Foreclosure Investing Philippines » foreclosed property investing

What you need to know about BIR Zonal values

Jay Castillo — Wed, 23 Mar 2011 02:10:14 +0000

So you have announced to the world that you are now a real estate investor, and suddenly, everyone has a property they want to show to you. This often happens to me, and can also happen to you as follows.

A friends calls and says “Hey Jay, I found a foreclosed property for sale and I know it’s a bargain!”

“Really?! That’s great, may I ask why it’s a bargain?” I answered with great enthusiasm, expecting something like an ugly multi-door property in a nice neighborhood, at a ridiculously low price.

My friend quickly answers “Its selling price is way below its zonal value, it’s just a fraction of it!”

I cringe and I begin to explain in a nice way that zonal values and market values are worlds apart…

This may shock a lot of you…

BIR Zonal Values are purely for taxation purposes only! They are not an accurate basis in determining a property’s market value.

Paraphrasing what Engineer Enrico Cruz said to our class during one of his lectures; “From this point onwards, we should forget about zonal values when appraising a property!”.

Simply put, If you’ve found a property with a selling price that is below the BIR zonal value for that property’s location, it does not follow that the property is a bargain.

On the other hand, if a property’s selling price is higher than the BIR Zonal value for that property’s location, it also does not follow that it is overpriced.

Sometimes, you may find a property with a market value that is equal to its zonal value, but this is very rare.

Remember this if you are a real estate investor

Here’s what real estate investors should always remember: We should use the real market value in determining if a property is a bargain or not. One fairly accurate way of determining market values is by finding comparable properties or comps. To learn more about this, refer to the article on How I estimate the Market Values of foreclosed properties.

Maybe in the future, if the BIR is able to adjust the zonal values to match current market values (yes, the BIR is revising zonal values now), and if they can do this fast enough (yes, property market values change with time), then maybe we can use it to determine the market value of a property.

The question is, will the revised zonal values be the same as current market values?

Should we totally forget about BIR zonal values?

Of course not! BIR zonal values are still important as you will use them when you compute for the real estate taxes that you either as a buyer or a seller will pay, when you buy or sell a property, foreclosed or otherwise, or even as you own a property in the form of real property taxes.

This is part of due diligence and aims to mitigate just one of the risks of real estate investing, paying too much for a property by not considering expenses like real estate taxes.

In parting, let me just say it one last time. Do not use BIR zonal values to determine a property’s market value as they are not the same!

To our financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
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What you need to know about BIR Zonal values is a post from: Foreclosure Investing Philippines

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To all OFW’s: Need To Earn Passive Income And Come Back Home For Good? Try Foreclosed Property Investing!

Jay Castillo — Wed, 10 Dec 2008 05:04:00 +0000

“Are you always sending BALIK BAYAN boxes every month or every payday, year after year?
Are you working your head off having 2-3 jobs to just earn enough for you and be able to send money home?

What if you can make your money work for you! Instead of getting 2-3 jobs, you teach how your relatives can earn money from rental properties? Wouldn’t this lighten the load.

Instead of BALIK BAYAN BOXES, why not a HOUSE and LOT, or an APARTMENT which you can rent out. It’s safe since your family can not sell it without your permission, not like a car, computer or any expensive appliances like TV.

You will be surprised to know that the amount you spend to fill up a BALIK BAYAN BOX can actually buy you a rental property that can earn you additional money.“

The quote above is the description for the now defunct “OFW earn Passive Income via Real Estate Rental Properties” Meetup group, which I was a member of.

Passive Income or doodads?

Although the Meetup group is gone for now, the message is still relevant. We often hear stories of OFW’s who send money and gifts(in balikbayan boxes) to their loved ones with the hope of coming back for good one day after amassing enough savings and/or so called “assets” like home theater systems, computers, PSP’s or other expensive gadgets/appliances, which are actually doodads since they don’t generate income and tend to depreciate quickly. After awhile they do come home and enjoy life but they then realize that their savings are already dwindling.

What’s worse is I also hear of stories of OFW’s who come home only to find out that all the money and gifts they have sent home are gone without a trace. With a heavy heart, they have no choice but to leave again to work abroad. The “rat-race” cycle continues. Of course there are those who are already enlightened and actually buy real “assets” that provide passive income but judging from the number of friends and friends of my friends who I know who are still working abroad, I would say these are quite few.

It’s really possible to be back home for good

Wouldn’t it be nice if there was a way for OFW’s to come back home for good, where they have a choice to stay with their loved ones or still go abroad in case they wanted to but not out of necessity?

In my opinion, buying foreclosed real estate fits the bill as it can provide the means to buy income generating properties that are real assets as described by Robert Kiyosaki in his book Rich Dad Poor Dad. If you haven’t read this book, I highly suggest you read it NOW!

Little downpayment needed for foreclosed property investing

Foreclosed property investing requires very little down payment which is comparable to the cost of the contents of balikbayan boxes that are sent home to loved ones. Imagine that, for the cost of a balik bayan box, one could have already acquired an investment property that can generate passive income for many years.

Passive Income and Positive Cashflow

If chosen correctly and managed well, foreclosed properties that are then rented out could generate enough income immediately that would cover the monthly amortizations along with an excess cashflow that would increase over time as the loan gets paid, and rents increase. This positive cashflow that would be coming in without depending on the amount of work put into it is passive income.

My Vision

Are you beginning to see my point? My vision would be to have OFW’s building enough passive income through rental properties which would then allow them to come back home and stay home for good, if they wanted to. While it’s true that OFW’s earn big money working abroad, I believe it would be better if they had the means to stay home and have the time to enjoy a meaningful life with family and loved ones here in the Philippines!

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