How to buy real estate in the Philippines in 3 easy steps

Metro Manila, The Philippines’ biggest city and Capital, Photo by www.worldatlas.com

The real estate business in the Philippines has lately been gaining more popularity with several companies developing the industry. Those are settled down mainly in some vital parts of the country, especially the financial district close to the capital, the well-known Makati sector rated as the most expensive.

Likely, the other non-urban regions, notably the various provinces suburbs adjacent to the big and main cities in The Philippines are evolving similarly. Such as Cebu, Quezon City, and other important cities scattered along the peninsula that is confronting in parallel, a continuous increment in population demography.

However, investments in the Philippines are attractive because their values are expected to improve in the upcoming years. Since prices of real estate properties are relatively low compared to those located elsewhere in the world, it is not a secret that they are eye-candy for many people who want to invest in the country.

Besides, the economical state of the Philippines has dramatically improved during the past few years and still growing but with confidential steps and a promising future as many international economics experts approve: “The Philippine economy is projected to be the 5th largest in Asia and 16th biggest in the world by 2050,” says Will Martin for the businessinsider.com magazine.

Is it worth investing in the Philippines’ real estate?

It is more than normal for the real estate industry in the Philipines to witness the biggest economical progress ever thought in its history. It is by far the golden age of a promising era where investors can make big money profits if they invest in the right fields.

Thus, the first step to succeeding in real estate is to buy at the right price. Otherwise, if you deal with a price too high, you will face all sorts of troubles in the next steps. 

But still, we need step Zero if we can say, to find the right and the truthful broker in this risky business, where you can expect all kinds of ups and downs to happen.

Although the easiest and most popular method to find realtors in the real estate business is by searching for them on the Internet or social media networks, but also you can find them while visiting some local exhibitions organized particularly for foreigners looking for this kind of business. This is the right event for the leading companies in real estate development to expose their latest projects and outlooks concerning the industry in the country in general.

Furthermore, and based on my personal experience in buying real estate in the Philippines, back in the year 2012, it is their big pleasure to guide you through the most sophisticated deals for buying condominiums or other properties available in the market, and to help you resell it in the future if you needed to.

Investing in the right project is essential to succeed in real estate, Photo by pinterest.com

Besides, the Philippines’s online real estate marketers promote their items which include their properties’ listings and brokerages to international search engines such as Google or other specialized real estate websites and blogs. This makes their coverage wider and reaches more audiences, and so, increases the possibility of getting more closed deals in less time.

On the opposite side, if someone plans to sell real estate property located in the Philippines, they will be glad to help as well. They will be looking after potential buyers and take on their own mission of clearing up every initial policy and clause of the offer.

For people who want to buy real estate property in the Philippines, online marketers also provide a complete real estate listing that comes from other brokers in different regions of the country.

Because of the difficulty to search through the available list for the properties for sale, some marketers have developed a related application to filter out the options for more accuracy, such as by their budget, preferred location, and even their size. Once a selection has been made, the buyers submit the form online. Then the online marketer will contact the broker of the selected property for a detailed negotiation concerning the real estate package, and so on.

With the online marketing trend in place, the real estate sector in the Philippines is expected to register more profits in the next years.

But how to find the right real estate property to buy?

In real estate, you can make money when you invest in the right place; For instance, you have to buy properties at a convenient price so you can quickly resell them at a higher price, and make a profit.

Buying at the right price allows you always to resell the property immediately and with a worth right into your pocket. You don't have to wait for approval. You can sell it minutes after you purchase it. But if you buy it too high, your profits will be naturally reduced. Besides, you won't have the flexibility to offer lower prices or better terms; You might end up being pressed to sell and maybe even taking a loss…

So, how do you find properties at an affordable price? How do you know it is the right price? and if you do find one, what to do then?

Many questions but here are the 3 main steps to follow:

Step 1. Find a Distressed Seller!

It might be hard to find a doubt-the-request client in the first place; Since you thought you were looking for a property, but you are actually, seeking a distressed seller - someone who is eager and in-needs to sell fast. As if, he needed to sell yesterday!

If you are lucky enough, you might fall on someone much luckier than yourself to find you! 

This is how good things work always, isn’t it?...

Next, we will assume that we are going to buy a property from a suppositional seller to simplify the process to the maximum.

Let’s make things easier and clearer;

Assuming that we are the broker or the buyer, and as an example, a realtor approached us seeking help to get his property sold. In the fact, he owned the property for 3 years but a crisis came over his business plans and suddenly left him with an office condo that is draining his finances with no revenues; He has been trying to sell it for more than a year and not getting any results.

He was planning to receive a part of what he spends on his condo but on the other hand, all the improvements he made were free. In our story, the realtor is the perfect distressed seller, but where to find him?

You can find such sellers in:

- Bank foreclosure lists. You can find a lot of them also in Jay Castillo's blog: Foreclosure Investing Philippines.

- Newspapers such as the Sunday Manila Bulletin and Buy&Sell. Look for ads that contain the words "Must Sell", "Sacrifice Sale" or “Need for travel”. Note that the agents and brokers also use these words for promoting their real estate properties so you may track a lot of them as well.

- Likely, websites such as Craigslist.org, Sulit.com.ph have the same target to find your property. Look for the same words above.

- Your network of friends and office mates. Tell them you're looking to buy a property. If they insist, tell them that as long as it's a good deal, you can pay cash (…)

- Networking or online events like cashflow games or investing seminars.

- Other online resources …

Step 2. Analyzing the Data you get

When you get a bunch of multiple data, the next best thing to do is to analyze each one and find the right one for you.

Getting back to our realtor, how did we know that his property was a good deal?

We asked the following questions, actually:

What makes the property worth it?

In our case, it is the property's Fair Market Value (FMV) or Resale Value (RV) which is intended; According to our seller, the real estate developer was selling similar units at about Php 4M (i. e. US $83,125.00 according to the latest currency exchange rate, dated January 2021).

Honestly, he was willing to accept just Php2.5M net, off taxes and expenses. So we’ll have a range of Php 1.5M, which is a very interesting deal!

Another essential behavior of the property to check, is what is owed on the property: What is the remaining loan balance if any? What is the interest rate, and how many more years are still left to close the loan? What is its monthly amortization?

In our example, the property offered for sale has no loan and is free from any legal contraindications, which is a positive factor.

Next in our exploration, is what are the improvement or repairs needed and how much it is expected them to cost? Fortunately, there is no maintenance needed because it was never used and is still in very good condition, and therefore no negative impact.

From what it precedes, and naturally, a question crosses our mind: Why then the vendor is trying to sell his property? What does he need? What will he use the money for? He already told us earlier that it is draining his finances (…) Fewer investigations lead us to the answer: He will use the revenue to fund his wife's clinic in St. Lukes, a famous medical center in Quezon City.

Therefore, if we can pay him cash and close the amount in 2 weeks, what is the final price that we can negotiate about? According to what was said earlier, it is 2.5M. But when we pushed him, he went down to Php 2M but later he called back to say that it was his final price: Php 2.5M. We wouldn’t press him more since the margin was good already…

The objective of these inquiries is to re-estimate the resale value, get an approximation of the repairs and expenses spent, and find out the lesser price the seller was willing to go down to. When you have the three values, then you can calculate the Maximum Allowable Offer (or MAO) using the following formula:

MAO = (RV * Cost Factor) - Repairs - Expenses - Profit

In this formula, where the values are just an estimation, RV stands for Resale Value, discussed earlier. The Cost factor is a multiplier to consider for holding costs. Repairs are the estimation of the reparation cost, while Expenses are for taxes and other expenses, and Profit is for your targeted profit.

The Cost Factor that our seller will use ranges from 70% - 100% depending on the market conditions and your buyers' list. If you have a sure buyer for the property, use 100%. If you don't have a buyer but since the area is engaging, use 90%. If you don't have a buyer and the market is down, then use 70% or below.

Using our seller property as an example, we will have the following:

MAO = (4,000,000*0.8) – 0.00 – (15% 2,500,000) – 200,000

MAO = Php 2,625,000

The asking or demanding price (which is initially Php2.5M by the seller) is below the resulting MAO (Php 2.65M) so this means we can accept the asking price and still make a profit of Php 0.125M.

What if the asking price is higher than the MAO? Then, you will have to negotiate.

 

Step 3. Everything is Negotiable!

In the real estate industry, you should negotiate everything.

You can discuss the price, the terms of payment, which items are included in the purchase, etc… I meant everything.

For your convenience, I recommend exploring some related references for proven results in your communicating skills. You will learn more about how you can convince your interlocutor with an unbeatable dialogue of negotiation. So for your continued business success, here are two essential titles to consider:

• The art and skill of successful negotiation by John Ilich

• Developing Negotiation Skills in Sales Personnel: A Guide to Price Realization for Sales Managers and Sales Trainers by Stumm, David Arthur

Here, are some other good examples of how to conduct a successful discussion with any kind of seller:

- Always ask for the lowest price they can offer. As mentioned earlier in step 2, here is the exact scenario to follow once again. Assume that you’re facing your fellow and negotiating him with the following deal: “If I can pay all-cash (or fresh money-cash) and close the whole amount in 2 weeks, what is the LOWEST price you are willing to offer?” That has been said, you don't have to change any of the wording. Use it as it is, word by word: Those are proven scripts to mimic as a parrot!

- Is that the best you can do? This is the question you must ask immediately after you get his first demanding price. If it is close to the MAO (discussed above), go to the next step and inspect the property. During the inspection, point out all the defects found in the location, such as neighborhood and property itself, etc…

- Have your purchase contract ready for modification – You can always ask for an exclusive option-to-purchase real estate which is a legally binding contract that allows you as a prospective buyer to agree with the seller, in which you are given the exclusive option to purchase the property for an extended and limited time and a specific price. It is advised to do so in case you are certain to have a buyer or the property is located in an engaging area. However, this exclusive option-to-purchase normally requires a small amount of money as a deposit. If the price is already below MAO, have them sign the agreement already done. This protects you from a sudden mind-change from the seller.

To end, once you have a signed purchase contract then congratulations! You have just accomplished your first real estate property acquisition.

Disclaimer

THIS ARTICLE MIGHT CONTAIN SPONSORED OR AFFILIATE PROGRAM LINKS. WE MIGHT GET A SMALL COMMISSION ON YOUR PURCHASE AT NO EXTRA CHARGE TO YOU.

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References

- worldatlas.com (as for the featured image and the information)
- eng.wikipedia.org
- businessinsider.com