property taxes(I just divide the annual real property tax by 12 to arrive at monthly figures), maintenance reserves, etc. all add up to about Php4,000/month and the property can be rented out at Php15,000 per month.

My monthly cashflow for the example above would then be as follows:

Monthly Cashflow = Monthly Rent – Monthly Expenses – Monthly amortization

=Php15,000 – Php4,000 – Php6,942.58

=Php4,057.42/month

Do take note that the cashflow figure we arrived at above is before taxes, more on the applicable taxes later.

Examples of rental income

Rental income can come from the leasing of houses, lots, house and lots, townhouses, condominiums, parking slots, apartments, buildings, hotels, office-space, space used for cell-sites, billboards, or just about any residential or commercial space. Did I forget any?

One can even earn passive income by having a real estate business, more on this later.

Advantages of passive income from real estate

Least taxed – Passive income in the form of rentals is the least taxed among the types of income one can get through real estate investing. Remember, income in the form of capital gains are taxed at a rate of 6%, while earned income is taxed up to a high of 32% in the form of income tax.

For rental income, the taxes range from a low of 3% percentage tax to a high of 12% VAT. Please take note that percentage tax and VAT are mutually exclusive, you pay one or the other, depending on which is applicable.

The lease of residential units where the monthly rental per unit exceeds Ten Thousand Pesos (P10,000.00) but the aggregate of such rentals during the year do not exceed One Million Five Hundred Pesos (P1,500,000.00) are exempt from VAT, and shall be subjected to three percent (3%) percentage tax.

It follows that the 12% VAT applies to the lease of other properties not covered by the statement above. Please refer to this article: Save Money On Taxes: Exemptions From VAT On The Sale And Lease Of Real Estate for more information and a sample computation.

Of course, income tax is still applicable. The good news is you can still lower your taxable income through allowable deductions, thereby lessening the payable income tax. My wife will create a more detailed article about this in the future. I will force her to do this if needed.

Income comes in without the need to sell the property – An obvious advantage with passive income through rentals is you have income coming even if you don’t sell the property. If you don’t have to sell the property, you obviously do not need to pay any of the major taxes like Capital Gains Tax (CGT) for capital assets or Creditable Withholding Tax (CWT) for ordinary assets, whichever is applicable.

Less affected by a recession or financial crisis (at least for residential properties) – If you invest for passive income, I believe that you are less affected when a recession or financial crisis happens, unlike flippers who might get devastated because they will no longer be able to sell their properties at their desired selling prices as property values plummet.

Even if flippers rented out the properties they could not sell, most may still end up with negative cashflow because the cashflow was not considered at the very beginning. It is easier to find a property that can be flipped for a profit but has negative cashflow, than a property that has both positive cashflow, and can be flipped for a profit. If that were the case however, I would think twice before I sell a passive income generating property as it is like a goose that lays golden eggs.

Without the need to sell a property, investing for cashflow is simply less vulnerable and less risky, in my opinion.

In addition, I believe that demand for residential properties that are for rent would still be pretty high, as people still need a place to live in, even if there was a recession or financial crisis. It would be logical to conclude that the people who would forego buying their own homes would just rent. On the other hand, commercial properties that are for rent would face less demand in times of a recession or financial crisis and would most probably be greatly affected.

Provides a consistent stream of income – Passive income in the form of rentals of real estate provides a reliable and consistent income stream that can really replace a person’s earned income that comes from having a job.

Money works for you - We often hear about the sayings “instead of working hard, we should work smart” and “instead of working hard for money, money should work for you” and passive income from real estate fits the bill. By finding a good rental property, the work is front-loaded, and the rest is just maintenance, and yet the money just flows into your pocket. Now that’s working smart!

You get to enjoy the fruits of property ownership - As you remain as the owner of the property, you also get to enjoy the fruits of ownership like gaining equity as time passes where part of your rental income is paying off your loan, if any, and you also have the benefit of any future appreciation of the property, if you do decide to sell or refinance the property down the road.

The disadvantages of investing for cashflow

Smaller income as compared to capital gains - The example above illustrates that the passive income we can get from a rental property looks small compared to the capital gains that we can get through flipping. Php4,057.41/month versus Php100,000/property(assuming you can really flip at least 1 property per month with a net profit of Php100,000). However, I still prefer rental income because in the long run it will help you get out of the rat race, more on this later.

Furthermore, you can have bigger passive income by focusing on properties that command higher rental rates, decreasing expenses through better and more efficient property management and maintenance, increasing the loan payment term to lower the monthly amortizations, etc. You can even go for a rent-to-own agreement where the option to own the property justifies higher monthly payments, resulting in bigger positive cashflow.

Requires property management – Property management is not really a problem if you have 1 to 4 rental properties. Beyond that, property management would probably feel like you you are back in the rat race , another 9 to 5 existence where the only difference is you own your job. This is just my opinion. Again, you can eliminate this by going for a rent-to-own scheme as the tenant-buyer will the one to manage the property as the property owner.

It is harder to find properties that can generate positive cashflow – Like what I mentioned earlier, It is easier to find a property that can be flipped for a profit but has negative cashflow, than a property that has positive cashflow. If you are consistently doing the numbers with the free foreclosed listings that you get from foreclosurephilippines.com, you would know what I am talking about. If you are not doing the numbers, what are you waiting for, Christmas?! Knowledge gained left unused is knowledge wasted!

Rent control – The coverage of the Rent control act of 2009 include all residential units in the National Capital Region and other highly urbanized cities, with a monthly rent for each of which ranges from One peso (Php1.00) to Ten thousand pesos (Php10,000.00) and all residential units in all other areas, the total monthly rent for each of which ranges from One peso (Php1.00) to Five thousand pesos (P5,000.00).

One can avoid this by investing only in properties that command a rent higher than Php10,000, although this could mean VAT becomes applicable. Another option to avoid rent control is to use a rent-to-own agreement, although in effect you are already selling the property, even if you still get positive cashflow for the duration of the rent-to-own agreement.

You get all the expenses related to property ownership – Expenses like maintenance, cost for fire and acts of nature insurance, real property tax, property management, and other expenses that cannot be passed on to your tenants, remain to be your responsibility as the property owner, unless you enter into a rent-to-own agreement. Monthly dues, utilities, and other miscellaneous expenses can be passed on to the tenant.

You might encounter tenants from hell – Tenants from hell are probably the most dreaded thing that would-be landlords are afraid of. Yes, it happens to the best of us, it even happened to Larry Gamboa, which he shared during the recent Think Rich Pinoy Seminar. The only way to get around this is to pre-qualify your would-be tenants or tenant-buyers.

Things to remember about passive income from real estate investing

Each passive income generating property is like a goose that lays golden eggs – If you remember Aesop’s fable “The Goose That Laid the Golden Eggs”, the goose laid a golden egg consistently each and every day. A rental property is just like that as it lays “golden eggs” in the form of passive income every month.

Passive income generating real estate still needs maintenance and some work; you still need to take care of your “goose”

You need to have property management which can be done by you if you have 4 rental properties or less, or you can just outsource it to other competent people who can do it better than you if you already have more than 4 properties. Take note that the 4 properties is just my own estimate. You may even start outsourcing property management with your first rental property, as this will make it truly passive, and avoid those things that go with property management that might turn you off, like fixing toilets at 3am.
If you don’t take care of your property and your tenants, either the golden eggs will become smaller and smaller as expenses begin to pile up because of deferred maintenance that eventually catches up with you, or the eggs will just stop when the goose dies as you lose your tenants or when your property becomes unlivable, whichever comes first.

Don’t sell the goose – If you sell your property that lays “golden eggs”, then you will obviously have no more eggs, just like when the farmer decided to kill the goose to get all the golden eggs inside of it. But unlike the farmer who found no golden eggs inside the goose when he killed it, you might end up with a big golden egg in the form of capital gains if you sold the property, but that would be the last golden egg, and you will have to find another goose. It is always tempting to make a lot of money quickly. Don’t be too greedy!

How to turn earned income to passive income – There are actually ways to convert earned income into passive income. Here are a few of my ideas:

A. Treat real estate investing as a business – The key is to set it up like a business where you are the business owner who works on the business, and not in the business. You need to systematize your real estate business and delegate as much as possible, among a number of things, that would help make a business like this succeed, and this will turn you into a true business owner, not just someone who owns your job.

It would be like setting up your real estate business to function like it was a franchise of McDonald’s or Jollibee, where the least skilled can do most of the work, which lets you, the business owner, work on the business. Some aspects can even be outsourced like internet marketing for example, which can go for as little as USD2.00/hour, right here in the Philippines, as mentioned here by Yaro Starak. A working system used for such a real estate business can be easily replicated and can even be turned into a turnkey operation like a franchise, as described in the book “The E-myth revisited” by Michael Gerber. I believe this is also Larry Gamboa’s goal when he started his Think Rich Pinoy Franchise.

B. Setup a passive “residual” income stream – Another way to turn earned income into passive “residual” income would be to set it up like a multi-level-marketing (MLM) company. For real estate brokerage for example, what if it was setup in such a way that real estate agents do most of the leg work for the licensed real estate broker they are registered with, who in turn earns an override for each sale? Lets say the agent and the broker split the 6% commission(now referred to as professional fee as real estate brokers are now under the PRC) with 4% for the agent and 2% for the broker. Sure, the agent does most of the legwork but they earn an additional 2%, twice what they usually get. You as the broker earn the 2% passive “residual” income. Do you think this idea of mine would work?

Devote time and effort in finding properties that generate cashflow – If you just focus on flipping properties, it would still be like a 9 to 5 existence because you will always have to flip a property to have cash coming in. If you invest for cashflow however, those small income streams in the form of rental income will eventually become as big, if not even bigger, than the income flipping can generate, as the number of rental properties increase.

The only difference is, if you reach your passive income monthly goal, you have a choice of stopping and yet the monthly cashflow still comes in. If you only have earned income, even if through real estate, you won’t really be out of the rat race.

Coming up next: Financial freedom and how it can be achieved through passive income from real estate investing

Now that you have a general idea of what passive income is, along with its advantages and disadvantages, I will next share my thoughts on what financial freedom is from my own perspective, and what it would take to become financially free through real estate investing.

I will also try to answer questions and statements like “Can it really be done?”, “Where do I start?”, and “In reality if it was easy, everyone would be doing it…”

See you next week for the second half about passive income which would be the series finale on the 3 types of income one can get through real estate investing.

To our success and financial freedom!

Jay Castillo

PS. Learn how to make money work for you! Learn from 16 successful entrepreneurs, investors, best-selling business authors, sales superstars, and money experts including Trace Trajano and Eden April Alemania-Dayrit. How? Attend the Money Summit & Wealth Expo, the BIGGEST wealth building and income opportunities super conference and expo in the Philippines, on July 2-3, 2010 in RCBC Plaza, Makati City. Click here for details! I will be attending this and I hope to see you there!

PPS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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Earned income through real estate investing

Jay — Mon, 31 May 2010 06:44:41 +0000

This is the second part of a series on the three types of income one can get through real estate investing. If you missed the first part, please read it before reading this. You can find part one here – How to get portfolio income through real estate investing

Earned income is the type of income that only comes in if you work for it. Sometimes it is also referred to as active income. In real estate, we can get earned income by investing for capital gains, and also through commissions or professional fees by acting as a real estate broker or agent. For beginning real estate investors, earned income is arguably the easiest to earn.

Earned income through capital gains

: Image via Wikipedia

A common way to get earned income through real estate is by investing for capital gains. We can get capital gains through buying and selling properties quickly for a profit, which is more commonly referred to as flipping. Flipping can be further divided into wholesaling or retailing.

Wholesaling

From what I understand, wholesaling is when one ties-up a property under contract, turns around, and sells it to a buyer who is usually another real estate investor for a small but quick profit. The wholesaler basically buys a property below market value and sells it at a higher price but still below market value, leaving enough room for profit for the next buyer. Sometimes it is also possible to just assign the contract.

Retailing

Retailing on the other hand is when you buy a property, renovate or rehabilitate it (hence the term rehabbing), and then sell it for a bigger profit as compared to wholesaling. Although flipping is usually associated with quick deals, retailing is also often described as flipping, even if it obviously takes longer to complete.

Wholesaling and retailing examples

In our previous example on portfolio income, I bought a foreclosed property for Php1Million, renovated it, and sold it for Php1.5 Million. That’s a perfect example of a retail deal.

What if I just tied-up the property by putting an earnest money deposit, and then sold it to another real estate investor by assigning the contract to him for a total contract price of Php1.2Million, leaving him with still enough room for a significant profit if he himself would renovate and sell the property for Php1.5Million afterwards? That’s wholesaling! Your profit of Php200,000 is your earned income.

By the way, if one is investing for capital gains through flipping, one can be greatly affected when market conditions deteriorate and property values go down. One may not be able to sell the property at the desired selling price.

Earned income through commissions

Another way to get earned income through real estate would be through commissions, either as a real estate broker or agent. Take note that I said through real estate, not through real estate investing. In my opinion, when one is after commissions, it is not really investing in real estate but is rather selling time and effort, more on this later.

In the Philippines, the common commission rates for brokers are 3% to 6% while agents usually get 2% to 3%, at least that’s what I often see from other real estate brokers and agents. Remember, I am also a licensed real estate broker.

Advantages of earned income

1. You get quick cash – There is a potential for quick cash because of the quick turnaround time for selling the properties when filliping or acting as a broker. Obviously, there is still a need to actually sell the property and close the deals

2. Requires little capital – When you structure a wholesale deal, one might be able to tie-up or get the property under contract with just a little earnest money which means there is little capital needed. If you act as a broker, there is really no capital needed as you are just selling someone else’s property.

Disadvantages of earned income

1. No sales, no income. Effort driven – If you are unable to consistently (1) find a property to flip or to broker and (2) complete the deal by actually selling it and closing the deal, no income comes in.

2. Need buyers or investors lined up – For flipping to work, you obviously have to have a lot of ready buyers or investors lined up to buy the properties from you.

3. Highest tax rates – If you consistently buy and sell properties and the BIR sees that you are already habitually engaged in the real estate business, your earnings will get taxed at earned income levels, and you pay this through income tax. If you end up at the highest tax bracket, your income will get taxed at a rate of 32%, if I’m not mistaken. Take note however that one can still lower the taxable income through allowable deductions, thereby lessening the payable income tax.

In our example above where the wholesale deal netted a gross profit of Php200,000, one would have to pay income tax amounting to 32% of Php200,000 or Php64,000. If one is also habitually engaged in real estate (you already have at least 6 real estate transactions in the current year), you also have to consider Creditable Withholding Tax (CWT) and VAT if applicable. Yes, you read that right, CWT should be considered instead of Capital Gains Tax (CGT).

If you earn commissions by being a broker or an agent, you also have to pay income tax.

4. Earnings might be inconsistent – Earnings become inconsistent because there will surely be months with no sales or when there are no ideal properties to flip. In case market conditions go bad, one who is investing for capital gains through flipping, one can be greatly affected as market conditions deteriorate and property values go down. One may not be able to sell the property at all.

5. You are actually selling your time, instead of investing in real estate – One drawback is you really have to put in a lot of time and effort into this type of income. I can’t help but say that this sounds like you are back in the rat race.

6. You let go of a property and its fruits – When you flip properties, you let go of the potential cashflow it can generate, along with any appreciation that the property may have as the years go by. How many times have you heard other seasoned investors say that they regret selling a property because of the excellent rental income they could have had up to now, along with the appreciation of the property ? In a way, all the effort in finding a good deal goes to waste.

Is earned income through real estate for you?

I guess it depends on one’s answer to the question “Why are you getting into real estate investing?”

Is it for quick cash? Do you want to get rich quick? Or is it for financial freedom?

Either way, I suppose this is meant to replace the income you would get from a regular 9 to 5 job and right?!

To illustrate, let’s just say your target income is Php100,000 per month. Lets run the numbers and see how we can achieve this through flipping or through commissions.

How many deals would it take to make Php100K per month through flipping?

In my opinion, a wholesale deal worth pursuing should at least make a net profit of 100K so this means you need to complete a deal at least once a month. Again taxes must be considered, the Php100,000 should already be net of all applicable taxes.

If your profit will be taxed at a rate of 32%, then your gross profit should be at least Php100,000/(1-0.32) = Php147,058.82

For retailing, which usually takes 3 months to complete on the average, a decent target would be to earn at least Php300,000 of net profit. This means your gross profit should be equal to Php300,000/ (1-0.32)= Php441,176.47

Do take note that the above should apply when you are already categorized as someone who is habitually engaged in real estate by the BIR.

Again this is on target for the goal of making at least Php100,000 of net income per month.

But there’s a catch. If we apply the 100-10-3-1 rule where for every 100 deals we analyze, we can expect to have 10 worth inspecting, and 3 are worth making offers, to end up buying one, this means we need to have more than enough leads that would lead to 100 deals worthy of being analyzed and we have to do this each and every month, 12 months a year, or else your income won’t come in. And we haven’t even considered marketing which is needed to sell the properties, which is also very labor intensive.

How many deals would it take to make Php100K per month through commissions?

Let’s say you are a licensed broker and are entitled to a 5% commission for each sale of a property worth less than Php10Million. How much worth of properties do you need to sell just to make Php100,000 per month.

Assuming that you will have to pay income tax at the rate of 32%, then the actual commission one needs to earn would be Php100,000/(1-0.32) = Php147,058.82, similar to the example above for flipping. If this amount represents the 5% commission, then the property should be worth Php147,058.82/0.05 = 2,941,176.47. This means I need to sell about Php2,941,176.47 worth of properties per month just to take home Php100,000 of earned income.

Why does it feel like I’m back in the rat race if I focus on earned income generating activities? Is it just me or are you also beginning to feel that getting earned income through real estate is no different from having a job?!

So much work and taxes to pay and income stops when you stop working

If your goal is financial freedom, then earned income in itself might not be able to provide this mainly because of the amount of work to be done, the huge amount of taxes to pay, and the income stops once you stop working actively, unless you find a better way…

My thoughts on earned income

Earned income is okay if it will eventually be used to buy passive income generating assets. Earned income through flipping properties is great for the short term. The long term goal is to use these earnings to eventually buy properties that generate passive income.

I also believe it would be a good source of supplemental income as opportunities arise, where significant and quick profits are hard to ignore. Supplemental in the sense that it can supplement our income while we ultimately build our passive income streams.

Earned income generating activities as explained above like flipping through wholesaling/retailing and earning through commissions are okay if they can be turned into a business where you are the business owner. When I say business owner, I mean the business can thrive even without you. If a business can’t survive without you, then you own a job, not a business, as paraphrased from Michael Gerber’s book “The E-Myth Revisited”.

Let me try to explain these further in the next part of this series.

Coming up next: Passive income – the path to financial freedom

Coming up in the third part of this series, I’m going to tackle how one can build passive income streams through real estate investing, which I believe is the path to financial freedom.

Passive income through real estate investing – the path to financial freedom (Part 1)

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in Twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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How to get portfolio income through real estate investing

Jay — Mon, 24 May 2010 05:09:21 +0000

This is part one of a 3-part series on the types of income one can get through real estate investing. Rather than write another 3000+ word nosebleed article, I’ll break it down into three parts which should be more manageable and easier to digest.

Through this series, I hope to help beginning real estate investors by sharing my thoughts and ideas for each type of income, based mostly on actual experiences as a real estate investor. Part one tackles portfolio income through real estate investing. Here goes…

Obviously, real estate investors get into real estate investing because of the income that real estate investing can generate. But what types of income can one get from real estate investing? What are the advantages/disadvantages for each type of income?

There are basically three types of income that one can get from real estate. These are:

Portfolio income
Earned income
Passive income

Let me first try to explain portfolio income.

What is Portfolio Income

Portfolio income in a nutshell is the income or the gain you get in the form of an increase in equity.

What is equity?

Equity is basically the difference between a property’s current appraised value/market value and the loan principal balance as of a particular point in time.

For example, I bought a foreclosed property for Php1Million by putting down 20% downpayment or Php200,000, with a remaining loan principal balance of 80% or Php800,000. Assuming the property’s current market value at this point in time is really Php1 Million, then my equity can be calculated as follows:

Equity=Php1 Million – Php800,000 = Php200,000

In this example, my equity is equal to my downpayment because I bought the property at market value.

For the example above, there really is still no portfolio income as I still have no gain in equity.

Portfolio Income from properties bought below market value

What if for the same foreclosed property above, which I bought for Php1Million pesos by putting 20% downpayment or Php200,000, with a remaining loan principal balance of 80% or Php800,000, I had it repainted and got it ready for occupancy. I then had it appraised afterwards and the new appraisal is Php1.5 Million. My new equity can be computed as follows:

Equity = Php1.5 Million – Php800,000 = Php700,000

From an original equity of Php200,000, it increased to Php700,000. In effect, I now have a portfolio income of Php500,000 in the form of equity that I have gained.

By the way, sometimes the equity can increase even without the introduction of improvements like painting or fixing up the property. This happens when the property was simply sold below market value because the appraised value or market value used by the seller was outdated.

The problem with portfolio income

There is only one problem with portfolio income. The income is just on paper! One still needs to do something to get the income out. In other words, I still need to turn my portfolio income into cash or realized income. Otherwise, it is just on paper and I cannot make use of it.

I also believe that portfolio income is still just an assumption and can be looked at as a form of speculation until the portfolio income is actually turned into cash.

How to turn portfolio income into cash

In order for one to turn the portfolio income into real cash, one would have to either sell the property at a price equal to the appraised value/market value or have the property refinanced at the new appraised value/market value.

1. Sell the property to get cash

For example, I decided to sell the sample property above and it got sold for Php1.5 Million cash. I would then have to pay off the loan principal balance of Php800,000 with the bank. That would leave me with Php700,000 cash on hand. I have already recouped my downpayment of Php200,000 and made an additional Php500,000 in the process, which was the equity I gained or portfolio income.

Of course one should also consider the taxes(Capital gains tax, etc.) and other closing costs when a property is sold.

By the way, if one just keeps on selling properties, one is really just investing for capital gains. He/she would lose the cashflow the properties would generate, if any.

2. Refinance the property to get some cash out

On the other hand, if I had the property refinanced at the new appraised value/market value, I would be able to get a big chunk of my portfolio income if the new loan is approved.

Let’s say I went to a second bank, applied for a new loan to refinance my existing loan, and they had the property appraised. The new appraised value turned out to be Php1.5 Million as expected and the bank granted me a new loan based on this new appraised value, and they are willing to loan me 80% of the appraised value which is Php1.2 Million. The second bank would then pay off my loan with the first bank, which is Php800,000 and that would leave me with Php400K. This means I pocketed Php400,000 in cash by refinancing the loan.

Sure it was smaller than what I would have gotten if I had just sold the property, but that’s okay for 2 simple reasons:

(1) I didn’t have to sell the property which means I don’t have to pay taxes related to properties getting sold like capital gains tax, documentary stamps tax, etc., and

(2) The property remains to be mine and I get to continue enjoying the cashflow it generates(if any if it is tenanted) and any appreciation in its value, just in case I do decide to sell it down the road.

Of course, with refinancing, the new loan amount will translate to an increase in monthly amortization payments, etc. which should always be considered to determine the cashflow a property generates. At least I have taken out some of the cash which used to be portfolio income and I can use this to buy another income generating property, etc.

My thoughts on portfolio income

From my examples above, you will see that one cannot make use of portfolio income unless one takes steps to get the cash out. It looks good but the income is still just on paper.

However, portfolio income gives a good indication as to the potential of a property in terms of capital gains. It can help one see if you are really following the well known advice from Robert Kiyosaki and his Rich Dad which is

“You should make money when you buy, not when you sell…”

because the portfolio income is basically the money you can potentially make the moment you bought a property at a price below market value.

As stated earlier in this article, until you can turn portfolio income into cash by actually selling the property at a price equal to the market value or refinancing it at an appraised value higher than your purchase price, you are just speculating. Remember, we are supposed to be real estate investors, not speculators.

Since portfolio income is only on paper, having a large portfolio of properties that look good on paper is useless if you can’t get any cash out. Instead of being real assets, they are just liabilities that take money out of your pocket, unless these properties are generating passive income through rental or rent-to-own income.

In hindsight, I also believe that by selling a property, one is converting portfolio income into earned income. Earned income will be tackled in the next part of this series on the types of income one can get through real estate investing.

What do you think?

Coming Up Next: Earned income through real estate investing

Coming up in the next part of this series, I’m going to tackle how one gets earned income through real estate investing, how it can make you feel like you are back in the rat race (this should be interesting), and what can be done about it.

If you want to know more about earned income, head on over to part two of this series – Earned income through real estate investing

To our success and financial freedom!

Jay Castillo

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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Time to outsource my title transfer

Jay — Fri, 14 May 2010 02:57:29 +0000

I have been so busy lately with the title transfer of a foreclosed property that I purchased and I realized that it would be better if I just outsourced the title transfer to someone else. The amount of time that I have already allocated for this could have been put to better use finding more income generating properties, among a number of other activities that are more worthwhile doing, which is why I don’t intend to spend more time with the title transfer.

Don’t get me wrong, handling the title transfer is very important for me and my tenant/buyer, and I also want to learn how this is done, which is why I tried to do this myself. However, with the amount of time and effort needed to complete this, it makes better sense to just let someone else do it for me.

Just yesterday, I spent the whole afternoon following up on some documents I needed and I drove more than a hundred kilometers in the process going back and forth from Makati to Antipolo.

Highest and best use of my time

Outsourcing the title transfer to a title company would free up my time and allow me to use it for its highest and best use. As real estate investors, the highest and best use of our time is to find more deals that would generate passive income and positive cashflow. I should always keep this in mind and focus!

Why do I need the title transferred to me?

I have already paid in full for this particular property of mine and my objective is to transfer the title of the said property from the bank to myself, in the shortest amount of time possible, so that my tenant/buyer can apply for a housing loan for it. You will notice that this is a double closing. This was the only option I had with the bank where I bought the foreclosed property from. Yes, this would mean double taxation but it is okay, I factored-in the taxes I am going to shoulder into my expenses and the numbers still made sense for this deal.

Transferring the title of the property

Just to give you an idea, transferring the title of the property to my name would require the following:

Payment of Creditable withholding Tax – already done by the bank
Payment of Documentary Stamps Tax – already done by me
Payment of Transfer Tax
Filing of Certificate Authorizing Registration or CAR at the BIR
Registration/Transfer of Title
Registration/Transfer of Tax Declaration

Looks easy but in reality, these tasks are very tedious and time consuming but if you are into real estate investing, you will have to do these sooner or later, unless you outsource it. The tasks above will be done for me by the title company I hired, except for those that have already been done. I’ll update you all of the status of the title transfer in a month or two. Wish me luck!

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Like this in Facebook:Foreclosure Philippines facebook page

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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How to get portfolio income through real estate investing

Real Estate Investment Trusts (REITs) – The next big thing in real estate

Jay — Thu, 22 Apr 2010 04:40:08 +0000

A post by Cherry Castillo

I have come across many comments from OFW’s who want to invest in real estate in the Philippines but have no one to rely on to do the legwork in the country – choosing a property, collecting rents, etc. While my husband and his teammates from RYP Realty are starting to help real estate investors, there is still much work involved as well as a significant investment is needed. There are also those who want to invest in real estate but are more conservative or risk-averse, or those who only have a small amount set aside for investment.

For the beginning real estate investor or the OFW investor, one solution is to invest in a Real Estate Investment Trust (REIT). Please continue reading about REITs below…

What is a REIT?

A “Real Estate Investment Trust” or “REIT” is a stock corporation established principally for the purpose of owning income-generating real estate assets. A corporation becomes a REIT and qualified to avail of the incentives and privileges of the REIT Act when its REIT Plan is rendered effective by the Commission and its listing as a REIT is approved by the stock exchange.

REIT Law and Regulations

Republic Act (R.A.) No. 9856 “An Act Providing the Legal Framework for Real Estate Investment Trust and For Other Purposes” lapsed into law on December 17, 2009. It was published in two newspapers of general circulation on January 25, 2010. Thus, its effectivity is on February 9, 2010 or fifteen (15) days from such publication. Please click on this link for a copy of the full text of R.A. No. 9856.

Many investors were excited with the passage of R.A. No. 9856 but everybody had to wait first for its Implementing Rules and Regulations (IRR). Definitely, the release will be very soon as the Securities and Exchange Commission (SEC) released just last Monday, April 19, 2010, the draft (IRR) for comments until April 26, 2010 (a copy of the draft REIT IRR is now available here: Draft REIT Act of 2009 Implementing rules and regulations (IRR) released by the SEC ). A summary of the salient features of the RA 9856 IRR was prepared by Businessworld, in its article entitled “Draft REIT rules issued by regulator” which can be accessed at http://www.bworldonline.com/main/content.php?id=9485.

Philippine REITs

SM Prime Holdings, Inc., the country’s largest mall operator, and property giant Ayala Land, Inc. (ALI) are looking at raising $300 million each through a REIT. [See http://www.smprime.com/smprime/index.php?p=587&type=2&sec=49&aid=5466 and http://www.ayalaland.com.ph/article/ayala_land_to_raise for more information on the plans of SM Prime and ALI.] This early, the country’s real estate giants have already set their sights on the REIT and have engaged financial advisers to guide them with their plans. This is a clear sign that the REIT is bound to be a gold mine.

Why invest in a REIT?

A REIT is entitled to several tax incentives, so much so that the Department of Finance has warned that the government stands to lose billions of pesos due to the passing of the REIT Act and IRR. Of course, as investors, we want to pay the least tax as legally possible. Based on the draft IRR, the following are some of the incentives of REITs:

A REIT shall be subject to regular corporate income tax but not minimum corporate income tax (MCIT);
Any sale or transfer of real property to a REIT, including the sale or transfer of any and all security interest thereto shall be subject to fifty (50%) percent of the applicable DST;
All applicable registration and annotation fees relative or incidental thereto shall be fifty (50%) of the applicable registration and annotation fees;
Any sale, barter, exchange or other disposition of listed investor securities through the Exchange, including cross or block sales with prior approval from the Exchange shall be exempt from DST;
Any initial public and secondary offering of investor securities shall be exempt from the IPO tax imposed under the NIRC;

The gross sales from any disposal of real property or gross receipts from the rental of such real property shall be subject to VAT;
A REIT shall not be considered as a dealer of securities and shall not be subject to VAT on its sale, exchange or transfer of securities forming part of its real estate-related assets.

Also, a REIT shall be required to distribute at least ninety (90%) percent of its distributable income every year so investors get regular dividends. In addition – this is good news for OFWs – overseas Filipino investors are exempt from the dividends tax for seven (7) years from the effectivity of the tax regulations implementing the Act. If a domestic corporation is the REIT investor, the dividends will be exempt from tax.

Aside from dividends of course, you also stand to gain if the shares appreciate. I think that REIT is a marriage of real estate and stocks – two of the best investment vehicles that would produce the most wealth. If you look at the world’s or the country’s wealthiest persons, you will see that many grew their wealth from real estate (think Henry Sy, the Ayala family) or stocks (think Warren Buffet). So, no need to think which one between real estate and stocks is better!

How do we invest in a REIT?

You may invest in a REIT by subscribing to or purchasing shares of stock of the REIT. The investment amount may be affordable to most people, and you can purchase a blue chip REIT in the Philippines like that of Ayala Land, Inc. or SM Prime Holdings, Inc. You may even choose to put your monthly savings in a REIT instead of banks which earn very little interest.

Comments about REIT?

If you have any comments on the draft IRR, please send them to the SEC. On my part, I’m planning to invest my monthly savings in Ayala and SM prime REITs (after I finish paying off my debts to my husband, tsk tsk). I wish to buy REIT stocks on the first day and watch them skyrocket later! *crosses fingers* I also hope to be part of the team advising REITs as I think it’s really the next wave, so to speak. REITs are also all the rage in other countries.

So… I’ll let you know once the IRR is finalized. Till then, let’s chew on the draft and envision the endless possibilities… like a Foreclosure Philippines or RYP Realty REIT right up there with Ayala and SM Prime! That would be awesome! The P300 million minimum capitalization is doable if you break it up into small amounts – just around P100k for each subscriber of Foreclosure Philippines!

Cherry Castillo

Cherry is my wife. She is a certified public accountant (CPA) and lawyer.

—

To our success and financial freedom!

Jay Castillo

Real Estate Investor

Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Click here to contact me via E-mail
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
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PPS.Do you know anyone who is either an investor or a home buyer looking for a property? Please refer them to our Buy a property form to enter their property requirements. If you need to sell a property fast, please use our Sell a property form to enter details of the property you are selling. If it fits our needs, we just might buy it. Lastly, if know anyone who wants to make 10-15% return on their money, refer them through our Investors’ form. Thanks a million!

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The Apprentice Challenge – We need your help!

Jay — Mon, 19 Apr 2010 02:26:35 +0000

If you attended the recently held Think Rich Quick seminar last March 27, 2010, you already know that Trace Trajano has come up with an Apprentice Challenge. My teammates and I are currently competing in that challenge. For those who were not able to attend the seminar and who don’t know Trace yet, he is the best-selling author of “Think Rich Quick” and has a vision of creating 1 million Pinoy millionaires through real estate investing and financial literacy, which I truly believe is possible.

Why we joined the Apprentice Challenge

One of the reasons why we joined the challenge was because we also believe in Trace’s vision of having one million Pinoy millionaires by the year 2020, a vision that he shares with Larry Gamboa, best-selling author of “Think Rich Pinoy“. Don’t you want to be one of those millionaires?

One million Pinoy millionaires by 2020? You might think we guys are crazy!

But wait, I did the numbers and I found out that if I helped at least 4 people become millionaires through real estate investing in 2010, and each of these four also helped at least 4 other people after they become millionaires themselves, and so on and so forth, we would have 1,048,576 Pinoy millionaires by 2019! That’s one year ahead of schedule! We can even achieve this earlier if this was done as a team and if we continue to teach more people each year. Imagine that!

We also want to be mentored by Trace Trajano and his team. Why not learn from one of the best real estate mentors one can ever have, and a Filipino mentor at that?!

Last but not the least, even before the challenge, we already had plans to set up our own real estate company so we might as well start it now, with mentoring and guidance from Trace and the Think Rich Pinoy franchisees, and we also get to do it as a team.

What we’ll get if we win

If we win the Challenge, our team shall become Trace’s Philippine real estate company, and his business partners. Trace’s vision for the real estate company is to earn Php 1 million per month in revenue, through techniques like wholesaling, retailing, and rent-to-own where Trace is an expert. Sure, it won’t happen overnight, but who wouldn’t want a piece of that?!

If our team wins, we also get to help in mentoring the participants of the next Apprentice Challenge of Trace which is to be held right after the next Think Rich Quick Seminar, and that will happen barely six months from now (click here NOW if you want to reserve your seats).

As early as today, we are committed to impart our knowledge and virtually everything we will learn to those who are willing and are committed to learn real estate investing. Being Trace’s partners would really help speed up the learning process not just for us but for everyone else as well. In other words, if we had our way, no one gets left behind!

We will be more than happy to serve others by helping them learn the lessons we have learned, do what we were able to do, achieve what we were able to achieve, and so much more, just like what Trace often mentions where he actually looks forward to the day when his students and apprentices will become even better than him when it comes to real estate investing. Spoken like a true mentor!

But we cannot do this alone

Obviously, to be successful in real estate investing, aside from having an excellent team, you also need to build your network. I’m so thankful I am already part of such a team. The logic here is one person can only achieve a certain level of success in real estate investing, but this can grow exponentially with the right team.

However, even with an excellent team, we still need to build a network that would consist of partners, investors, buyers, sellers, brokers, agents, banks, contractors, appraisers, real estate lawyers, property managers, or just about everyone involved in the real estate industry.

What to expect if we win the Apprentice Challenge

A lot of you may be asking, “So you need our help, what’s in it for us?”. We will obviously learn so much from this challenge and one thing I can assure you all is that we will share as much as we can with just about everyone out there who is willing to learn from us and our mentors.

How do you know that we will do this? Well, I have been doing this ever since I started Foreclosure Philippines (formerly Foreclosed Real Estate Philippines). I believe we should all have an abundance mentality, where we believe that there is more than enough for everyone. I have been doing this for more than a year and I don’t intend to stop anytime soon. I’m really glad that my teammates also share the same belief. You can trust me on this!

We can also earn while we learn together. Why don’t we become partners even beyond the Apprentice Challenge?

Brokers, Realtors, and real estate agents that are such a big help in helping us get connected with sellers and find great deals can also help us sell or lease our properties to buyers and tenants, and possibly earn double commissions from us in the process.

We can partner with fellow real estate investors who either lack time or simply cannot do it yet due to physical constraints (like OFW’s or those with demanding full-time jobs) or maybe those who still lack some of the skills needed to go into active real estate investing. We can help them earn passive income by becoming investors for our deals, or we can do the legwork and take care of the nitty-gritty details either for them or WITH them if they really want to learn. These can include finding buyers and sellers, pre-qualifying them based on a set of criteria, analyzing deals, helping with the legal matters and taxes, assisting in working with banks, appraisers, contractors, or just about any challenge fellow investors may be facing right now or in the future.

Speaking of banks, we can easily help banks dispose their non-performing assets by either buying them or marketing them. We may even be able to help homeowners avoid the foreclosure of their homes which would really be a win-win situation for everyone.

We can also help those who need to sell their properties fast with the lessons we have learned about extreme marketing.

We can even help buyers find the properties they are looking for with the help of our growing network of partners.

In other words, if we win, we shall be in a better position to help others and our success will be everyone’s success!

How are we faring in the Apprentice Challenge?

I’m glad to report that our team is doing very well and is currently the front-runner of the Apprentice Challenge.

For those who are not part of the Challenge, the following are the first three Challenge rounds:

BONUS Round: Help the most number of OFW’s learn about financial literacy. We invited the most number of OFW’s and relatives to attend the OFW mini seminar and got first place.
FIRST CHALLENGE: The challenge was to sell a property in 3 weeks and we won first place because we were able to close the deal in a record-breaking 6 days! Nice!
SECOND CHALLENGE: Find a good deal for a buyer in 2 weeks and earn at least Php100K in profit – this Challenge is still ongoing and we are positive that our efforts will produce the closing sale we need early this week.

Three more challenges to go. More sleepless weeks, more brainstorming and strategic planning sessions, and implementation activities with the team.

Partnering with a Champion team

Do we get tired? Of course we do! Most of us have families, children and even full-time jobs (This excludes me. Remember, I just got out of the rat race recently! DJ is also excluded as he is living a life without a boss), and we need to cope with all of these every day while we are doing the challenge.

But we are willing to put our necks on the line for this worthwhile challenge because we believe in the principles behind everything that we do. The learning and the rewards are priceless. The experiences we get and the people we meet while doing the Apprentice Challenge are more than enough to give us the winning attitude. Even if we don’t emerge as the winning team of the Challenge, we will forever carry with us the heart of a Champion. And that’s the kind of team that is committed to partner with all of you. Nevertheless, we want to win this challenge!

Reality bites for me…

This also explains why I have been so busy these past few weeks and at times I seem to be too exhausted and lack sleep, especially since my family is in the process of moving to our newly rented condo. Don’t get me wrong, I am neither complaining nor am I making excuses. I just seek a little understanding and patience especially from my dear readers who have sent me inquiries through e-mail. I currently have more than a hundred that are left unanswered, but rest assured I am finding time to answer them one by one.

We need your help!

We need partners who can help us find buyers, sellers, and investors. If you know anyone who is either an investor or a home buyer looking for a property, please refer them to our Buy a property form to enter their property requirements. We just might have the property they are looking for. If not, we would be happy to find one for them.

If you are selling a property, please use our Sell a property form to enter details of the property you are selling. If it fits our needs, we just might buy it. If not, we can still help you find a buyer. Either way, you have nothing to lose and everything to gain.

Do you know anyone who wants to make 10-15% return on their money? We need your help in finding them. As I have mentioned briefly above, these may be investors who lack time or the skill to go into active real estate investing but still want to make their money work for them by becoming passive investors. Refer them through this Investors’ form.

We need all the help we can get! Here are my teammates with our mentor Trace Trajano. Each one of us would like to thank you all in advance.

The Rich Young Pinoys or RYP Realty Team, (From left to right) DJ, Earth, Sha, Trace’s Dad, Trace, Jay(that’s me!), Will, Joy, and Ebb

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Click here to contact me via E-mail
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Become a Fan in Facebook:Foreclosure Philippines fan page

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How to turn listings of foreclosed properties into opportunities

Jay — Tue, 30 Mar 2010 17:45:08 +0000

“If only it were this easy in real life!” , a Think Rich Pinoy Seminar attendee exclaimed after buying his fifth property while playing Robert Kiyosaki’s Cashflow 101 game.

I heard him say this as I helped facilitate the Cashflow 101 game at their table during the afternoon session of the Think Rich Pinoy seminar last February 27, 2010.

If you have played Cashflow 101, you would know that finding opportunities is as easy as picking an opportunity card when you land on an opportunity space during your turn. (Haven’t played Cashflow 101 yet? Play for free by clicking here! Learn more about the Cashflow 101 game by reading this article: Top 7 lessons learned from playing Rich Dad’s Cashflow 101 game)

In real life however, how do you find those “opportunities”?

It’s obvious that I get my opportunities from listings of foreclosed properties.

But how does one convert listings of foreclosed properties like this:

Into opportunities like these:

Let us first dissect an opportunity card.

If you will look closely at the opportunity cards above, aside from a brief description of the property, the projected ROI, Cost, Mortgage, Downpayment, and Cash flow are already given.

In real life, the only numbers you will often find on listings of foreclosed properties are the Cost (or the selling price or minimum bid price), Downpayment, Interest Rates, and the maximum loan term. The mortgage amount is usually the Cost less the Downpayment. You will have to come up with estimates or calculate for the projected ROI, and Cash flow. Without these numbers, you will have no objective way of telling if a foreclosed property has a good potential to be an income generating asset.

Return On Investment or ROI

According to the Cashflow 101 game rules, The ROI or Return On Investment on the opportunity cards can be calculated as follows

monthly cashflow x 12 months

ROI = ——————————————————

Downpayment

In real life, we can also get the ROI using the same formula above but we must first determine the projected monthly cashflow.

Determining Cash flow

An overly simplified way of determining the monthly cash flow would be to subtract the monthly amortizations from the monthly rental income. We therefore need to determine these two numbers first.

How to determine the monthly rentals

You can get the monthly rental income by asking around the same location of the target property and get rental rates for comparable or very similar properties. This would even be easier for condo units as you just have to check for the rental rates for units in the same building. This can also be done online by checking advertisements of rental properties in the same building or area.

For more information on how to check for rental rates, read this article: How I estimate market values of foreclosed properties

How to determine monthly amortizations

Monthly amortizations can be easily calculated using amortization calculators since we know the loan amount, interest rate, and loan term. You can use our very own amortization calculator which can be found here.

Putting it all together

Let’s use the following foreclosed property from the sample listing above and see if we can turn it into a real “opportunity”.

Let us also use the following assumptions*:

Minimum downpayment required is 20%
Balance is payable up to 15 years
Interest rate is 12% interest p.a.

*Remember that these are just assumptions and are for illustrative purposes only. One should get the actual values by calling the bank.

Step 1: Determine rental rates

For the location of sample property above, I saw an ad for a smaller sized condo in the same building with an advertised rent at Php25,000 per month. I’m not entirely sure if the rental rate on the ad I saw was not overpriced but it will have to do for now. It would really be a big help if you focused in a particular area and became very familiar with rental rates, etc.

Step 2: Determine the monthly amortization

Using our mortgage calculator, the monthly amortization for a property with a minimum bid price of Php2,208,800.00 with a downpayment of 20% or Php441,760.00, and with the balance payable in 15 years at 12% interest p.a would be Php21,207.44 per month, as seen below.

Step 3: Determine the monthly cash flow

The monthly cash flow would be equal to the monthly rent less the monthly amortization.

Monthly Cash flow = Php25,000 – Php21,207.44

= Php3,792.56/month

Step 4: Determine the ROI

Let us use the formula above for ROI:

Monthly Cashflow x 12 months

ROI = ——————————————————-

Downpayment

Php3,792.56/month x 12 months

= ——————————————————-

Php441,760.00

= 0.10302 or 10.302%

An investment “opportunity” for real

Based on the resulting numbers above, our opportunity card for our sample foreclosed property should look something like this:

You found a bank foreclosed condominium unit in Makati!

10.30% ROI, may sell for ????

Cost: Php2,208,800 Mortgage: Php1,767,040

Downpayment: 20% Cash flow: Php3,792.56

Points to remember

It really is possible to get opportunities in real life, just like the opportunity cards in Cashflow 101. All you need is just a little know-how in “doing the numbers“.

The “opportunity” we got above is an overly simplified example as we also need to consider property management, maintenance reserves, real property taxes, and other expenses when calculating for cashflow.

As to whether the “opportunity” we got above is a good deal or not still depends on each individual real estate investor’s preference or target ROI. Is 10% a good enough ROI for you?

The ROI can still drastically change when some numbers change and this can turn a mediocre deal into a great deal or it can also transform a good deal into a bad one.

What if the exit strategy was changed to rent-to-own instead of rental and the monthly rent-to-own income was Php28,000/month? Or what if the monthly dues plus other incidental expenses turned out to be Php5,000 per month and may thus result in a negative cash flow? I suggest you run the numbers and check the results.

Remember, the numbers don’t lie.

So the next time you come across a listing of foreclosed properties, just do the numbers! The more consistent you are with doing the numbers, the greater the chances that you may just find that “opportunity” you have been looking for!

Happy investing!

To our financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Click here to contact me via E-mail
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Become a Fan in Facebook:Foreclosure Philippines fan page

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines.

PPS. Income-generating condo unit in QC available at a GREAT DISCOUNT!!! We offer a ready to move in condo unit located strategically in QC that will save you thousands of pesos! Act NOW as this opportunity is available until April 10, 2010 only. Click here NOW for more details!

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Pacquiao versus Clottey post fight lessons learned: How not to win by trying not to lose!

Jay — Tue, 16 Mar 2010 08:15:25 +0000

The recently concluded fight between our very own Manny Pacquiao and Ghana’s Joshua Clottey was a perfect example of how not to win a fight by focusing too much on trying not to lose. What does this got to do with real estate investing? A lot! Read more below and find out.

Before anything else, I would like to make it clear that I am not a boxing expert, I just want to highlight some lessons learned from the fight which are applicable to real estate investing.

Wasted opportunity

Clottey’s tactic of trying to survive and focusing too much on defending himself simply cannot win fights. Of course every boxer needs to have a defensive strategy but a good offensive strategy should not be left out. Freddie roach said it best when he said “If I was his trainer, I would have told him to engage a lot more because that’s the only way to win fights”. In my opinion, Clottey wasted his once in a lifetime opportunity.

Play to win!

In real estate investing, the same principles apply. To succeed in real estate investing, one needs to play to win and we do this by being on the offensive and “engage a lot more”. Just like how Manny threw so many punches (about 30 punches per minute… wow!) in his fight versus Clottey, we as real estate investors need to get out there and analyze hundreds of properties so that we can actually find more potentially good deals. The more potentially good deals we find, the greater the chance we will get to submit offers or participate in auctions for those good deals. The more offers we submit or the more bids we make, the greater the chance that we will actually end up closing that particular deal and win a worthy investment.

Of course it goes without saying that we still need to have a defensive strategy that will help ensure we don’t lose money on any of our real estate deals. We still need to do your due diligence and do the numbers. But unless we actually go out there and take action to pursue those deals, waiting for things to become perfect and the “planets to align” so to speak, opportunities in the form of good real estate deals will just pass us by.

I believe the easiest way to lose is by not trying to win!

Here is a video of the Pacquiao vs Clottey post fight interview. Enjoy!

Happy investing!

To our financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Follow me in twitter:http://twitter.com/jay_castillo
Become a Fan in Facebook:Foreclosure Philippines fan page
Text by Jay Castillo. Copyright © 2010 All rights reserved.

PS. If you are an OFW who is lucky enough to be here in Manila, Philippines on March 28, 2010, reserve your seats NOW for the free Secrets of Wealth seminar for OFW’s by calling Joy: +63927-5707599, or Will: +63917-8580064/(632) 9645512. Remember, this is a free seminar so seats will definitely run out fast, and there are only 100 seats available. Act now and learn the secrets of wealth from Trace Trajano! Click here for more information about the free Secrets of Wealth seminar for OFW’s.

PPS. If you have a friend or loved one who is an OFW or who knows an OFW, please do them a favor and invite them to the free Secrets of Wealth seminar for OFW’s by Trace Trajano. The first 5 who refer at least 3 OFW’s that confirm and attend the seminar will get a free 1-hour consultation from me where you can ask me anything about investing in foreclosed properties (more about this in a later post). Just leave a comment below if you are interested or have any questions. Thanks!

Related posts:

There is a better way to make a living!

Jay — Mon, 08 Mar 2010 03:24:04 +0000

Have you ever endured being away from your family just to make a living? Have you ever found yourself asking if all the money you make in exchange for the freedom to be with your loved ones was worth it? Do you find yourself asking if there was a better way to make a living?

I used to be an employee and although I was based here in the Philippines, I remember that I still found myself asking the very same questions above, even though I still get to come home to my family everyday. What more if you were an Overseas Filipino Worker (OFW) and had to live in a foreign land away from your family and loved ones just to make a living, with the belief that this is for their own good?

I had a taste of how OFW’s feel because in a way I became one when I was tasked to be part of a team that deployed an ERP system in Moscow, Russia. During the first few days it was okay but as the days became weeks, feelings of doubt, homesickness, and anguish began to creep in. I stayed there for just about 2 months and I never went abroad for such assignments again, swearing I would never leave the Philippines just to make a living.

I would rather stay here in the Philippines and actually be with my loved ones. I guess deep inside I knew there is a better way.

There is a better way: The story of Bobet

If you have been reading the blog of Trace Trajano, best selling author of Think Rich Quick, you will recall the story of Bobet, just one of the countless Filipino nurses working abroad. Bobet worked overseas, was making good money, but really did not know much about managing his money.

While he was yet to receive his first paycheck, Bobet used borrowed money to buy doodads like a new cellphone. It was obvious that if Bobet did not change his ways in managing money, he would be doomed to working for money for the rest of his life.

Fortunately, Trace’s and Bobet’s paths crossed in the United States and Trace was able to explain to Bobet the secrets of wealth. Bobet was able to learn about passive income, the kind of income that comes in even if you didn’t work for it anymore as it is more like money working for you.

After Trace taught Bobet the concept of passive income, Bobet started a lending company, and then an internet café business in the Philippines. In a year, he became a millionaire. Soon afterwards, he opened his fifth internet café branch at SM in Bulacan. His lending business has also expanded and already operates both in the Philippines in the United States.

Yes, there is a better way! Trace mentored Bobet about the secrets of wealth and a year later he has become a millionaire. He no longer needs to work as a nurse in the U.S. He no longer misses his wife and kids. He can now kiss and hug them everyday. He has achieved in 1 year what most OFWs will never achieve in their lifetimes, unless they also learn the secrets of wealth.

Do you want to become the next Bobet?

If you want to learn about the secrets of wealth from Trace and become the next Bobet, then you have to grab this once in a lifetime chance to see Trace Trajano in person as he shares the same secrets he taught Bobet in a free mini-seminar on March 28, 2010 at the Garden Plaza Hotel, the same venue for the Think Rich Quick seminar that happens the day before.

You read that right, this is a FREE mini-seminar for all OFW’s. Why OFW’s? It’s obvious that Trace has a soft spot for OFW’s as his father was also an OFW but due to lack of financial literacy, he ended up broke and with nothing to show for thirty years of hard work and sacrifice. Trace does not want any OFW to encounter what his Dad encountered and he wants to help through this free mini-seminar.

The choice is yours to make

If you are an OFW, you just got to attend this seminar and learn:

The secrets of Wealth
How to generate passive income
How to generate active income in real estate

There are limited slots so register early. Early registrants also get the following surprise gifts

First 10 to register – “Think Rich Quick” book by Trace Trajano
Next 12 to register – Play Robert Kiyosaki’s Cashflow 101 boardgame for free!
Plus a chance to win one of 3 tickets to Enchanted kingdom

What more can you ask for?! Register now for this free mini seminar by calling the following:

Joy: +63927-5707599
Will: +63917-8580064 or (632) 9645512

Important things to remember

Don’t forget to bring your spouse and your kids (becoming a millionaire is a team effort and your family has to be ONE team). The only thing you need to pay for is for your own LUNCH (at the hotel).

Here are a few words from Trace Trajano:

“Don’t forget to bring your passport (to prove you’re an OFW) and my book “Think Rich Quick” (I will even autograph it for you! You can buy it at a National Bookstore). Your passport and the book will serve as your ticket for this seminar.” – Trace Trajano

Who is Trace Trajano?

Trace Trajano is a real estate investor, author of the best selling book “Think Rich – Quick” and a wealth coach to students around the world. His vision is to create directly or indirectly 1 Million Pinoy Millionaires worldwide by the year 2020. Trace himself is an OFW living in the Mason Ohio with his wife and 2 kids. You can learn more about Trace by clicking on the play button for the slides below.

To our financial freedom!

Jay Castillo

PS. If you are an OFW who is lucky enough to be here in Manila, Philippines on March 28, 2010, REGISTER NOW and reserve your seat. Contact Joy or Will through the contact numbers above for seat reservation. Remember, this is a free seminar so seats will definitely run out fast, and there are only 100 seats available. Act now and learn the secrets of wealth!

PPS. If you have a friend or loved one who is an OFW or who knows an OFW, please do them a favor and forward this to them. This just might be help they are looking for!

Related posts:

Before you go to a bank foreclosed auction…

Jay — Thu, 25 Feb 2010 03:22:34 +0000

Read Eden Alemania’s Story. It’s a short story of what you can expect to feel when you win your FIRST property in an auction. Eden will be present in the Think Rich Pinoy Seminar on Feb. 27, 2010.

Grab a seat in the Think Rich Pinoy Seminar

SOLD to the lady with paddle 16

My heart was pounding, my hands were trembling. I didn’t know whether to shout for joy or to pound my head with the auctioneer’s gavel.

You see, I just won the property in Quezon City in my very first auction and based on the rules, I have to give the downpayment in a week. YES! IN A WEEK!

In my mind, “Eden, are you crazy? You don’t have the money. How will you get the money to fund this deal. What are you getting into?”

That was when Larry Gamboa’s words in the Think Rich Pinoy Seminar I recently attended resounded in my head arguing with my worrisome thoughts

“Find the deal, and the money will follow.”

Grab a seat in the Think Rich Pinoy Seminar

True enough, when I marketed the deal for investors in my own circle of network, there were people interested who funded the downpayment and as they say, the rest is history (read my blog for the actual deal)

It has been exactly 2 years ago since this experience changed my life entirely.

And it all started with a strong desire to walk out of the rat race.

– Eden April Alemania-Dayrit

You’ll get to meet Eden at the Think Rich Pinoy Seminar on Feb. 27, 2010.

She’s a nice girl who takes time to answer questions and give tips. If you have actual deals already, you may even get her as a partner or investor. You never know.

To meet Eden, grab a seat in the Think Rich Pinoy Seminar NOW!

PS. For your sanity, do not do what Eden did. At least secure the funds first with the investor before joining the auction. If you like to meet and talk to Eden, grab a seat in the Think Rich Pinoy Seminar

PPS. You can also pay through Bank Deposit: BPI Account Name: ESTI-TRP(Think Rich Pinoy); Account# 8291-0083-57(Checking). Please contact the event organizers first through 0926-999-9999 or thinkrichpinoyseminar@gmail.com for seat availability. Once you have confirmed there are still slots available and you have paid thru bank deposit, just email thinkrichpinoyseminar@gmail.com with the scanned deposit slip with following data: Name, Address, Email Address, Cell # and Landline # AFTER you have paid via bank deposit to confirm your attendance.

Related posts:

How to keep the passion burning for real estate investing

Jay — Tue, 16 Feb 2010 03:16:43 +0000

When friends and people I meet learn about what I do and see my passion for real estate investing, I am often asked how I was able to get into it and sustain the passion for it. Just how did I end up having this burning desire to get out of the rat race through real estate investing? Read on to find out.

Let us first define what passion is. Wikipedia defines passion as “…an emotion applied to a very strong feeling about a person or thing. Passion is an intense emotion compelling feeling, enthusiasm, or desire for something. The term is also often applied to a lively or eager interest in or admiration for a proposal, cause, or activity or love.”

Robert Kiyosaki also often mentions in his books that passion is a combination of love and anger.

I agree with both definitions and I use these emotions to sustain my burning desire to have a better life. Let me try to explain further by citing the following examples.

What I love that fuels my passion for real estate investing…

These compel me to just keep moving forward.

I love having more time to live life to the fullest and not just for earning a living.
I love having time to be with my loved ones and friends and this is not confined to brief moments away from my job.
I love my family and I love having more quality time with them.
I love having more quality time with my loving wife.
I love being able to actually be with my son and be there for him as he grows up.
I love being able to help more people and make a difference in this world.

This list goes on and on…

What causes my anger which also feeds my burning desire…

Having to miss all of the above just because you have no choice because you are stuck in a 9 to 5 job. In reality, a 7AM to 9PM existence is more accurate and this usually gets worse as one climbs up the corporate ladder.
Having to be an employee until you are in your sixties and beyond. Yes, even if you become the president of a company, unless you own that company, you are just an employee working for someone else. That’s the bottom line.
Realizing that life passes you by as you do your best to earn a living while working yourself to death.
The empty feeling after a job well done where you realize that all the sacrifices, time, effort, frustrations, rewards(or lack of it) are not really worth all the trouble. The keyword here is “job”. Don’t get me wrong, I know there are people out there who really love their jobs and also get a fair and just reward for doing their jobs well; I congratulate all of you who are lucky to find such jobs. I don’t know, maybe in my field (I’m an Information Technology professional), things develop at such a fast pace that the system is unable to cope and somethings got to give, somewhere, at some point, and usually it’s our health(due to stress) or our relationships(due to lack of time freedom), etc.

Again, the list goes on and on…

The key is to focus your emotions

Instead of letting the emotions get the best of me which I believe is a total waste of time, I would rather focus them on productive thoughts and actions. I let my emotions of love and anger fuel my passion and dictate the choices I make in each precious day that God has given me.

It really is just a matter of having the proper mindset where I combine these emotions to sustain my burning desire to have a better life and guide me with each task that I shall accomplish which shall in turn lead to my objective which is to get out of the rat race through real estate investing.

In each new day I face, I have already programmed myself with this mindset so that I will continue doing what needs to be done to have a better life… and that my friend is how I keep my passion burning for real estate investing!

“Stay hungry and foolish”

Lastly, I want to share Steve Jobs’ Stanford commencement speech which he gave way back in 2005 which I believe hits the nail on the head.

Let me quote a portion below which has also fueled my passion:

“… for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something “

How about you? What fuels your passion for real estate investing?

—

To our financial freedom!

PS. If you are a new visitor, please start here to learn more about foreclosure investing in the Philippines.

PPS. If you feel that anyone else you know might benefit from this post, please do share this to them and don’t forget to subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. If your inbox is getting full, you may subscribe through my RSS Feed instead.

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An invitation to Bo Sanchez’ How To Become Truly Rich Seminar and Why we need to fail!

Jay — Tue, 26 Jan 2010 03:41:37 +0000

As mentioned in my post: Manage your finances to get ready for your first real estate deal, I was able to conquer feelings of frustration and continue on my quest for financial freedom when I attended Bo Sanchez’ How to become Truly Rich Seminar last July 21, 2007. How time flies, that was more than 2 years ago!

If you haven’t attended what I refer to as a “life changing” seminar, this is your chance! This is the same seminar that has helped me get ready for abundance by establishing a solid foundation when it comes to managing finances and correct myths about money that were pulling me down. Please continue reading to learn more.

Attending seminars is one thing but taking action even if there is a chance for failure is a totally different thing. As usual, Bo makes this very easy to understand through the article in his newsletter below.

Why You Need To Fail

Join Me At My How To Be TrulyRich Seminar.

February 6, 2010, 8:30am to 12:00noon

Mandaluyong, Metro Manila

Last week, I had lunch with a friend I’ve known for the past thirteen years.

Let’s call him Patrick Passive.

Thirteen years ago, Patrick and I were in the same financial boat. We had very little money. We lived by the day. We had zero financial wisdom.

Today, thirteen years later, we’re poles apart.

I’ve moved on. I now have 16 income streams. I’m an entrepreneur, with interest in many small businesses. I bought foreclosed properties and rent out a few condos. I also invest in the Stock Market—both here and in the US—and other Mutual Funds.

In the meantime, Patrick has remained stuck. Over lunch, he told me that nothing has changed since the last time we met thirteen years ago. He said, “I’m still in debt, Bo. My income is still barely enough to get by. I still don’t have financial freedom.”

I felt the heaviness in his heart.

Patrick asked me, “Bo, what did you do that I didn’t do?”

“Just one thing, Pat. I failed and you didn’t.”

“Huh?” He looked at me like I was talking Martian.

I explained. “These past thirteen years, I’ve attended many seminars that were a total waste of time. I started 8 businesses where I lost a ton of money. I got into investments and got burned big time. I’ve succeeded more because I failed more.”

Patrick nodded. “In other words, you acted and I didn’t.”

I also discovered other obstacles in his thinking. I sensed that Patrick was comfortable with his poverty—because that was what he was familiar with. He was trapped in his fear. He saw himself as a poor person. He even felt that God wanted him to be poor.

I also met old habits that were sabotaging his prosperity. How he saved for his future (yes, he was saving, but in the wrong way).

How he paid his debts. How he spent his money.

When we parted, I felt a greater passion to give my seminar again, How To Be Truly Rich Seminar. I want more people to gain financial freedom. I want more people to learn how to prosper.

Join me on February 6, 2010.

For more information, click on at the link below.

Tell me more about the How To Be Truly Rich Seminar

May your dreams come true,

Bo Sanchez

PS. After you join the How To Be Truly Rich Seminar, you can then join my powerful two-day Truly Rich Financial Coaching Program on February 19 and 20, 2010. My mentors and I will help you create multiple income streams. But I’ll tell you more about that later. First, get into my How To Be Truly Rich Seminar. Change your financial life. Click on the link below:

Tell me more about the How To Be Truly Rich Seminar

PS2. For those who don’t live in Manila, you can just get my seminar online. Join my Truly Rich Club and get the seminar in audio format along with a truckload of materials to help you create financial abundance. For more information, log on at www.TrulyRichClub.com now!

*If you didn’t notice it, Bo mentioned that he also bought foreclosed properties in his newsletter above. This is why I also consider Bo to be one of my mentors when it comes to investing in foreclosed properties and real estate investing.

Some thoughts on money

Lastly I would like to share some thoughts about money.

Money is just a tool and it is up to us to use it for good or for bad.
There is nothing wrong with striving to become rich if the ultimate purpose is to use it to help others.
We are just stewards and all the blessings we receive were only entrusted to us. It is up to us to make good use of it during our stay.

Imagine what more we can do to make a difference in this world if we have the capability and resources to do so!

Happy learning!

—

To our financial freedom!

PS. If you are a new visitor, please start here to learn more about foreclosure investing in the Philippines.

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Reader Q and A #1: How can I apply for a loan and thus finance my first deal?

Jay — Tue, 19 Jan 2010 04:57:02 +0000

I recently answered an e-mailed question from a reader of Foreclosure Philippines who was also an attendee of the Think Rich Pinoy seminar held last November 21, 2009, where I was a guest speaker. Actually, our featured reader sent her e-mail last November 25, 2009, a few days after the Think Rich Pinoy seminar, but I was only able to answer her e-mail a few days ago… me bad!

Anyway, I noticed that I often receive very similar questions not only from other readers but also from people I meet who find out that I invest in foreclosed properties which is why I believe that it would be a good idea to feature it here, please continue reading below.

Questions and Actions

I intend to share my answers and some actionable items, as inspired by the book “The 4-Hour Work Week” by Tim Ferris, one of the books that inspired me to take a leap of faith (more about this in a future post). Tim’s book has a number of “Questions and Actions” at the end of each chapter.

Beginning with this post, I intend to feature questions from readers from time to time as a way of helping real estate investors in the Philippines.

Of course I will not disclose our reader’s name and e-mail address to protect her privacy and her questions are as follows:

“Hi Jay. I am currently looking for properties and try real estate. (I was an attendee from the Nov. 21, 2009 TRP seminar.) However, most banks have limits like income if you are an employee you must have 25k + salary. I only have 12K. Or must have a steady business. Or must be 2 years or more in a company. How can I start early with all these limitations? How can I apply for a loan and thus finance my first deal? Thank you very much…” – Miss MJ

Thank you for the excellent question Miss MJ. Let me try to answer your questions to the best of my knowledge and also share some of my thoughts as follows.

Your capacity to pay

Assuming that Php12,000 is your take home pay, let us first try to determine what is the maximum loan amount you can get based on your capacity to pay. I believe most banks and lending institutions look at a person’s net disposable income or NDI to determine a persons capacity to pay and the corresponding maximum housing loan they can get.

The rule of thumb is the monthly amortization should be no higher than 40% of the NDI. In your case, If you have no existing obligations like loans, etc, and assuming Php12,000 is already your take home pay after taxes and monthly contributions like SSS, etc., then 40% of your monthly salary of Php12, 000/mo would be the maximum monthly amortization that can be allowed for you, which is Php4,800.

Foreclosed properties you can afford

Using the payment terms from Unionbank as an example, Php4,800 would be more than enough as the monthly amortization for a foreclosed property priced at Php350,000 with a downpayment of 10% or 35K, and the balance financed with an interest of 15% per annum for 15 years. With these terms, the resulting monthly amortization would be Php4,408.69, well within your maximum of Php4,800/month.

Obviously, there are other banks and lending institutions that offer lower interest rates and longer terms so you can definitely still get your first deal through bank financing. That is assuming you can come up with the minimum downpayment required.

How can I come up with the downpayment?

Yes, you will still need to save for the downpayment. I suggest that you start managing your money NOW! I believe learning how to manage money is a prerequisite to starting to invest in foreclosed properties. I would like to reiterate my belief that anyone who wants to get out of the rat race really needs to learn how to manage money and finances and this remains true whether you intend to invest in foreclosed properties or other investments.

Moving forward, let’s assume you manage to consistently save 15% of your salary each month or Php1,800, you will be able to save enough for the downpayment in less than 20 months. If you think 20 months is long, remember the requirement you mentioned that you must be working for a company 2 years or more in order for you to be able to qualify for a housing loan?

Don’t bite off more than you can chew!

You might be asking why you should limit yourself to foreclosed properties worth Php350,000 and below? Well, I believe there is wisdom in starting small so that in case you do make mistakes (we all do!), you also make small mistakes and failures from which you can easily recover.

You still learn from the entire process but you start gaining knowledge and experience that would help you to get ready to take on bigger deals and bigger success.

What about Other People’s Money or OPM?

I know the subject of OPM is always in the mind in beginning real estate investors but I believe that if you are just starting with your real estate investing career, you should not even consider using other people’s money unless you are already able to prove your worth in managing your own.

How the heck would you be able to make good use of other people’s money if you cannot even manage your own?!

Your own money might be small but it should be good enough for one to start. As mentioned in Luke 16:10(NIV), “Whoever can be trusted with very little can also be trusted with much…”. Makes sense right?!

Investing in foreclosed properties is a numbers game

Obviously, it may take some time for a lot of people to save enough money to start investing. I know I did as it took me 3 years before I was able to buy my first property. But that should never stop anyone from consistently analyzing properties to find deals worth pursuing.

You do not need any money to analyze deals as you are investing your time. So go ahead, start analyzing deals NOW, even if you still have no money to invest. Save money while consistently analyzing properties and make the most of your precious time!

The more foreclosed properties you analyze, the sooner you will begin to see those deals worth pursuing. I’ve read a number of books about real estate investing that mention that on the average, you may have to analyze a hundred properties to end up buying one and I for one believe that these numbers are accurate. The key is to keep on analyzing as much foreclosed properties as you can.

Don’t listen to the little voice in your head that may say “These numbers just won’t work… foreclosed properties are too expensive… I will never find one that is worth investing in… ” after looking at just a few listings or just a few properties. Remember, that’s the voice of the loser inside of you.

Just keep it up and you will eventually begin to see those great deals that you were unable to see before. When that time comes, I have a feeling you will already have the money to invest.

Happy investing!

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To our financial freedom!

PS. If you are a new visitor, please start here to learn more about foreclosure investing in the Philippines.

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