I spotted this tarpaulin along Sucat Road across Duty Free Philippines and I thought Paranaque residents might want to check this out. The tarp says a public hearing on “Adopting the revised schedule of values of real property in the City of Paranaque” will be conducted from September 12-15, 2011.

I’m not really sure if this has anything to do with the Bureau of Internal Revenue (BIR). If you will recall, the BIR started to update real property zonal values nationwide more than a year ago. I do believe this will have an effect on Paranaque zonal values and real property taxes.

Anyway, I have posted below the contents of the Notice of Public Hearing which can be seen in the picture above.

Notice of Public Hearing

What: Public hearing by the Committee on Ways and Means on Draft Ordinance No. 031 entitled:

“Adopting the revised schedule of values of real property in the city of Paranaque”

Where: San Antonio Gym

When:

September 12, 2011

• 9AM Barangay San Antonio/Barangay Sun Valley
• 2PM Barangay Moonwalk/barangay Marcelo Green

September 13, 2011

• 9AM barangay Don Bosco/Barangay Merville/Barangay San Martin De Porres
• 2PM Barangay BF

September 14, 2011

• 9AM Barangay Baclaran/Barangay Santo Nino
• 2PM Barangay San Dionisio

September 15, 2011

• 9AM Barangay Tambo, Barangay Don Galo, Barangay La Huerta, Barangay Vitalez
• 2PM Barangay San Isidro

Why bother attending the public hearing?

If you have properties in Paranaque, you might want to check this out to see how the revised schedule of real property values might affect you. This is your chance to participate and let your voice be heard.

For example, if the real property values are raised, this would lead to a corresponding increase in real property taxes.

I just hope the revised property values would be close to actual market values of the properties in Paranaque.

If you are able to attend any of these hearings, please do leave a comment below to share what may have transpired. Thanks!

~~~

To our success and financial freedom!

Jay Castillo

Real Estate Investor
PRC Real Estate Broker Registration No. 3194
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter: http://twitter.com/jay_castillo
Find us in Facebook: Foreclosure Investing Philippines Facebook Page

Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.

Full disclosure: Nothing to disclose.

P.S. A friend of mine will be having an OPEN HOUSE of their Rent-to-own Townhouse in Kamuning, Quezon City this coming Saturday, Sept 17, 2011, from 10am to 2pm. A special discount awaits the buyer who closes the deal during the open house. You may also bring your friends or other people you want to refer. Broker/agents are very welcome. Please call/txt 09157603090/5059259 to register your name/friends/broker/prospect buyers to avail the special discount. Click here to view property details, more pictures, and video.

Paranaque adopting revised schedules of real property values? is a post from: Foreclosure Investing Philippines

Incoming search terms:

This is a guest post by Angie Espiritu of Filben Realty

The term “real estate bubble” sends shivers to many spines because of the fairly recent sub-prime bubble that happened in the United States. Stripping the word of all its technicalities, a real estate bubble is simply about spiraling prices and disappearing buyers, leaving some people holding a bunch of flaming balls with nobody to pass them on to. The flaming balls burn their cash.

To see if this will happen to the Philippines, let’s dissect the bubble.

Photo: marcusrg via flickr

The flaming ball allegory

Going back to the simple description above, there would have been no flaming ball if everyone was paying for real estate in cash. Like, one lifts Php4 Million from his pocket and buys a house from a convenience store, then sells that house a year later to a second owner who dips his fingers into his pocket, lifts Php6 million cash, and pays the first owner.

When a third owner buys it in cash for Php10 million and can’t sell it for any price higher than Php8 million, he’s the only one having a problem. The rest of the world goes on. The third guy can choose to hold the property until prices swing back up again. No big deal.

The flaming ball allegory happens when someone borrows money to acquire the property. Say, the third buyer above acquires the property for Php10 million through financing. He pays the bank Php100,000 monthly. Next thing he knows, prices have gone down and his property is now worth only Php7 million in the market. A friend who has bought a similar property at that price is paying the bank only Php70,000 a month.

The bubble bursts…

The third owner either keeps the flaming ball and waits it out til prices get better, or he cuts his losses by selling the house for Php7 million immediately and repays the bank for the balance some other way. This is when we say that the bubble bursts…

Or … he stops paying the bank and lets the bank take the overpriced property back! Imagine a million borrowers doing that. Cash flow stops and financing companies close down…or rescued. This is when we say there is a crisis.

Will that kind of thing happen in the Philippines?

Not likely. Here’s why.

1. We’ve been there. Banks won’t allow it the second time around.

In 1997, the scenario described happened. Banks learned from the lesson. The government learned a lesson too.

To rescue the banks, Congress passed The Special Purpose Vehicle (SPV) Act of 2002 or Republic Act 9182 (RA 9182 has been amended by RA 9343) to help banks get rid of non-performing assets and clean up their balance sheets. That helped substantially.

In turn, the banks made sure that they checked home mortgage loan applications more closely. They don’t want non-performing assets as much as restaurant kitchens hate rats, get the picture?

So, they made sure that a buyer made more than enough money to pay for the amortization of the loan, or they disapprove the application. Processes were (and are) strict, and this prudence paid off big time in succeeding crises that rocked the world.

2. Most of our buyers are end users of the properties, not speculators.

The likelihood that people buy a property with the intention of reselling it at a higher price is nil. Therefore the bubble is likewise nil.

(Jay Castillo: I believe true real estate investors are different from speculators as real estate investors buy properties that are below market value. Speculators on the other hand buy at market value and speculate property appreciation)

Most people in the market today buy a property for keeps. That’s a good thing. Even those who are paying Php15,000 or more a month have no qualms about renting their places out for less than that. “With money from the rent, I only need to raise Php ____ to pay the amortization,” you’d hear them say. That’s not the mindset of people who can cause a bubble.

In short, Philippine banks are effectively weeding out speculators with not enough capital to pay for the loans, while those who are able to secure the loans are not likely to resell them. Why would they? It’s their home!

Where can the bubble come from in this case? If you find it, tell me.

Have a great day!

Angelina B. Espiritu

Angie Espiritu is the owner of Filben Realty – Your partner for optimal real estate investments. She is a PRC registered licensed real estate broker and an MBA graduate of De La Salle University.

Will there be a Real Estate Bubble in the Philippines? is a post from: Foreclosure Investing Philippines

Incoming search terms:

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
Follow me in Twitter: http://twitter.com/jay_castillo
Find us in Facebook: Foreclosure Investing Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.

PS. 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. Mailbox getting full? Subscribe through my RSS Feed instead!

What you need to know about BIR Zonal values is a post from: Foreclosure Investing Philippines

Incoming search terms:

Real estate investing is a numbers game and one such number that a real estate investor who is into flipping properties needs to determine before buying a property is the ARV. ARV can stand for Approximate Retail Value, After Rehab Value, but the common term often used is After Repair Value.

Isn’t ARV the same as Market Value?

I believe market value is technically the same as ARV except that ARV refers to a future market value, which is the market value of a property after it has been repaired and is already in Ready For Occupancy(RFO) condition to be exact.

Market Value on the other hand is the value of a property at its present condition or the “as-is” value. In my opinion, this “as-is” market value is synonymous to a property’s appraised value.

The obvious difference between the “as-is” market value and ARV is the repair cost plus the added gain in value due to the repairs, if any.

When to use ARV

I find ARV to be quite useful when trying to determine how much one can increase the market value of a property by simply repairing it, provided a property’s value has declined due to deterioration, lack of maintenance, etc. This is very applicable to foreclosed properties where a lot are in dire need of repair, which is good because this helps lower their selling price, well, most of the time.

By repairing a property, an investor can bring back a property’s value to it’s full market value, which is the ARV. However, the repair cost and the selling price of a property needs to be considered to determine if a profit can really be made because if the selling price or the repair cost or both are too high, this can translate to zero profit.

How to compute for ARV

Based on my definition above that ARV is just the future market value of a property after it has been repaired, then one can simply use the same approaches I talked about in my post “How I estimate market values of foreclosed properties”, excluding the calculation for any depreciation of a property, more on this later.

As mentioned in my article on market values, we can use the market approach and the cost approach. Income approach is more appropriate to multi-unit properties.

Market approach

1. Look for “comparable” houses that got recently sold in the immediate vicinity of the foreclosed property you are evaluating. They should be very similar in terms of lot area, floor area, number of bedrooms, number of toilets and bath, capacity of garage or parking slots, age of property, etc.

2. Ask around the vicinity, or you can get the telephone numbers of all the “for sale” signs that you see and for sure you will find a number of a broker that specializes in that vicinity who will know the current going rates in that area. The same tactic can and should be done online.

Added on September 16, 2010. If you only find sellers and their properties remain unsold, just ask them what is their absolute lowest selling price if you paid in cash, that would be your ARV. If you find sellers that say their properties are already sold, then ask for how much they got sold. If they tell the true selling price, this would be the most accurate ARV, provided the property is really very similar to the one you are evaluating.

For example, you were able to get the price of 3 comparable properties that got sold within the vicinity of the foreclosed property you’re evaluating and their average price is Php2.5M, then Php2.5M is your ARV.

If you found sellers and the absolute lowest price you got from them was Php2.6M, then that would be your ARV, although it’s possible they have overpriced it a bit which would help explain if the property has been unsold for months.

What if the closest comparable property is still quite different, for example, the lot area  is bigger by more than  10% or the comparable property has a corner lot, etc.?

In these cases, you will have to compensate. In the example above, you can subtract the cost for the discrepancy in lot area(just get the going rates for lots per square meter and multiply by the difference), and you can also subtract the premium for corner lots (a broker that specializes in that area can help you with this).

Cost approach

1. Determine the average price per square meter of lots in the same vicinity of the foreclosed property you are evaluating.

2. Multiply the price per square meter you got above with the lot size of the property you are evaluating. The result is the approximate cost of the lot. For example, if a lot near a foreclosed property in Marikina has a price of Php5,000 per square meter, then the approximate cost of the lot of a foreclosed property that has a size of 300sqm would be about Php1,500,000 (300sqm x 5,000pesos/sqm)

3. The cost of the improvement is equal to the usable floor area multiplied by the current going rates for construction of improvements per square meter of floor area. I currently use a conservative construction cost of Php15,000 per sqm of floor area. For example, if a house has a usable floor area of 100sqm, then the cost for the improvement is about Php1,500,000 (100sqm x 15,000p/sqm)

4. Add the cost of the lot and the improvement to get the total cost. Following our examples above, the total cost shall be Php3,000,000 (Php1,500,000 + Php1,5000,000).

Using the cost approach, the ARV is Php3,000.000. We no longer needed to compute for any depreciation cost as we are looking for the cost for the house and lot in brand new condition, not its “as-is” condition.

The cost approach obviously has it’s limitations. You can only apply this approach to house and lots. I believe it wold not be an accurate tool for condos, buildings, etc.

Which ARV should I use?

A prudent real estate investor should of course use the lower ARV which is based on the market approach in this example. At this point, if you can see that the ARV is smaller then the selling price of the foreclosed property and the estimated repair costs combined, then that property is not a good deal.

A promising property should have enough room for profit even if you consider holding costs.

What next?

The ARV is just one of the numbers one has to get when “doing the numbers” and due diligence. You will need the ARV to calculate for your Maximum Allowable Offer or MAO, which is basically the maximum price you can pay for a property that will still allow you to achieve you target profit. MAO will be discussed next.

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

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

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!

If you found this post useful and you are Facebook connected, please click on the “Like” button below. Thank you!

How to compute for the ARV of foreclosed properties is a post from: Foreclosure Investing Philippines

Incoming search terms:

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

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

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

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!

Earned income through real estate investing is a post from: Foreclosure Investing Philippines

Incoming search terms:

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

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

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

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!

How to get portfolio income through real estate investing is a post from: Foreclosure Investing Philippines

Incoming search terms:

A post by Cherry Castillo

In my earlier post, I noted that the BIR has been releasing issuances showing that they are keen on collecting more revenues from real property transactions by updating real property values. I also noted from the BIR’s Memorandum of Agreement with CREBA Land that the BIR’s target date for the updating of real property values is June 30, 2010. The BIR’s latest issuance, Revenue Memorandum Order (RMO) No. 41-2010 dated April 23, 2010 confirms this deadline date.

Basically, there will be three committees who will be working on the updating real property values, namely: the Executive Committee on Real Property Valuation (ECRPV), the Technical Committee on Real Property Valuation (TCRPV), and the Sub-Technical Committee on Real Property Valuation (STCRPV). The nitty-gritty work will be done by the STCRPV, which shall be composed of the following: the Revenue District Officer (RDO) as Chairman, the Assistant Revenue District Officer (ARDO) as Vice-Chairman, and the (1) Municipal/ Assistant City Assessor, (2) Local Development Officer (Office of the Mayor), and (3) Two (2) licensed and competent appraisers from a reputable association/organization of appraisers as members.

To learn more about the procedure for determining the updated zonal values, click here to get a copy of RMO No. 41-2010.

Annex A is the format of the invitation letter that the BIR will send to members of the committees(click here to download a copy of Annex A).

Annex B contains the Classification Codes which can be seen below (click here to download a copy of Annex B).

Annex C is the format of the Schedule of Recommended Zonal Values(click here to download a copy of Annex C).

ANNEX  “B”

DEFINITION OF TERMS

RESIDENTIAL	LAND/CONDOMINIUM PRINCIPALLY DEVOTED TO HABITATION.
COMMERCIAL	LAND/BUILDING DEVOTED PRINCIPALLY TO COMMMERCIAL PURPOSES AND GENERALLY FOR THE OBJECT OF PROFIT.
INDUSTRIAL	DEVOTED PRINCIPALLY TO INDUSTRY AS CAPITAL.
AGRICULTURAL	DEVOTED PRINCIPALLY TO RAISING OF CROP SUCH AS RICE, CORN, SUGARCANE, TOBACCO, ETC. OR TO PASTURING, INLAND FISHING, SALT-MAKING, AND OTHER AGRICULTURAL USES INCLUDING TIMBERLAND AND FOREST LAND.
GENERAL PURPOSE	RAWLAND, UNDEVELOPED AND UNDERDEVELOPED AREA WHICH HAS POTENTIAL FOR DEVELOPMENT INTO RESIDENTIAL, COMMERCIAL, INDUSTRIAL, INSTITUTIONAL, ETC. MUST NOT BE LESS THAN 5,000 SQUARE METERS.
VICINITY	MEANS AN AREA, LOCALITY, NEIGHBORHOOD OR DISTRICT ABOUT, NEAR, ADJACENT PROXIMATE OR CONTIGUOUS TO A STREET BEING LOCATED.

CLASSIFICATION LEGEND:

CODE	CLASSIFICATION		CODE	CLASSIFICATION
RR	Residential Regular		GL	Government Land
CR	Commercial Regular		GP	General  Purposes
RC	Residential Condominium		I	Industrial
CC	Commercial Condominium		X	Institutional
CL	Cemetery Lot		APD	Area for Priority Development
A	Agricultural		PS	Parking Slot
	AGRICULTURAL LANDS
A1	Riceland Irrigated		A26	Bamboo Land
A2	Riceland Unirrigated		A27	Peanut Land
A3	Upland		A28	Soy beans Land
A4	Coco Land		A29	Grape vineyard
A5	Citrus Land		A30	Pepper Land
A6	Fishpond		A31	Mineral Land
A7	Swamp		A32	Non Metallic mineral Land
A8	Nipa Land		A33	Coal Deposit
A9	Cotton Land		A34	African Oil Land
A10	Cogon		A35	Rubber Land
A11	Abaca Land		A36	Forest Land/Timber Land
A12	Orchard		A37	Horticultural Land
A13	Pineapple Land		A38	Salt Beds
A14	Banana Land		A39	Seashore
A15	Pasture Land		A40	Resort
A16	Corn Land		A41	Sandy/Stony
A17	Sugar Land		A42	Prawn pond
A18	Tobacco Land		A43	Sorghum
A19	Cacao		A44	Ipil-ipil
A20	Lanzones		A45	Kangkong
A21	Durian		A46	Zarate
A22	Rambutan		A47	Vegetable Land
A23	Mango		A48	Coffee
A24	Mangrove		A49	Mountainous / Hilly Areas
A25	Camote/Cassava		A50	Other Agricultural Lands

Salient portions

For me, the salient portions are the following:

“The determination of recommended market values shall be based on:

1. Acceptable methods of appraisal of real properties;
2. Records of most recent actual sales/transfers/exchanges of properties in documents filed in public offices, e.g., BIR, Land Registration Commission, etc.;
3. Private records of banks, realtors, and appraisers in the locality;
4. Records of provincial/city/municipal assessors;; and
5. Other procedures and methods of appraisal.”

“The schedule of recommended zonal values shall contain the following:

a. The three recommended values from the BIR, the private appraisers, and the provincial/city/municipal assessor; and

b. The final recommended value which is the average of the two (2) highest recommended values.

In case there is no available private appraiser in the locality and/or in case of failure of any or all of the members of the STCRPV to attend the meeting called for and/or submit their respective recommended market values as requested within ten (10) calendar days from the date of the concluding meeting of the STCRPV, the Chairman of the STCRPV shall:

i.             Execute an “Affidavit” to that effect;

ii.             Proceed with the establishment/revision of the schedule of zonal values based on the average of the two (2) highest recommended values or best data/values available; and

iii.             Submit to the TCRPV the Schedule of Zonal Values together with copies of letter of invitation with waiver duly received by the members (Annex “A”), Affidavit, Maps, Minutes of Meeting, and all other documents relative to the establishment/revision of zonal values.”

The guidelines look fair and the procedure is quite clear-cut. I really think that the schedule is too tight though. It’s really the BIR and the municipal/city assessors who will be working hard on this as my understanding is that the private appraisers can decline the BIR’s invitation for them to join the STCRPV. On another note, it’s good that there will be public hearings, the schedules of which should be disseminated in newspapers and notices to the public.

Cherry Castillo

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

Jay’s thoughts

So what does this mean to us not just as investors but also as property owners, why should we be concerned?

We should be concerned because if the revised zonal values exceed the market values of our properties, this would mean a corresponding increase in the applicable real estate taxes that we pay.

As mentioned in my article: How I estimate the market values of foreclosed properties, market value is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller  in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.” In other words, a buyer and a seller who have no compelling reason or special circumstances to buy and sell, respectively, agree on this price.

Market value is not the same as the technical term “fair market value” (FMV) which is used for taxation purposes, and is based on the zonal value of a property.

Public hearings announced in Makati

In the condo where we are renting right now for example, we saw a “Notice of public hearing” (please see picture on the left, sorry some portions might be unreadable as my camera phone stinks… hehe) and the hearing will be conducted by the BIR.

Unit owners of this particular condo in Makati were invited to attend the said hearing to be able to have the opportunity to present issues and the same be addressed accordingly. I believe  helping ensure that the zonal values/fair market values be really “fair” is one such issue. Let us all help and do our part given the same opportunity.

We would really appreciate your thoughts on this. 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

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

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!

BIR to fast track the revision of the schedule of zonal values of real properties nationwide is a post from: Foreclosure Investing Philippines

Incoming search terms:

I remember a lot of comments from readers and also from people I meet in person who tell me that they are just looking for a place to live and are not really looking for a real estate investment. My default answer is “Why not treat your first home as an investment?”

In reality, once you buy a property, you become a real estate investor. Buying a home is often considered to be the biggest investment one can make so it’s best to treat it as a real investment — one which will give you reasonable returns if you do decide to turn it into a rental property or if you sell it further down the road.

What are reasonable returns?

Normally, when a person buys a house which he intends to live in, he does not consider how much rent he would earn if he decides to rent the property out, and whether the possible rental income would be more than his monthly amortization. It is not uncommon for a homeowner who moves up the corporate ladder or improves his situation to move to a better home but keep his first home for sentimental reasons.

Thus, if in the future, the homeowner decides to move to another house and converts his first house into a rental property, the rentals are often not enough to cover the monthly amortizations, thereby producing a negative cashflow situation. Had the homeowner considered his first house as a real investment, he could have dedicated more time to finding a property that would fetch better rental rates which could cover the monthly amortizations, thus giving the owner a nice positive cashflow.

More often than not, factors that may affect market values and appreciation are not given too much attention by a home buyer as the primary goal is just to have a place to live in. When the time comes to sell the property, it is very likely that there is little or no room for significant profits. At times, the homeowner may even have to sell at a loss. This situation could have been avoided had the home owner considered buying a property that was way below market value*.

*-”Market Value” is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

Buying a property below market value would be in alignment with what Robert Kiyosaki often says which is “You should make money when you buy, not when you sell”. Money is made in the form of equity* at the time the property is bought and the profit is realized when the property is sold. Robert Kiyosaki is the bestselling author of Rich Dad Poor Dad.

*- Equity is the difference between a property’s current appraised value or market value and the loan principal balance

The opportunity is there so don’t waste it

Everyone at one point or another will really have to buy his or her own home so why not make the most out of the opportunity? If done well, one could gain passive income in the form of positive cashflow, or a significant profit, or both. At the very least, the education one can gain from treating his first home as a real estate investment is priceless.

It is virtually risk-free

Since initially the goal of the home buyer is to have a place to live in, he would not really be concerned with holding costs associated with properties that take time to lease or sell. He/she lives in the place anyway so this makes it virtually risk-free in my opinion. In fact, I apply the same strategy to all of the deals that I have done this year as my last fallback would be to live in the property just in case I am unable to sell or rent it quickly.

The challenge in deciding to live in one’s investment property

If one decides to live in his/her own investment property, chances are one will have the tendency to  fall in love with the property and over-improve it. I guess that’s the only risk that one should manage. Falling in love with a property can cloud one’s judgment and introduce costly improvements that one might no longer be able to recover.

If your first home is good investment, it can lead to more investment properties

If one buys his first home as an investment and not just as a place of residence, it can help ensure that more real estate investments would follow or at least it won’t prevent the homebuyer from buying more investment properties. Believe me when I say that buying a home that costs too much and is considered to be a liability can really hinder one’s ability to build enough capital to buy the next investment property. This is based on first-hand experience.

Ready to buy your first home? I wish you successful investing!

—–

To our financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Social Network: http://foreclosurephilippines.ning.com
Mobile: +639178843882
E-mail: ph.investor [at] gmail [dot] com

Text by Jay Castillo. Copyright © 2009 All rights reserved.

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

P.P.S – 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 instead to my RSS Feed.

Why not treat your first home as a real estate investment? is a post from: Foreclosure Investing Philippines

Incoming search terms:

According to Wikipedia, International Valuation Standards define market value as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.” In other words, a buyer and a seller who have no compelling reason or special circumstances to buy and sell, respectively, agree on this price. Market value is not the same as the technical term “fair market value” (FMV) which is used for taxation purposes, and is based on the zonal value of a property.

Why do we need it?

As Robert Kiyosaki said in his book Rich Dad Poor Dad, “You should make money when you buy, not when you sell”. I have touched on this subject in my post about the Top 5 Things To Consider When Buying Foreclosures. I mentioned there that in essence, you make money when you buy a property at a price below market value, because if you sell the property on the same day you bought it, you have a potential gross profit equal to the difference between your purchase price and the market value. There is thus no need to wait for the property to appreciate before you will earn any money. The key therefore is to know how to make a fairly accurate estimate of a property’s market value, so that you can evaluate if you can really make money from that property.

Property valuation principles

Most real estate books out there would say that there are three basic approaches for property valuation, namely:

1. Cost approach -  establish an estimate of the current total cost to acquire or develop a property, less depreciation;
2. Market approach – the price of comparable properties that have very similar specifications at the same area or vicinity are used as the basis for property valuation; and
3. Income approach – assumes that the value of a property is equal to the net benefits that the property will generate for its owner over its remaining economic life.

In this article, rather than expound on the valuation principles above, I will focus on the practical applications of the two principles that I actually use which are the cost approach and the market approach. As a real estate investor who focuses primarily on residential foreclosed properties, I find the cost approach and the market approach as easy to use and most appropriate. I would like to share how I do these below.

Cost Approach

For the cost approach, I try to determine the approximate cost of the land of the property I am evaluating and the estimated cost for the construction of the improvement using the same floor area. Then I deduct the depreciation to get the depreciated value of the property. I do this as follows:

1. I determine the average going rate of land in the same vicinity of the property I am evaluating. The nearer, the better. If I can get prices for land on the same street, much better.
2. Using the price per square meter of the going rate of land, I multiply this with the lot size. The result is the approximate cost of the lot. For example, if a lot near a foreclosed property in a certain village in Marikina City I’m evaluating costs Php5,000 per sqm, then the approximate cost of the lot of a foreclosed property I’m evaluating that has a size of 150sqm would be about Php750,000 (150sqm x 5,000pesos/sqm)
3. To determine the cost of the improvement, I multiply the floor area with the current going rates for construction of improvements per sqm of floor area. Currently, I am using a conservative construction cost of Php15,000 per sqm of floor area. For example, if a house has a floor area of 55sqm, then the cost for the improvement is about Php825,000 (55sqm x 15,000p/sqm)
4. I then add the cost of the lot and the improvement to get the total cost. Following our examples above, the total cost shall be Php1,575,000 (Php750,000pesos + Php825,000).
5. Next, I compute for the depreciation of the property. Take note that the depreciation I am talking about is not the depreciation used for accounting purposes, but rather depreciation in terms of deterioration, obsolescence, or any factor that may contribute to a deficiency of the property as compared to a brand new property. A good example would be the loss in value caused by a property’s deterioration due to age, wear-and-tear, etc. and the cost to have this fixed to bring it back to a “ready for occupancy” (RFO) or “brand new” or”good as new” condition. Going back to our example, let’s say the property has deteriorated a bit as it is already 7 years old and if repair estimates to make the property good as new and ready for occupancy is Php150,000, then I can use Php150,000 as depreciation.
6. I then subtract the depreciation from the total cost of the lot and improvement to get the depreciated cost of the property. Using our example, it will be Php1,575,000 – Php150,000 = Php1,425,000.

Therefore, the estimated current market value of our example property above, using the cost approach, would be Php1,425,000. I can now compare this to the selling price of the foreclosed property.

What if the foreclosed property in our example above was being sold for Php1.6M, would it be a property worth buying?

Not really! First of all, its selling price is above the market value I have determined by Php175,000 (Php1.6 – Php1,425,000). Secondly, why would I buy a foreclosed property at Php1.6M when I can buy a same sized lot and have a new house constructed for only Php1,575,000?! Of course there are other things to consider like time to construct, etc., but for me this serves as a good basis for comparison. If you ask me, I would only consider buying a property if the selling price was about 40% below its market value.

By the way, in my opinion, the “After Repair Value”(ARV) should at least be equal to Php1,575,000 or the cost we have arrived at in step 3 above.

Market Approach

For the market approach, I would have to look for houses for sale in the immediate vicinity of the foreclosed property I am evaluating that are “comparable” or very similar in terms of lot area, floor area, number of bedrooms, number of toilets and bath, capacity of garage or parking slots, etc., and get their selling prices.

Of course it may be hard to find properties with exactly the same characteristics so I would have to settle for what is the nearest comparable property. Take note that the advertised selling prices are just the sellers’ asking price or “wish price” and may not necessarily reflect an accurate picture of the property’s market value.

If I can find a comparable property that has just been recently sold, then that would be an even more accurate estimate of the current market value. But where do I look for these comparable properties? I can go around the vicinity, or look for properties online at the following websites: bahay.ph, sulit.com.ph, olx.com, craigslist.com, buyandsellph.com, etc.

As I am not interested on their “wish price”, I would have to call them up and ask a question like “If I were to pay in cash and close the deal in less than 1 month, what would be the lowest price you would be willing to accept?”. Their answer to this question, which is like the seller’s last price, would be the price I can use as a basis for comparison.

Let’s say I was able to get the last prices of 3 comparable properties in the vicinity of the foreclosed property I’m evaluating and their average price is Php1.5M, and again, using the example in the cost approach, the foreclosed property is being sold at Php1.6M. Obviously, the property is not a bargain as it is not being sold below market value.

How about rentals?

Determining current rental rates for a particular area is a lot simpler and pretty straight forward. I often hear stories from other real estate investors that all you have to do is go to the nearest sari-sari (convenience) store, buy a bottle of softdrinks and some snacks, then while consuming these, engage the tindera (seller) with some small talk and ask if there are any houses or apartments for rent in the area. To get more details and ensure you are getting relevant data, you also need to ask questions such as:

Where are these houses for rent?

How much are the rental rates?

Is it easy to find vacant units in the area?

If a vacant unit is available, how long would it remain vacant?

And o on and so forth…

This approach actually works and is very easy to do, provided you are willing to get out of your comfort zones and go out there on the streets.

Using bandit signs

Another tactic which I heard from another real estate investor, which is quite unorthodox in my opinion, would help determine the demand for rental units at the rental rates you have determined above. This calls for putting up bandit signs in the same area that says “Apartment for rent PhpX,XXX per month” or “House for rent PhpX,XXX per month” that includes your number and then you  just have to wait for interested callers or texters.

You can then gauge if there really is a demand for a rental property at the same area at that rental rate. You would then have to tell the callers that the property will not be ready until after a few weeks depending on certain factors (use your creativity to explain this). You can even say that the property already has a tenant but if they want, you can contact them if a unit becomes available and you ask again at what rental rates are they willing to be your tenant. It’s like doing a market research for rentals.

I have never actually done this yet but I certainly would like to try it someday.

Is there an easier way?

If I’m feeling lazy or if I’m too busy due to work, which is often, is there an easier way to do these? Well, one option that comes to mind would be for me to just the avail of the services of a reputable real estate appraiser. The problem here is I really can’t hire an appraiser each time I am looking at a prospect property as the going rate for appraisers is from P3,000-P5,000 per property to be appraised and I’m not willing to spend this amount on properties which I’m not yet sure of.

Another option would be to just rely on my broker. This is where having a broker comes in handy, provided they have already sold a number of properties in the same area or vicinity. They are in a good position to give a fairly accurate estimate of the market values of properties in their areas of specialization. It would also help a lot if your broker also invests in real estate and knows that you are looking for properties that are below market value.

What next?

Using the information gathered from the approaches described above, one can have an objective means of determining if a foreclosed property is being sold below market value. In my case, If do find a foreclosed property that appears to be sold at a price below market value, I still have to determine if I really am going to make enough profit, or if I am going to make any profit at all, after all expenses like repairs, taxes, broker’s commissions, etc. are considered.

I also have to check if the property will make a decent positive cashflow if I do decide to have it rented out, or if I decide to sell it through a rent-to-own scheme. These will have to be discussed in a separate article.

Take note that I learned the above methods partly from my review classes for the November 2007 Real Estate Brokers’ Licensure Exam under Engineer Enrico Cruz of the Urban Institute of Real Estate, and partly from actual experience. I hope this helps those who are new to real estate investing.

How about you, how do you determine the market value of a foreclosed property? Please share it here through the comments section below and lets compare notes. Thanks!

Happy investing!

To our financial freedom!

Jay Castillo
Real Estate Investor
REBL#: 20056
Blog: www.foreclosurephilippines.com

Text by Jay Castillo. Copyright © 2009 All rights reserved.

How I estimate market values of foreclosed properties is a post from: Foreclosure Investing Philippines

Incoming search terms: