Tips in Investing in RFO Condo Units

Tips in Investing in RFO Condo Units

Diversification is the key in investing. You have to spread your money into different asset classes so that if one asset class is bearish, you still have investment in other asset class that might be bullish.

My portfolio is majority comprised of paper assets. As the stock market recently experienced a general downturn with my portfolio down as much as 21%, I found myself investing in Ready for Occupancy or RFO condo units.

In contrast with pre-selling condo, RFO condo units can generate instant cash flow as you can have it rented right away. In pre-selling condo units, your money practically “sleeps” as you wait for the condo building to be built before you can have it rented.

Below are some of the investing tips that I would share to you if you are interested also in investing in RFO condo units:

1. Location is the key. You always hear it. When it comes to real estate, it is always location… location… location. When it comes to location, ask yourself who is your target market?

If your target market is employees, then look for a RFO condo that is located in Central Business Districts like Makati, Ortigas, or BGC. If your target market is students, then look for RFO condo units located near schools.

In addition, it would also be better if the location is accessible by public transportation such as the MRT.

2. Price is a major deciding factor. After considering location, the next major factor is of course the price. A lot of people consider investing in pre-selling condos instead of RFO condos because of the price.

However, if you are just keen on looking, you might find yourself a great deal. There are several Facebook groups where real estate owners and brokers meet and they constantly market their properties whether they are for sale or lease or both. This is actually where I found my unit and it was a good deal since my acquisition price is not just below market value but also below zonal value.

Take note that you must always look the price in terms of the size of the unit. A 30 square meter condo unit priced at Php 2.2M is definitely better than a 24 square meter condo unit of the same price.

3. Thorough due diligence is needed. After considering for both location and price, the next most important that you need to do is to investigate for the title and other paper documents of the property.

In my recent acquisition, the paper documents have two issues. The first issue is that the IDs presented to me by the owner do not bear the same exact name written on the title. The second issue is that I found out that there is another claimant to the property by virtue of a compromise agreement executed by and between the owner on title and another third party person. Both of these issues were resolved and so the deal went through smoothly.

4. Make sure all fees are paid. Having a condo is equivalent to having maintenance expenses. These expenses mainly correspond to real estate taxes or more commonly known as ‘amilyar’, association dues and utility bills. Before buying RFO unit, make sure that all of these fees are updated.

5. Determine Capital Gains Tax. As Benjamin Franklin says: there were only two things certain in life: death and taxes. Taxes in real estate deals are no joke. It comprises a huge amount that can certainly make a dent on your savings if you’re not prepared for it.

Capital Gains Tax is always computed as the 6%of the higher between zonal value and selling price. For example, if the property has a zonal value of 3,117,000 and a selling price of 2,700,000, then the capital gains tax applicable is 6% of 3,117,000 or 187,020.

In most real estate deals, it is usually the seller who pays for capital gains tax. However, depending on your price negotiation with the seller, it might be you as the buyer who will shoulder it.

6. The more the better. When it comes to furnishing, the more is the better. Look for RFO condo units that have more furnishings. Is there a bed, sala, refrigerator, dining table, air conditioner, etc.? Are the rangehood, TV, air conditioner, lights, etc all working? Never miss out on these details.

These are just some of the tips on investing on RFO condo units. There are property specialists like RW Invest that can provide more tips and can help you more if you are keen on investing in real estate property.

Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

3 responses on “Tips in Investing in RFO Condo Units

  1. It feels so expensive with the maintenance costs and taxes. All my portfolio is in paper assets. Been thinking how to diversify to other classes for a while now. Even on lease that would mean that you would have to find someone to rent it higher, maybe 2k to 5k more? Or if you bought it how long would it take to break even?

    • I bought it at below zonal value. That is way too low than its current fair market value. I can instantly flip and sell it at a higher price if I want to. However, I believe that real estate will become a piece of fortune in the future because of the growing population in Metro Manila and the massive traffic that we have here. Its value will continue to go up. What’s more, you can have it rented to have a regular cash flow. Yes, it has maintenance costs. But that can be passed on to your tenant once you have it rented. Technically, break even takes a long time. If it’s being rented for long-term rental, break even will take around 10 to 11 years. If it’s short-term rental, then it would be less. However, if you flip and sell it, then you can instantly recoup your capital in a matter of 1 to 2 years. That is why, you must look for the ones that are really cheap compared to its current fair market value.

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