Real estate is arguably one of the best investments as one can make money out of it through capital gains by buying low and selling it high and through passive rental income. However, as with any other investment, it requires due diligence and proper planning.
As I took a plunge on real estate investing lately, here are some of the tips that I can share with you on how I flipped my pre-selling condo.
Flipping a Pre-Selling Condo at Assume Balance
A lot of real estate investors choose pre-selling condo as their first real estate investment. The advantage of pre-selling is that you don’t need to have a lot of capital since more often you will only need to pay the down payment at zero percent interest which is spread over a period of several months until up to three months before date of turnover.
The longer the date of turnover from the time you bought it, the lower will be your monthly amortization. Generally, you should choose to buy pre-selling condo projects 3 to 4 years from the date of turnover.
Given that you already had your due diligence of your chosen condo project in terms of location and its developer, the next thing you need to think of is how you will pay for it in order to maximize your gains when you sold it afterwards at assume balance.
Check Your Cash Flow and Savings
The first thing you need to check out is your cash flow and the amount of savings that you have. Why did I include savings? It is because of the uncertainty of your job. What if you lost your job? Where will you get the funds to pay for your amortization?
Now ask yourself: Can you afford the monthly amortization with your monthly income? How many months can you pay it with your savings in case you lost your job? Can you find another job or other sources of income within that period?
The key here is your chosen payment scheme. Developers often offer more discounts for buyers with a higher percentage of down payment or equity. A 50% down payment is better than a 40% down payment since you will be entitled to more discount from the total contract price. However, it will have a higher monthly amortization than choosing the latter that is why gauging your cash flow and savings is very important here.
The next thing that you will do once the payment scheme has been set is to just pay the required monthly amortization based on your chosen payment scheme. Make sure not to miss payments as developers usually have a 3% interest compounded monthly if you missed payments.
Finding The Right Buyer
Now, around 1 to 1.5 years before the scheduled turnover date, try to find a buyer already. Its price should have appreciated already since the condo should be built or near its completion by this time. You need to ask your real estate agent what is the current list price of the developer from your unit and from there, decide how much discount you should give to your potential buyer.
Take note that more often than not, you can’t sell it at the list price of the developer as buyers may just go straight to the developer to buy it instead of buying it from you.
The crucial part here is to find a buyer with enough cash to pay you with the total amount you paid to the developer plus the realized gain that you want out of it. Also decide who will pay the transfer fee but more often, it is the seller that is you who should pay for it. Ask how much is this from your agent or developer.
You can post your advertisement to Facebook real estate groups and to buy and sell sites or to a popular mortgage broker site to find your buyer.
The Sale Process at Assume Balance
The usual process is to execute a Deed of Transfer and Waiver of Rights to the buyer. Once signed and notarized, buyer must pay 50%of the agreed cash payment. You will then need to pay the transfer fee and wait for the Notice of Approval from the developer to be released. Once it was released, then the remaining 50% should be paid by the buyer. Alternatively, you can also ask for the whole 100% upon signing of the Deed of Transfer and Waiver of Rights.
From my experience, it took additional 3 months before my post dated checks were pulled out once the remaining 50% cash payment was made. You need to communicate this with the buyer as you will need to still fund your checks for these months. You will just reimburse your payments from the buyer by presenting your receipts.
Once your checks have been pulled out by the developer and were replaced by the checks of the buyer for him or her to assume the balance, then that’s it. You’re done! Congratulate yourself as you successfully flipped your pre-selling condo!