7 ways to earn in foreclosures
MANILA, Philippines - In the American romantic-comedy film Larry Crowne, Larry (Tom Hanks) went back to study after the life-changing events he went through: touring the world as cook with the US Navy, heart-breaking divorce, and losing his job in a big-box store. He justified these by stressing he did not finish college.
Saddled with mortgage, he remembered from his previous Economics class that he could legally turn over his house and keys to the bank, which he did. He vacated the property within a 30-day notice.
Of course, that was simplified in the movie. In real life, many are not saved from foreclosing their properties. Sometimes the lender eventually takes possession of the property since the borrower is no longer able to keep up with payments. These can be messy and problematic at times.
Noli 'El Subastajero' Alleje, dubbed the Philippines’ no. 1 auctioneer for having bid out over 4,000 assets worth over P8 billion, shared that foreclosed properties are potential money makers.
It is a matter of when to use, hold, sell or lease, Alleje told the audience of the 6th Money Summit and Wealth Expo at the SMX Convention Center, Pasay City on July 13. Read for more of Alleje’s tips:
1. Look at the big picture
Investing in foreclosures is like living out of other people’s misery, Alleje said. However, it's not about taking advantage of other people’s misfortune: investing in foreclosures contributes to overall economic growth. Non-performing loans go down as potential clients simply walk away and find another bank where they can be granted a loan.
Continuing signs of economic growth also play a role in foreclosure investments. Thanks to Overseas Filipino Workers (OFW) remittances, part of which are invested in real estate. The Business Process Outsourcing (BPO) boom definitely plays a huge role, as this growth has to be supported with massive infrastructure, like “paths of progress.”
Alleje said the various expressways planned for Metro Manila and the metro provinces are expected to contribute to traffic decongestion, while the Metro Rail Transit (MRT) and Light Railway Transit (LRT) expansions are also expected to make the commuting experience faster and safer. Foreclosed properties within these locations of “paths of progress” have become more attractive investment opportunities, Alleje said.
2. Know your profile
Start small. In Alleje’s case, he started investing in small foreclosed properties in 1999. His first major deal was a sold out auction at United Coconut Planters Bank (UCPB). Later on, he purchased the asset management company of GE Money Bank. For his achievement, he earned the moniker “El Subastajero” or “King of Foreclosures.”
Gauge your style. While Alleje earns from auctioning foreclosed properties, he also personally invests in them. He said that there are gypsies who buy, live in, and eventually sell the property they buy. “But a house that has been lived in a good community has a better rate,” Alleje said. He regards himself a “flipper,” who sells property almost right after buying it in return for a quick profit. “But if I lease, I will have passive income,” Alleje said.
3. Use the figures to your advantage
Buy low, sell high. Prices are continuously rising, with substitution or restructure at about 7%, and properties that have structures appreciating through inflation. “If the inflation is high, hold on. If the inflation is low, flip or sell quickly,” he advised.
Buy if the interest rate is good. Alleje cautioned that the interest rate would affect you and your exit, or when you flip property. He also advised going into in-house financing than taking out a bank loan. Between Pag-Ibig financing and local, universal banks, go for the latter unless you are flipping a Pag-Ibig property.
4. Know where the foreclosed properties are
Go to the banks and insurance companies. As of 2012, there were P116.6 billion worth of foreclosures that the Bangko Sentral ng Pilipinas (BSP) urged banks to get rid of. These include their real and other properties acquired (ROPA) holdings since these are considered unproductive assets.
Go to banks (universal, commercial, thrift and savings, rural) to find foreclosed property that you may want to invest in. Also, Philam Life insurance has foreclosed properties up for grabs.
Check SPAV companies. Under the Special Purpose Vehicle Act (SPAV) of 2002, there were companies formed to help banks get rid of their non-performing assets (NPAs). They are also a good source for foreclosed properties.
Check government banks and financial institutions. Government banks like Postal Bank, Land Bank of the Philippines, BSP, Philippine Deposit Insurance Corporation, and Development Bank of the Philippines are also worth checking for foreclosed properties. Likewise go to government financial institutions like the Home Guarantee Corp, Social Security System, Home Development Mutual Fund, and National Housing Authority, and see if they have any foreclosed properties you might be interested in.
5. Be really prepared
Be armed. Get hold of the latest asset listings. If you found a foreclosed property to buy, be ready with your ammunition: put up an offer and deal with the payment terms, usually 25% downpayment within 30 days the offer was first made. The 75% remaining balance can be paid up from one to 25 years with a 12% interest rate per year. “Always negotiate, negotiate, and negotiate," Alleje said.
Read the fine print. For the installment buyer, you must have the Deed of Conditional Sale. For the cash buyer, have the Deed of Sale. Be sure to read these documents thoroughly: “Some banks sell ‘as is, where is.’ So, go through the papers and know exactly the physical and legal conditions, and the taxes involved with the foreclosed property you are interested in.”
Know thy taxes. For the account of the seller, it is 6% Capital Gains Tax based on the selling price and any excess is for the account of the buyer. As buyer, you have to be armed for other fees and taxes like Documentary Stamp Tax, Transfer Tax, registration fee, Value Added Tax (if applicable), and Business Tax. In terms of zonal, market or asset values, go for whichever is higher. Also know who is going to take care of the zonal values.
6. Get down to work
Inspect the asset. Ask for the location map. Take photos of the vicinity: all angles of the property and everything around it. “Thank God for Google Map, you can now see prior to ocular inspection how the property looks like. I also bring foldable stairs with me and I squeeze myself into those holes to see what else is damaged. I knock down those walls. I take photos of the deteriorating parts of the property then use them as basis to ask discount from the banks,” Alleje shared.
Ask around. Meet the neighbors and ask the story of the house, as not all good deals on paper are good deals in reality. “Each property has its own buyer. And the good news is, there is a solution to every real estate problem,” Alleje added.
Perform due diligence. There could be cases when upon inspection of a foreclosed asset, you will find out that the former owner still lives there. “However the owner should be willing to vacate the property, ‘if the price is right,’” Alleje said.
Such problems involve legalities like writ of ejectment, and your best defense is to have the necessary documents in your hands. “Get a copy of the title from the Registry of Deeds because that is the best thing you can hold on to. Ask the bank about it. Sometimes though you have to buy and reconstitute it,” Alleje said. The contract to sell, meanwhile, must be transferred to flip the property. “Sell the rights only, that is the best way to flip,” Alleje shared.
Deliberate over the price. Based on the information gathered from your asset inspection, weigh in all the factors to help you determine your offering price against the selling price.
Pool resources. When acquiring foreclosed property from a bank, loan or take out from that same bank to help you bag a better deal. You can also pool your investment from various sources or as Alleje put it, avail of OPM, other people's money.
7. Love it or hate it
Alleje loves foreclosures. Over the years, he learned to cope with all the headaches that go with investing in foreclosures: from ripping a property which is beyond saving, to fixing salvageable property, to drawing a plan, to buying an island, to cleaning all the garbage thrown in the property he was interested in. “The more headaches you take away from the bank, the more value they will give you,” Alleje said.
Above all, learn to let go. “Don't fall in love with the property. It would be hard for you to sell it,” Alleje said. - Rappler.com