You’ve worked hard for that money. You invested a lot of your effort into it. And now you chose real estate properties as your choice of investment.
Before you finalize your decision to buy that real estate that you’re eyeing, let me share to you some tips on how to get that property. I’ve been involved in a company before where we buy distressed assets and before we invest, we take our time to really have our detailed due diligence on it especially if it involves a high tag price. These real estate investment tips are applicable here in the Philippines. I just don’t know how it goes in other countries but generally, it should be the same.
Location – This is the top most important aspect of a real estate property. Where is it located? Is it in a city? Obviously, a lot in urban areas commands a high price than a lot in rural areas. Consider also the neighborhood and your main use of it. Is it for business purposes? Is it for residential purposes? Or do you plan to have it rented for capital gains?
Land Classification – Lots can be classified as commercial, residential, industrial and agricultural. Commercial lots are ideal for retail businesses since these lots have high foot traffic that can generate sales to your business. Residential lots are for domiciliary purposes which means a choice of your dwelling place. Industrial lots are ideal for businesses with factories and warehouses. And last but not the least, agricultural lots are generally raw lands used for cultivating plants and crops. Generally, commercial lots command the highest price among these classification of lots. This can generally be seen in the tax declaration of the property.
Cashflow – Is the property generating cashflow? Is there a tenant on it? How much is the tenant paying for it? And until when will be the lease period? You must get the lease agreement to know this. A very good choice of real estate investment can be a “self-liquidating asset” that generates passive income and will build your assets. Consider this scenario: Buy a strategically located real estate property where you can easily have instant tenants. Don’t pay the whole amount yet. Just pay the down payment and let your tenant’s monthly rental income pay for the rest of the amortizations. Isn’t it great?
Land Title – A land title is a legal document that entitles ownership. Check with the register of deeds and get a certified true copy of the land title. Who is the registered owner? Does the seller have legal rights in selling it? How many square meters is it? You should also check the encumbrances.
Encumbrances – Encumbrances refers to the limitations of a property. Does it have easement? An easement limits the occupiable space of the property. Maybe a portion of the property is dedicated say for example, a canal or a road. Does it have adverse claims? Adverse claims are legal issues attached to the property. Are there any third parties claiming rights to the property? Was it mortgaged to a bank? If so, then the mortgage should be cancelled. If not, then the bank may foreclose it. Was it subject for a writ of attachment? A writ of attachment is a court order that attaches or seizes a property in favor of a creditor. This what happens if the original owner had a loan, say from a bank or from any person, and left it unpaid. The creditor, in order to collect debts, will then conduct a property search of that debtor and seizes it in the form of a writ.
Tax Declaration – Of course, a property has a tax and a tax declaration or a tax assessment is a legal document for it. This is where you will find how much tax should you pay by owning this real estate property. It is also where you can find how your property was classified by the assessment office. Look for properties with updated tax payments. A property with taxes left unpaid will then be a subject for auction to the public by the local government. Get a certified true copy of the tax declaration and tax clearance. A tax payment tip: Annual tax due payments have huge discounts than quarterly payments.
Other Issues – Other issues concerning your purchase of that property may be: (a) flood prone area. No one wants a property that can easily becomes flooded when rainy season comes. (b) illegal tenants. Aside from the legal expenses that you will incur to eject those illegal encroachers, they may also steal anything that has market value from your property. (c) right of way. Be sure to buy a property with a road right of way. A right of way gives the public the permission to travel over it. No one wants a property where your visitors maybe sued for illegal trespassing just by visiting you.
Appraisal Report – If you are not really sure how much will you pay for the property, then get an appraisal report. Hire a property appraisal company who will then assess the market value of the property.
So the next time you’re thinking of investing in that property you’re eyeing for, consider these tips so that you’ll get the best deals for the money you’ve worked hard.
There are three types of real estate investment. Aside from buying a property, you could also investment in real estate through real estate investment trust (REITs) and real estate mutual funds.