How To Buy A Condo In Cebu w/ Mike
Jake: So we're gonna go meet up with my buddy mike he's an amazing resource when it comes down to doing real estate here in Cebu. It's quite a different scene out here than it is in America. He recently helped me negotiate an amazing deal on a condo that I just picked up and we're going to go tour around with him today. Touring is a service that he offers for people that are coming here to the Philippines that are looking for a property for themselves, (whether it's an investment property or somewhere for them to live as a personal residence) and we're going to tour around with him and see some of the projects that he has bought. He owns quite a few apartments out here.
Mike: So where are we heading headed to a property that I own in Guadalupe. Right now we're in the Fuente area which is considered in the city. The city is a good place and as far as Philippines Real Estate is concerned. I'm kind of basic when it comes to real estate. One of the most important things is location, location and location. The reason for that is if you ever don't want it, somebody else does. You could have the nicest place in hell and nobody would want it. It could have elevators and three swimming pools but nobody wants to live in hell so it's always better to have location, location, location.
The reason why, is because somebody will want it if you don't want it. That's always nice for whenever you want to sell. What are some of the things that you want to look for in the locations around here? I do a lot of asking the locals. I'm gonna guess, and I'm gonna say the foreigners here make up maybe one percent of the population. So I don't I don't take the opinion of what all the other foreigners think with that much weight. I look at where do the Filipinos like to live. They choose areas because it's either safer, it is because of the accessibility. It's different than the United States, there we all have cars we just get in our cars and go so it doesn't really matter where it's a little longer commute but here the jeepneys are really important because for eight pesos you can get a ride someplace (that's basically 16 cents). You get a ride for such little money using them, so not everybody here has cars. Now if you're living in a residence that is not close to the jeepney stations, then it's going to be a motorcycle taxi ride to the nearest jeepney station where the jeepneys run. The jeepneys are not like the bus in America. The jeepneys go all over the place and most places are covered but little neighborhoods are not.
They're not going into residential neighborhoods to pick people up. So if the residential neighborhood is kind of large and you live up at the top of it you'd have a heck of a long walk every day. So what you do is you jump on a little motorcycle taxi and it'll take you down to the main road, and of course, the main road has the jeepneys. When you're thinking about where to live you want to be close to a jeepney if you're a Filipino. If you're an American or another foreigner, a lot of us also like to ride the jeepneys because it's a novelty. Plus it's so inexpensive, we just haven't had the ability in foreign countries to get such inexpensive transportation. Usually, the mass transit in the west is for the homeless or the people who are otherwise undesirables that can't afford a car.
Here you've got plenty of guys that are retired and still ride the jeepneys. I mean someone might be a colonel that has retired from the military with a great pension and they still like to ride the jeepneys. Why the hell does someone want to have a car he doesn't need one here? Now if his life demands that he have one, maybe he's got children, or he's got a wife and family, or he's running a business that's a different story but if you don't need a car why would you have one and if you could ride these jeepneys or taxis. Cebu happens to have a wonderful taxi service that's extremely inexpensive. The meters start at 40 pesos, so when you get in they start at 40 pesos. So do the math it's like 80 cents. So in most cases, you're gonna go maybe 15 minutes or 20 minutes to get to someplace. For that, it's usually a total of two dollars at the most. I find it rarely is it over a hundred pesos to get where you want to go, which is about two dollars.
Jake: What are some of the other amenities that are kind of like the hot things that you want to look for in the different units? Would they be the pools and gyms and stuff like that? Does those factor in a lot?
Mike: I think so. So those are referred to as amenities, and some properties are considered the "premier properties". So that's how they classify them. We might say upscale, here, they say it's a premier property. This is a premier property that we will be visiting. Maybe that just means fancier common areas. Most always they'll have pools. When you're out here checking or looking you look and see if they have a pool.
Another amenity you're gonna want to have is a generator. An emergency generator is crucial. We just had a typhoon recently which highlighted this. It's nice to get newer construction because the newer constructions have the latest engineering. Also, they're required to have generators. You might not appreciate it until there's some kind of event or catastrophe. Like recently, we had a typhoon on December 16th, 2021. After the typhoon for several weeks the power and water was out in the city. It's nice not to be walking 19 floors to leave and go grocery shop if your elevator is not working!
So, I make sure the buildings I have units in have generators. My apartments all happen to be in newer buildings. Another question to ask is about the water. Some of them have centralized tanks. Most of the premiere facilities will store water on the roofs. The tanks are on the roofs. If anybody remembers the movie "The Godfather" where they showed many older buildings in New York you will remember that in the old days and like in the 30s and 40s you had water tanks on the roofs. Now in New York City they have pressurized water so they don't need to store water or have gravity flows but that's in fact what those tanks were for. In the old days there were water tanks on the roofs of buildings.
They still use the same principle here as they did back then. They'll pump the water to those tanks during the night and then during the day, they'll just let gravity flow the water down through the building. This makes it so that they have a set stored amount of water. Right here we have this complex. I don't know if anybody can see it but this is in Guadalupe. I own some units here so it's easier for me to show what I already own. I know pretty much the ins and outs of these ones. I invested in this pre-construction.
Jake: How does that work for the pre-sales how do you know they're going to actually finish the construction?
Mike: On this site, I researched the developer personally. I don't want to be with a too small of a developer. My scenario I try to stay awat from is something like this. Let's say the guy's got a rich dad and he's the developer. Well, if the dad dies and something happens to the money source, then what if the guy just folds up his card table and leaves? I have a fear of having my mind money tied in something that's with a company that's not reputable, so I research all the big developers. It's the larger, more stable developers are who I want to do business with. The ones that care about their brand, the ones that won't trade their reputation in for a quick buck. Look for the ones that will finish a project, even if they break even (or loose money) that for me is important. I don't know that everybody's trying to come here and get rich but most people should have an allergy to getting screwed. I don't want to be the victim, don't want to be a statistic and I've taken great pains to not be on that list of being a statistic. That's driven me to be careful and verify everything and get a lot of information.
Verify it, verify it, verify it! Anything that I'm going to share with my clients I'm fairly confident with. I'm confident because my process has worked for me and these are practices I've used for all of my own investments. So when I show this project. When I got in I was pretty sure I was going to not lose on this project. When I bought this project it was worth much less and now is now value has gone up over a hundred percent in basically less than five years. I can explain more about that later. How it's done here is that you go into the developer's office and you buy. It's very easy if you're a foreigner, but here's the thing. Before I bought if you'd have asked me if the value would go up, I'd have said,
"I think so."
If people would come to me and go,
"Man you did great!"
Then I would tell them,
"Not yet. Not until it's time to sell, not until the fat lady sings and then you exchange money is it really over."
It's like a fight, you may be winning for 14 rounds but if you get knocked out in the 15 then you will still love. We did have COVID which slowed things down, but my investment seemed to survive through COVID. The values were the same, they didn't really drop, and the developer didn't sell that many or drop the prices. So how do I know what the value of my units are? It is because the developer has a sales office and is selling them there and I can go look at their list to view the comps. The only difference between my units and their units is that I picked mine first. So, I picked the best units, and when I go to sell my units now I don't have to sell them for what the developer sells them for, I can sell them for less (or more!) than the developer. I can say with certainty that I got the first choice and this is why I think my units are better units than what the developer still has for sale.
So at this point, I become de facto competing against a developer. The good thing is that the developer is a machine that keeps the values high. They have sales offices and a whole sales force. They put money into marketing and away they go.
They all have a similar formula. They start off with their pre-sales at a lower price. Then they are constantly escalating it upward. So as an owner or buyer your feeling is that the value is basically set by the developer and then your unit is going to follow in price with them. Why wouldn't it be? It's in that development.
To put things simply this is what I do that other people don't do. Some people come here and get a bar. Or, they'll get a restaurant (they're also called carinderias). A caranderia is a little place to eat. A lot of people used to be into uh, what are those places for computers?
Jake: Internet cafes?
Mike: Yeah internet cafes were popular for a while. Me, I go buy Philippines Real Estate. I make an agreement, I make payments that are small (like the size of a used car payment) for these developments. You're only required to put 20% down over a period of time. When the condos are finished you pay off the remaining 80%. So, if you take 20% of something and you're only required to pay that over a two, three or four year period then the payments are pretty small. They don't affect you very much.
What I do compared to what the guy who bought the restaurant does in the meantime is completely different. I get on my motorcycle and I go ride, hang out with my friends and I enjoy my life. The developer hires the construction workers and manages the project, the developer hires marketing, the developer leases sales offices the developer does all of the advertising. They do TV, radio, they do international marketing. As for me I just watch them put all that money into this project I get all of the benefits of what they do. Yet all I did was to agree to buy something and I didn't even pay cash for it! I put down a simple deposit that is usually no more than $500 dollars!
In the Philippines, it's not required to use your social security number when making a purchase and there are no credit reports here. I happen to have great credit, I have a portfolio of properties in America. I worked at a bank and I have a banking background in mortgage banking. So when i walk into somewhere and somebody says it's zero percent interest, then that catches my eye, because normally the only person who charges you zero percent interest is your mom!
People do not go around giving zero percent interest loans, so when somebody says zero percent interest I'm intrigued. So I want to know more, and yes I ask them questions and I try to get the facts. After that I verify things, and it is in fact what they are offereing is zero percent interest. Every payment i've made goes to the principal. It's amazing. So to me, I know a good deal when I see it. Then I have to verify it's not too good of a deal. I do dilligence because when I see something like this I worry that it's a scam. I think we're all the same way, but all of us have bought a car or something else that was a good deal. All of us have bought something that was good and we've found good deals on something that wasn't a scam so we bought it.
If it was a good enough deal to pull the wallet out and pull the trigger then why not?
So let's go and see what I got. We'll take a tour of some of my spots.
Jake: So how's it work with foreigners owning land over here? Is it mostly apartments that people can buy not really the land? How does that work over here?
Mike: Let's use the correct terminology. In the Philippines, they call them condominiums. So with condominiums foreigners can own them 100%. You can own condominiums because you don't own the land you own the air inside your unit and you can own the unit. You can buy it, sell it, and own it in perpetuity. If you read your condominium law here it is very similar to the condominium law in Hawaii. The condominium law is fairly similar in most places in the USA except for a few places (like New York) where they have a lot more restrictions because of owners having a say of who's in the building what and types of stuff like that. I lived in Hawaii for many years and really don't know the details of condo law in places like New York but I know it's a little bit different from other places, but for most of the United States condominium laws are very similar.
Here in the Philippines, I can own here. I don't own the land and I don't own the common area so there's not square footage of the pool that I'm selling to you when I'm selling you my condo. I'm selling you the condo and rights as a member of the association to you. You will have access and the ability to use it.
I happen to be married to a Filipina, so we have been buying land and property in the Phillipines in addition to my condo units that I have here.
I've been acquiring investments that i feel comfortable with. There are many ways to own land in the Philippines if you're not married also. Here people can do corporations, people do shell corporations. To be transparent, I'm not giving advice to anybody on how to do any of that but I know what I've done and I'm comfortable with it.
I've helped purchase land and put it into a legal citizen's name who later made an agreement to lease it to me right after the time of purchase. So that gave me the legal right to use it how I wish, similar to if I owned it myself. I leased it for a specific number of years. So if for some reason somebody made it illegal for me to own a car for whatever reason it would be like of i bought a car and put it in your name and had it leased back to me. If they said she's gonna lease it back to me then in essence it's in their name, they own it but I have a lease on the car you can't come to take it from me unless I didn't pay you the amount that we agreed on.
Why? Because I already paid for the car, they didn't pay for any of the car, so they're just doing me a solid and I'm going to compensate them for that for their trouble. So there are ways to do things here. Once again, I'm not a lawyer, I'm not giving legal advice. I'm not certified to give legal advice to people, I'm just saying it's been done, I've seen it done that way here. Here's one I'm going to shed a little light on.
Let's talk about using the corporation to make a deal. So sometimes they get foreigners as the investor in a corporation here and that can entitle them to up to 40% percent of a corporation with the remaining 60% split up among three Filipino nationals, that the investor may know or not know. Collectively, they own sixty percent of the corportation because we can only own forty percent of a corporation here as a foreigner. We can't own a hundred percent of it. So now we've got you and I and say you and I are gonna put our money together and buy some condos. Well now I've got three partners that I don't know... I'm not personally worried about those three partners because they already understand what we're trying to do, but what if one of them passes away?
Then let's say they have a drug addict son who gets hold of the paperwork and he wants to say hey dad owns part of this corporation and start selling stuff off. That could be a problem.
Another thing to consider with having a corporation here is that you set it up here you're required to report to the BIR, which is the equivilent of the Philippines IRS. You have to report your profit and loss quarterly, so if you're now renting out units there's a lot of paperwork that needs to be filed and maintained.
You need to report everything, even if you made no money, you still have to report that you made no money so for me the last thing I really want to do is wave a big flag at the BIR or the IRS, or anybody else. I'd like to buy a place, wait for it to get finished. Then if I sell it for more, then I'll pay my capital gains just like any other legal citizen. But do I want to start a corporation and for the next four years or five years have to deal with all of these filings and paperwork to maintain? If it's four years that I'm waiting for a place to be built, do I want to be taking the time to have to do all the reporting and paperwork? So yeah, it's a headache to go that route.
Jake: I know for a fact from doing the call center work that I've done over here that being a part of a corporation and having to do all the different reportings with the BIR and with the SEC and all the other places that you have to deal with that there's a lot of drama that comes with it.
Mike: So, I didn't want to volunteer personally remember I didn't want to buy any problems, to me going the corporation route, that's buying a problem. For some that route makes sense, but for me I just prefer to be a more of a one-man show. I never want to end up in a cage for money there's no amount of money that's worth spending my life in a cage, so I enjoy the real estate stuff but I think easier and better to just buy and sell things legally.
It seems like there's no shortage of demand for condominiums out here in the city no and boy if you ask somebody else somebody who doesn't really know the area or might not have looked into it they just seem like they're building them everywhere, (which they are) but I think there's always going to be a supply ahead of the demand here...until there's not, but right now there's plenty of supply there's a lot of people over the years who have bought these as investment and you know those people bought five years ago seven years ago and now are doing very well.
Some of them aren't, but to put things in perspective many of these places are about $35 dollars a month maintenance fees sp who cares if you need to hold onto them for a while? That's not even a night at the Outback for dinner right? If you were from Australia or Great Britain or Ireland or any western country for that matter. Canada, America... you know anywhere that you make a decent wage and you come in here and you can see that you can buy a condo here for a very inexpensive rate. The one thing you can't do right now is to go back and buy for the same price as things were six years ago. However, you can buy it today and six years from now you're gonna say I'm so glad I bought six years ago.
I'm a guy that's been here for coming up on eight years and I bought my first unit within my first month that I was here. What I did is what I always did. I bought real estate on the side, it was always my
level when I came here. The stakes were not nearly as high as what I was used to coming from Maui. From Maui to here is definitely quite a bit of a difference in budgets that you're looking at. For me it felt like playing on the three-dollar crap table after being used to playing on the $100 table. So from going from a $100 minimum bet to a $3 dollar minimum bet it makes it more fun. At the end if we make money we're still gonna high five, but if we're not going to win, if we lose it's never going to hurt in the same way it will in a high market.
I realize not everybody's coming here to do what I do, some people will not be as fortunate but I don't think a guy needs to come in here and get a war story and then walk around and tell these terrible stories
that people love to retell. For instance, let me get a camera an make an example of what I'm talking about.
Listen to this one: Did you know Mike, that when I was younger microwaves came out people used to talk about some story that there was a lady who tried to dry her cat in a microwave? I'm sure there was probably someone who actually did that (maybe not) but that story was told a million times but nobody actually knows the lady who did that. Lot's of the stories people tell about Real Estate in the Philippines are similar, you know it's a story, it's like a war story. It's a terrible story and for some reason it just kept getting repeated over and over.
An example of a story like that here is about people getting scammed in the Philippines. It does happen, but it usually happens to fools. A fool and his money will part soon enought. Normally it's either that they are looking to get rich quick or something. I don't think you need to walk around protecting your wallet with both hands and and being in fear, but you also can't expect to find a nun in a girly bar you know?
So what are some of the main things that people get caught up in? Normally it is it that they end up putting stuff in shady women's names.
I think a lot of them end up in these kinds of situations because they follow their penis in a bad direction. What they do is allow their penis makes decisions for them. Many of them have just gotten away with it in America because they were married for the last 15 years and then they just gave away their half of their house and now they're here and they're single and their penis feeling like it is at an all you can eat buffet and they're in hog heaven. Typically they find a gal that does whatever he wants when he wants (and
there's probably a reason for that) she might not have the greatest reputation but since he's new in town he wouldn't really know. So he's not careful he's just happy and most of the time they are also liquored up and so it might seem like a good idea, and this isn't much but he goes out and he'll spend 20 grand on a piece of land that she said is next door to her father's place or whatever and the guy puts it in her name and maybe builds her a place and then in short order he finds out she's already married or something like that.
Then forever after you hear them telling a story of how Filipinos are all scammers and he got scammed (which is what happened) and tries to convince everyone else that they will too. In reality, he was available to be scammed because of his own poor decisions.
Jake: Aside from women, is there anything paperwork wise that people need to watch out for? Like what's up with taxes and stuff here that you need to watch out for? What else is different when you when you get a place here? I know in the place that I got there was a transfer tax and a capital gains tax that got brought into the whole situation of the deal? By the way, I'm really glad that I had you to go to and get a good idea of what those were about because if I didn't know any better, I would have thought they were trying to scam me out of additional 13% on top of the already agreed upon price.
Mike: What they have here is flat rate here of about a 7% capital gains tax. It's based on the contracted amount, so if you agree to buy something for a million pesos then there's typically a contract between two people. The guy who sold is actually responsible for the capital gains but now sometimes people here say "I want to net 1 million" which means the capital gains will be the buyer's responsibility and the six percent that it takes to register the property into the new owner's name will also be on them so that's a total of 13 percent. So you have to be aware of all that.
It's just nice to have somebody with you who knows what they're talking about when you're looking at property here because you're going to go out and try to reinvent the wheel sometimes if you don't. We're guys, so we're like to be the alpha males or we want to do it ourselves or whatever, but many times that's not the best path to take.
It's nice to just to have somebody along as your wingman to say no this is how it goes and then here's how we can deal with that etc.
You know as a man if you're not sure of where you're going a lot of times we don't even want to ask for directions, which is a reason why women laugh sometimes. We'll drive around in circles and we won't ask for directions. Me, i'm a direction asker. I don't care. I don't need to know it all that's why I'm saying I'm not a lawyer I'm not giving people legal advice, I'm just saying what I've done and it's
you know I am now married to the girl that I put the property into.
I bought what is called tax declaration property, but i also paid a professional to trace the ownership to make sure that what somebody was selling was indeed theirs to sell. In america we have title guarantee escrow we have title insurance. Who owns it is never in question. Anybody selling a property anywhere in the United States that they don't own is going to get caught so fast because there's going to be title insurance, and he's going to guarantee that the title that guy is selling it's actually theirs. They insured that i'm buying your property.
Jake: Where here what happenes sometimes with the tax declaration, correct me if I'm wrong. That's where
basically, who's been paying the taxes on it is the one who is selling it? They're showing you the receipt that they've been paying taxes but they don't necessarily have the title of it for one reason or another? It's not a clear title?
Mike: Well, there are places here, actually a lot of places here in the Philippines that have no cleared and titled property. They just have handed it down for generations and the land has never had a title. Remember, this is a third-world country. So they haven't done the title paperwork and in some cases until recently the property wasn't worth the time and effort that would've taken to do. Perhaps it was farmland, and at one point not so long ago it was so cheap you could literally get a piece of land in trade for a piece of livestock. It used to be that cheap. It's not as cheap as that anymore nor should it, there is some beautiful property here. Most of the land has producing plants on it, some has great views. I mean the secret is kind of
getting out, but I will bet that there are people who come from America just like me who came in and asked how a piece of land was. Then when told much the next thought was:
I ran into a situation like that so I bought it. We purchased some land and what I did is I had to find a level of comfort because just in the investment because it was inexpensive. Just because it was cheap I still did not want to buy a problem so I educated myself and learned all the information I'm happy to share with you.
How did I do it? I shut up and listened. I asked for direction, I said why? I found out that some things that would seem common sense to me weren't exactly common here. I did make some connections with
I try get access to good people. So that's kind of the way I've educated myself. I'm never going to claim to be the smartest guy, but I'm probably one of the harder workers that I've met when it comes to things that I like, and real estate is my hobby.
I don't do this for a living it's made me a great living but I've never done it for a living Ibuy and i sell and i invest. I own and I build and I subdivide and I do it because I like it, not because I have to do it. That's probably why I enjoy it so much here.
They have a thing in the Philippines called a tracer. If you're going to buy tax declaration land you want to use one. Tax declaration land it is not titled land it is another way people here hold ownership. It's called tax deck or tax declaration. So the way you first verify the ownership (and right to sell) is by looking at who's been paying the taxes on it.
If you'll notice none of you or anybody listening is paying taxes on their neighbor's property. Why? Because
The thing that you got to watch out for in the tax deck situation is when you have a situation like maybe there was a title at some point and it gets handed down to um one of like the siblings or something in some sort of inheritance and then that sibling might not have the cash to pay the taxes so their brother or sister or cousin starts paying the taxes on it and they have the receipts of paying taxes even though they know that the other person actually holds the title and they're gonna try to sell it to you acting like they own it, but they know damn well that they don't own it. Later on that person who actually holds the title is going to come out of the woodwork and throw a wrench in everything.
This is how you defend against that. So a lot of people out there are listening to this and going that right there scares me. There's all kinds of scenarios of how things can go sideways. I mean you can just create them at Infinitum,
There's lots of good deals out there. Just make sure you wear yourself out a pair of tennis shoes looking for good deals and enjoy the journey and things will work out. Remeber, greed will get a guy's ass in a crack quicker than anything. You know, it's the "I got to get this now" kind of mentality that will get you.
Listen, don't buy a problem make sure it's clean no matter where you buy. You could be getting place in a subdivision in Pocatello Idaho and your neighbor built a fence on your property line and his fence came over without your permission you own that you have a clear title, but guess what you still need to be prepared to defend what you buy you. You need to be prepared to defend what you purchase here in the philippines if it's tax deck or titled
I have a really good friend of mine who is really sharp. She's actually a tracer so she traces for ownership and she's very good, very reputable. She's the one who educated me in this and she said you need to be prepared to defend it.
and at the end of your life, you could have 10 years worth of rental receipts, or you can have a deed to a property.
I know which one I want so let's go see some more of my properties.
Footnote: If you are looking to get some property in the Philippines (Cebu area) let us know and we'll put you in touch with Mike. He's a great, friendly guy and has been a resource for us that has provided a great amount of assistance to us with our local real estate.