I remember the article of Bro. Bo Sanchez telling about 'Bias for Action'. After reading the "Think Rich, Pinoy" book by Larry Gamboa, I was compelled to search the internet about foreclosed properties. I tried to look at the websites of banks, PAG-IBIG and other websites posting ads of foreclosed properties. I kept thinking about foreclosed properties and keep talking about it that my coworkers became wary of me. ^_^.
So I selected some and went out to find the actual location of the properties. I want to experience the feeling of property hunting and to familiarize myself with seeing stinky houses, dilapidated structures, and ugly looking houses. I realized that to be a real estate investor in foreclosed properties, one must have the eye that sees beyond what is obvious.
I borrowed notes on the top five things to consider before buying a foreclosed property from foreclosurephilippines , mixph.com and "Think Rich, Pinoy". This will help amateurs like me to avoid mistakes in the future by doing their due diligence. Here they are.
Top Five Things to Consider Before Buying a Foreclosed Property
1. Location. Location. Location
I learned this from the "Think Rich, Pinoy" book. One thing that must be on top of the list is the location of the property because this dictates its selling price or the rental fee should you decide to rent it out or have it in a rent-to-own scheme.
When considering a property, one should check if the location is in a high growth area or will soon be in a high growth area (for example, an SM mall will be built in the area in a few years) as this indicates a high potential for appreciation. Other factors like accessibility, security, and availability of utilities like electricity and water are standard things to look for.
It is also essential that the location is close to convenience stores, schools, churches, hospitals, malls, grocery stores, wet and dry markets, or even business districts. Locations that are in flood-prone areas, areas with high incidence of crime, squatters, piggeries, slaughter houses, garbage dumps, and the like will fetch lower selling prices and rental rates.
2. Land Title and other legal documents
Make sure that the property is free from liens or other obligations that could pose risk on you.
The easiest way to check if the title to the property you are buying is authentic is by getting a "Certified True Copy" of the title from the Register of Deeds. This office is usually located at the city or municipal hall where the property is located. Ask the seller of the property for a photocopy of the title - you will need the title number and the name of the owner to get a certified true copy of the title from the Register of Deeds.
Verify that the title is clean. This means that the property is not mortgaged (no liens & encumbrances on the property). You can see that at the back of the title with the heading “Encumbrances”. This page must be empty if you are told that the title is “clean”. But sometimes the space for the technical description of the property on the front page of the title is not enough and the description of the property is continued on the “Encumbrances” page, this is of course all right.
3. Actual Site Inspection
This is very important before deciding to buy a foreclosed property or to bid for a foreclosed property in a public auction. This is actually visiting the property so that you can assess the extent of repairs that have to be made, the actual location, the neighborhood and other things that have to be checked in order to avoid regrets later on.
All foreclosed properties for sale are on an "as is where is" basis. "As is where is" means that if the buyer agrees to buy the property, he will inherit whatever good or bad things, physical and/or legal conditions, that come with the property. This is the reason why a buyer should inspect the property beforehand in order to have time for negotiations or to not pursue should the buyer thinks it's not a good deal.
4. Financing
Aside from a favorable selling price, availability of financing that offers very flexible payment terms and low mortgage rates are also a big consideration.
Compare that to another property that may have a higher selling price but with very flexible terms that could include a low down payment, low interest rates that are fixed for at least five years (always remember to negotiate for this – this protects you from soaring interest rates and gives you time to refinance your mortgages if needed), and long payment terms that result in lower monthly amortizations.
By the way, you should also check if financing is through a mortgage loan or through a contract-to-sell. Mortgage loans requires the buyer to submit financial documents and not everyone can get approved, while financing through a contract-to-sell is easily approved by banks.
5. Selling price plus other costs
Quoting Robert Kiyosaki in his book Rich Dad Poor Dad, “You should make money when you buy, not when you sell”.One makes money when buying a property if it is bought at a price below market value. If this approach is used, you help ensure that you will make money without depending on appreciation.
Relying on projected property appreciation where you hope a property would appreciate in value so you can sell it later for a profit is purely speculation and is no different from gambling.
Other than the selling price, one should also consider the major taxes like Capital Gains Tax(CGT) and Documentary Stamps Tax (DST), just in case the seller decides to pass these on to the buyer. Other taxes such as transfer tax, real property tax, and VAT (if applicable), should be factored in as well. When all of these taxes are factored in, they can turn what had initially looked like a bargain into a deal not worth pursuing.
Other expenses such as association dues (in case a property is a condo unit), homeowners’ association dues (in case a property is in a subdivision), property management costs (if you are an investor who wants a truly passive real estate investment), etc. should also be factored in to see if the property is really a good buy for the long term.
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