Foreclosures are not common investment types here in the Philippines since they are not appealing to some investors. Foreclosed properties’ current condition is a significant consideration. Factors such as broken windows, lacking utilities, a pile of trash, and worst, illegal occupants are usually turn off to the investors.
There is common knowledge that you need to consider too many unforeseen problems and concerns, but if correctly done with the right due diligence, you may benefit from this hidden gem of real estate.
These are the reasons why you should consider adding foreclosed properties to your portfolio.
Banks want to dispose of these assets in their portfolio. They will offer a much lower price tag just to get rid of these non-performing assets. Foreclosed properties are not maintained and usually lead to a much-discounted price that will make the price much lower than its market value.
Before banks approve the loan, they have done their due diligence first if the property has a good appraisal score regarding location, utilities, geography, and other main reasons. This includes the due diligence of the property developer and the previous owner. You can say that this property was once a favorite.
No Tedious Permits
Unlike full blast house construction, you need to hire an architect, engineer and secure all these tedious permits and documentation that will cost you a lot of time and money.
In foreclosure, you don’t need to secure permits such as building permits, occupancy permits, and many more permits obliged by local agencies. Since it’s all done by the former owner or the property developer, the bank will transfer these permits to your possession. One permit is for sure when your property is located in a gated subdivision. It will help if you secure a clearance for your construction materials’ mobilization and skilled workers in your area.
If you want to repaint your house or fix your broken sink, getting a renovation permit is unnecessary. The renovation permit will only apply for structures that will change and/or extend structural components and change use in the structure.
Price Appreciation at Marketable State
You got the property, and you fix it, congratulations! You made an abandoned house into a liveable home.
Because of the appreciable amount of discount you get, there’s now a big gap between the property’s actual cost and the market value. If you decide to sell your house later on, you will get a higher profit margin or sell it at a more competitive price.
You get more value, but you pay less.
The Sweet Spot Between Ready For Occupancy (RFO)and Building your Own House
RFO units are new and fresh, so expect that it would cost you a bit of money because you’re paying for the mark-ups and convenience.
Hiring a contractor to build your own will require you a lot of time. You will start it by hiring the right people, checking everything is in place, visiting the site every now and then until your house will is already constructed.
Foreclosed properties sit in between these two. It is ready for occupancy with repairs. You will still need to hire a contractor or just a skilled worker. Still, only for finishes, you will skip the long process of planning, conceptualization, acquiring of permits, and the whole actual construction of structural members. The construction of the house’s structural frame is the most tedious and time-consuming phase in house construction.
They are cheaper than RFO because the bank sells them to dispose of, so there’s a minimal mark-up for you to cover.
Many would ask should I buy or build? It’s not always a size that fits all. You should always run your numbers and it always depends on your parameters whether you should buy, build, and now, acquire a foreclosure.
Ready to embrace foreclosures? There are headaches that you need to be aware of. Watch out for them in my next article next week.
Original article written by Joem Navarro, REBPH Intern.