Renting a House

Owning a home is a reward in itself. It brings pride and frees you from bondage of renting. But it is not for everyone. Some people are better off just renting a home than buying one.

You should continue renting if the following situations are true to you:
1. You are always on the move.
You may be a salesman who has a temporary assignment in one particular place and you are not sure where your next task will bring you. Looking for a property to buy can be stressful, selling it is not always fun. As a general rule, you should buy a house in a place where to plan to stay for more than five years, if not permanently.

2. You are not financially ready.
Home ownership is everyone’s dream. It’s the kind of dream that comes with a high price tag. Always be honest with your finances and consider your priorities if you don’t want the bank to foreclose your home. Here is a brief checklist to consider:

- Can you afford to pay for the down payment?
- How about the mortgage?
- How much is the minimum down payment required by the bank to grant you the loan?
- Are you sure you will be staying for a long time in your current high-paying job?
- Are you the type who is disciplined when it comes to money?
- Do you have any long term outstanding loan?

3. You can’t find the property that meets your requirements.
On rare cases, it does happen. You can’t find a property that meets your requirements under the budget you have set in the area that you wanted. Maybe you should stretch your budget. Maybe you should look someplace else. Or, maybe you should just continue renting while you wait for the right one to suddenly pop-up in the market.

4. The Rental Cost Is Low.
Compare the cost of renting a house or apartment versus the cost of buying a property. If renting is significantly lower and you think you can save some money to be used for something else, renting be just be the right choice for you.

5. You don’t really want a home.
Homeownership brings with it a lot of responsibilities. You have to maintain it. Keep the floor shiny. Repair the broken plumbing system. If you don’t want to be bothered by those things, then you should not buy one.

Taxes, Commission and Registration

This is the standard sharing of expenses between the buyer and the seller when transferring the real estate property title (TCT - Transfer Certificate of Title or CCT - Condominium Certificate of Title) to a new owner:

The SELLER pays for the:
· Capital Gains Tax equivalent to 6% of the selling price (Withholding Tax for corporations)
· All unpaid taxes due (if any).
· Agent / Broker's commission.

The BUYER pays for the:
· Documentary Stamp Tax - 1.5% of the selling price or zonal value or fair market value, which ever is higher.
· Transfer Tax - 0.5% of the selling price, or zonal value or fair market value, which ever is higher.
· Registration Fee - 0.25% of the selling price, or zonal value or fair market value, which ever is higher.
· Any other incidental or miscellaneous expenses (minimal, if any).

The above sharing of expenses is the standard practice in the Philippines. However, buyers and sellers can mutually agree on other terms as long as it is done during the negotiation period (before the signing of the "Deed of Sale").

The "Deed of Sale" is the document showing legal transfer of real estate property ownership. The deed of sale is then taken to the Registry of Deeds to be officially recorded. Always purchase property with a proper Title & a deed of sale if possible, and if there is not one, a tax declaration is your last choice.

Your Agent / Broker will usually do the registration process without any additional payments (aside from the commission).

Documents needed when transferring the title (TCT or CCT) to the new owner:
· Certified true copy of the title
· Copies of the Deed of Absolute Sale
· Latest tax declaration of the property
· Certificate from the Bureau of Internal Revenue that the capital gains tax and documentary stamps have been paid
· Receipt of payment of the transfer tax and registration fees
An adapted form of the "Torrens" system of land registration is used in the Philippines. The system was adapted to assure a buyer that if he buys a land covered by an Original Certificate of Title (OCT) or the Transfer Certificate of Title (TCT) issued by the Registry of Deeds, the same will be absolute, indefeasible and imprescriptible.

Value, Cost and Price of Real Estate

Do you know that a mansion erected in a slam area will lose it value? Or a parcel of land with a small hut in the midst of commercial establishments will eventually rise up in value in some future time? The answers to these can be explained by the principles of Real Estate Appraisal or Real Estate Valuation. As an owner of a real estate property, it will help you understand why some real estate values rise and others fall.

Economic Principles of Real Estate upon which these concepts are based:

Definition of Terms
Value is the utility or attribute of a property to satisfy human want or command other properties in exchange.

Elements of value:
1.Scarcity. Limited supply of desired property increases its value.
2.Utility. The power of a good to render a service or fill a need.
3.Demand. The desire of a good or service; implemented by purchasing power.

Cost is the combination of the factors of production to produce improvement or development. It may or may not be equal to value depending on whether costs are warranted or wisely made. Cost is historical and is a measure of things that happened in the past.

Price is an expression of an individual’s estimate of value in terms of money. It may equal, exceed or be less than the value depending on whether the buyer is fully informed, acts under duress, or buys on favorable or unfavorable financing terms.

Economic Principles of Value
1.Principle of highest and best use states that the value of a property is directly related to the use of that property; it is the reasonably probable use that produces the highest property value. The current use of a property may or may not yield its highest value.

2.Principle of substitution. In concept, every good or service has a substitute or alternative. This principle states that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property, assuming no costly delay is encountered in making the substitution.

3.Principle of conformity. The idea that a house will more likely appreciate in value if its size, age, condition and style are similar to, or conform to, other houses in the neighborhood.

4.Principle of progression. The value of a property of lesser quality will tend to be increased by being in association with a properties of higher quality in the same area.

5.Principle of regression states that a property of higher quality in a neighborhood of properties of lower quality seeks the value level of the properties of lower quality.

6.Principle of increasing and diminishing returns. “When one of the factors of production is held fixed in supply, successive additions of the other factors will lead to an increase in returns up to a point, but beyond this point returns will diminish” Any student of economics is aware of that. It was first written by Anne Robert Jacques Turgot. Applied to real estate, it means that as successively greater increments of land, capital, management or labor are applied to a property a greater yield is produced until a maximum is reached and there is a decline.

Home Financing for the clueless buyers

feel for those buyers who made some serious mistakes in buying a house only to find out later that they really can’t afford to pay the future monthly dues and has to give it up. It can be a very stressful experience and can be expensive mistake, too. It doesn’t have to happen to you.

If you are clueless about home financing, as many home buyers are, here are some tips that you can use to help you determine how much you can afford to finance your home purchase.

1. Check your income and employment of business status. How long are you in your current work? Are you sure your working visa will be extended? Is your employer happy about your performance and will renew your contract for a longer term? How is your business performing over the past two years? Does your cash flow show a healthy figure?

2. If you are paying spot cash, do you have enough savings?

3. If you are paying in installments or planning to avail a mortgage, you can use the formula below to determine how much you can safely spend for your home on a monthly basis. Take note that it is the formula currently by a number of financial institutions in the Philippines to determine the amount of loan granted you.

M = (I - D) / 3
Where:
M = monthly payment you can affordI = your monthly income, plus that of your co-borrowerD = monthly payment for any long term debt such as car loan

Example:
Your monthly income, I = PhP 250,000Your monthly amortization for you brand new car, D = PhP 54,000The monthly payment you can afford is:
M = (I - D) / 3= (250,000 - 54,000) / 3M = 65,333.33 <-------- This amount

What does it mean for your home financing? A lot, according to the banks and the developer from whom you will avail of the in-house financing for your home purchase.

A lower value of M means that the bank will refuse to finance your ambition of having a luxurious house, because you are a risky borrower already. Remember that banks would rather not grant you a loan than foreclose your property. It also means that they might have to extend your loan term to 15 years instead of 5 years as you initially wanted it to be. But that has to depend also on other factors such as your employment or business status.

On the other hand, if the resulting value of M is very high, a lot of banks will come rushing to grant you the loan you always wanted! The agent might even suggest that you buy a bigger property.

TIP: As much as possible, always go for the lowest interest rate and the shortest payment term. It is cheaper in the long run — or make that short run.

TIP: Deferred Cash payment is usually short term and does not incur any interest. You may want to check with the developer / seller if this option is available.

Steps and Tips in Buying Real Estate in the Philippines

1. Set the criteria for your desired property.
Determine your purpose of buying. Is it for your family? or your business? Is it for your retirement? Or are you into buy and sell investments?

Determine the property category. Is it house and lot? a residential lot only? or a condominium unit?

Determine your desired location. Is it in Manila? or in Davao? Should it be near your office? Or somewhere far from the city?

Determine your budget. Set the price minimum and price maximum that you can afford. Say Php 2 million to 6 million.

Determine other specifications. Do you need at least 3 bedrooms? do you want a 3-car garage? Is it two-storey?

2. Search properties based on your criteria. Our website can greatly help you in this stage. By searching your desired property in our website, you save a lot of time and effort. You don't need to go to Laguna just to find all the properties in Laguna. You just type in your search criterias, and then you select among the results. The website was built for easy comparison of properties. You need to do a lot of comparing so that you get the best out of the available properties. Besides, you also have to know what preferences you can tradeoff to get what you want. Consider also between buying individual property listings vs. development projects. Most of the time, units in development projects are cheaper especially in its pre-selling stage as compared to resale properties who are more expensive because the community where it belongs is already "developed".

3. Contact the broker on the property.Usually the owner has already appointed someone to sell the property on his behalf and that person is called the broker. Though some think that buying directly to the owner or developer will save them time and money, a broker will still be advantageous to the buyer for the following reasons:

Broker facilitates the whole transaction processFrom setting appointments/meeting, negotiations to furnishing of legal documents and other requirements from the pre-sale to post-sale stage, the buyer and seller is relieved from the hassle and stress of the menial work. Sometimes the seller/owner may not have enough technical knowledge on the legal requirements for the sale of his property, so it is safe and practical to involve a broker in a transaction to have someone in charge of the documents and the processing work.

Broker trips the buyer to the property sites. The buyer has the privilege of being tripped by the broker to the sites of the properties for free. The buyer no longer has to worry searching a local city map where the property might be located. It is the responsibility of the broker to lead the buyer and set appointments for the site visit.

Broker acts as negotiatorDuring negotiations, the broker is an indespensable party as witness and negotiator for both seller and buyer. A third party may be necessary to ensure that all agreements is recorded and is put on paper. If the buyer may find it hard to ask for a lower price to the owner, the broker may negotiate in behalf of the buyer.

Broker can give recommendations of other alternative propertiesAn owner may try to convince the buyer that his/her property is a good choice, but the broker is a good source of recommendations of other alternative properties to the buyer. Usually a broker keeps an "inventory" of properties that he/she is allowed to sell. Through this, the broker gives the buyer a wider range of choices and saves his time and effort. Instead of looking for 20 owners of properties, the buyer has to find only one broker that has a listing of 20 properties.

Broker can search for more properties in behalf of the buyerIf still the buyer can't find the property that fits his specification, and it isn't found on the broker's inventory, the broker will exert further effort to search other properties. The broker may use his network of friends in real estate to quickly get more property listings that might fit the buyer's specification.

The same is true with development projects (e.g. subdivisions, villages, condominium units, etc) A developer will appoint brokers as marketing arms to sell the units in the project. But take note that whether you go direct to the developer or course the transaction through a broker, most of the time you still get the same contract price. So why not go with the benefits of dealing with a broker.

4. Check the sample computation and requirements, and pay the Reservation Fee on your chosen propertyYou should consult the other decision makers in your family or organization when finally choosing the property that you want to buy. Check the property against your set criteria. Decide on the specific lot and block number. Then get a sample computation and the qualification requirements from your broker. Check if you can afford to pay the downpayment and the monthly amortization. Check also if you can qualify as buyer according to the developer's standards. If everyone involved in the decision-making agrees and has peace of mind with your choice and you know you qualify and can well afford to pay the total price of the property including the tax and other processing fees, immediately pay the reservation fee. This is for buyers on development projects. Why the reservation fee? So that you don't lose the property while you are still deciding on a preferred payment scheme or you are still preparing the amount needed to pay the property in cash.

5. Decide on a payment scheme, wire the money and sign the documents.
Decide on a payment scheme that you feel comfortable with in terms of your financial capacities. The usual payment schemes are spot cash, bank financing, or in-house financing. Then proceed with the payments. In case of development projects, most buyers are required to prepare postdated checks for all the monthly amortizations. The developer may also do credit investigations technically assess your capacity to pay. Be prepared to submit the necessary requirments and sign the documents.

Real estate financing terms

Three (3) ways of financing a real estate purchase:

a) spot cash

b) deferred cash payment

c) long term financing

A resale house or property from an individual seller (as opposed to a developer) is usually to be paid in Spot Cash. On the other hand, real estate for sale from developers, can be availed in longer terms.

Each type of financing scheme has its own advantages and disadvantages. To determine which one is appropriate to you, it is best to start looking at your own budget and financial capabilities. Some financial institutions (banks, credit unions, money lenders, etc) will require income documents from your and/or your co-borrower to determine which one applies to you.

Listed below are the characteristics of each type of payment scheme.
1. Spot Cash. This is an outright payment for the entire contract price of the property you are buying. The entire contract amount must be paid within the agreed number of days (usually 30 days) from the date of reservation. One of the advantages of Spot Cash payment is the large amount of discount that can be availed. Buyers who have enough savings are usually attracted by the discount being offered. Another advantage of Spot Cash payment is that all the necessary documents will get to your hands in a short period of time, assuming everything is in its proper order. Another advantage of Spot Cash payment is that it doesn’t require a lot of documents on the part of the buyer.

The only disadvantage of this approach is that only a few buyers can afford to do so. Buyers usually buy on borrowed funds and savings are usually allocated for something else.

TIP: You don’t have to pay Spot Cash from your savings. Wise buyers will usually loan from other sources that offer lower interest rates and then pay spot cash. It’s like borrowing from A at super low interest rate to pay spot cash for real property offered by B.

2. Deferred Cash. You can think of it as an installment payment without the discount and without interest. There are people who don’t want to be burdened with interest payments. They usually go for this option. Aside from saving on interest payments, Deferred Cash payment also allows for shorter time period for the documents to be processed. In many cases, the entire contract price may be covered within 3 years. Always check with your developer the time-frame for the whole amount to be paid.

3. Long Term Financing. Long Term Financing usually divides the contract price into two: a) down payment and b) financed amount. The amount to be financed is usually covered by a mortgage from a financial institution. Some developers will also offer In-House Financing, but it usually has higher interest rates than available in the market. The loan company will require a lot of income documents from you before your loan is approved. It’s understandable, they want to make sure that they are granting loan from someone who has the ability to pay it in time. The amount of loan and payment terms largely depend on your income, employment or business standing.

This is the usual payment scheme followed by the buyers. Its advantage is that it feels light and can be inserted as part of the monthly budget for the household. The disadvantage is that the longer the loan term, the higher the total payments you will have to cover and therefore the more expensive the property becomes in the long run.

TIP: If you can afford it, offer to you pay a large down payment. This means your mortgage amount will be less. Remember it is the financed amount that will eventually bear the interest. The standard down payment is 20% of the total contact price. If you can pay more like 30%, do so. The lender will love you for it.

Check-List Before Buying Real Estate in the Philippines

1. Make sure the "Transfer Certificate of Title" is authentic. The easiest way to check if the title to the property you are buying is authentic is by getting "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.

2. Verify that title is clean - meaning 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. Make sure that the land described on the title is really the land that you are buying. You can validate this at the Register of Deeds or by hiring a private land surveyor or a geodetic engineer. Land titles don't have any street name and number to pin point a property, it is a must to confirm that the actual property you are buying matches the technical description on the Transfer Certificate of Title.

4. Make sure that the sellers are the real owners. If you are buying from an individual property owner, ask for identification papers like passport or driver's license, it is also a good idea to talk to the neighbors to confirm the identity of the sellers (you might as well ask some history of the property).

5. Confirm that the yearly real estate taxes are paid. Ask for a copy of the Tax Declaration and Tax Receipts to confirm that real estate tax payments are up to date.If the above check list is in order, it is safe to proceed with the purchase.