Evaluating a Potential Purchase of Property in the Philippines

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Topic Author
careerdata
Posts: 53
Joined: Sat Sep 09, 2017 7:12 pm

Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sat Jul 25, 2020 2:52 pm

I am not sure this is the correct forum for these questions but my wife has presented me with a situation that is putting me in a place where I feel I am out of my depths to properly evaluate.

Background:

--My wife was born and raised in the Philippines and is now a naturalized U.S. citizen. We have discussed her seeking dual citizenship in the Philippines (RP) to potentially purchase property in the RP but that was to be several years out after she completed nursing school.

--My wife's brother lives in the RP with his family in the home they were both raised in.

--A property immediately adjacent to where my brother-in-law (BIL) lives could be available for purchase in the near future.

--The owner of the property is connected to my wife and BIL in that the owner's older brother is married to my wife and BIL's aunt. He has received an offer of purchase from another individual to pay the full purchase agreement of $112k by November but so far only $12k has been paid to the owner as a retainer. There is no formal purchase agreement in place between the two parties. I am told by my wife that this is how the RP rolls in many purchases in order to keep transaction fees down but this is all new to me.

--The purchaser is no longer sure they can push through with the purchase and now the owner has reached out to my wife and BIL to discuss interest in the property if the original purchaser ultimately backs out and request a return of the retainer.

--The property is located in a residential area with close access to schools and the international airport in Paranaque, which is in the metro Manila region. At first blush It appears the owner is pricing the property at a reasonable market rate of 25,000 pesos per square meter but I have to research that more to be 100% sure.

--Due to the family relationship the current owner allows right-of-way through his property to direct access to the main road and school but my wife and BIL are concerned that a new owner could decide to close off this access, as would be his or her right, and as often occurs in the RP. My BIL is also able to park his car on the owner's property and there is no guarantee a new owner would be willing to do that.

--The house is in good enough condition to rent as-is right now but most rental homes in the area have been converted to renting rooms with a common kitchen instead of renting the entire house to one person or family. The market rate for a room with a common kitchen ranges between $125 and $150 per month as that is about all that can be afforded for many individuals and small families. As many families do not have vehicles they will even rent just one room of a house in order to be within walking distance of the nearby public schools and the mass transit pickup points for work. Some homeowners had to put a limit of no more than 2 or 3 individuals per room due to this demand coming from families. So getting rental income back on this purchase is a possibility but limited in dollar terms given the income levels of those who would be interested in renting a room. To get more rental rooms at $125 to $150 per month we would have to invest some additional money over time to rearrange the layout of the house and expand into an open area of the lot currently not currently utilized. As it stands today the house has two relatively large rooms and a smaller third room that could be rented out after purchase.

--Due to the family relationship the owner is telling my wife that if the current purchase falls through he would be willing to take $75k down from us and allow us to spread out the remaining balance at $1k per month, which would take about three years to fully pay off. The owner may be willing to return the $12k retainer and begin the process with us but that would on the condition we could make the $75k down payment in the next 30 days or so.

--According to Fidelity I have $58k and my wife $39k that could be taken out of our Roth IRAs without tax penalties as they represent the original contributions we made over the years. The rest of the balance in the combined Roth accounts, which is around $53k, is either earnings or tied up in a five-year rule that I need to better understand related to our conversions of TIRAs to our Roth accounts that we completed in 2018. I just turned 55 and my wife is 42 so I am still 5 years away from being to access the earnings in my Roth account if needed without a penalty.

--Between our two paychecks we have $1,250 in free monthly cash flow that is currently going into a savings account for unexpected expenses and home down payment for here in the U.S. My wife is one year away from completing her BSN and once she starts her full-time work as a nurse that will increase our monthly free cash flow another net $1,900 assuming currently hourly BSN rates of $25.50 and then there would another $1,000 on top of that would be freed up as that is being directed to the monthly BSN tuition payments we are currently making that is not covered by her scholarships and loans. So in about a year our monthly free cash flow will increase from about $1,250 today to $4,150 ($1,250 + $1,900 + $1,000). It would be ideal if the owner could wait another year as we would be in a much better financial situation but it sounds like for financial reasons he may have to seek other offers if the current purchaser backs out.

Questions:

--As there appear to be many experienced real estate purchasers in the BH community how would you approach trying to evaluate this opportunity should the original purchaser have to back out? My wife and I have never purchased real estate so we don't know what we don't know at this stage.

--Come this November we will have no remaining fixed debts (car loans and legacy credit card balances will all be paid off) but almost all of our net worth other than $15k in a savings account is tied up in the stock market ($150k for Roth IRAs and $610k for 401ks). We had discussed diversifying into real estate but that was going to be for own home purchase in the U.S. The thought of purchasing a property in the RP was something we were considering further down the road as my wife's vision was to split our retirement years between the U.S. and the RP. How important is it to diversify outside of the stock market in the bigger picture and does diversifying into a rental property make sense as the first step into diversifying our net worth?

--If you are BH community member who has purchased and/or rented properties in the RP do you have reputable real estate and attorney resources you could recommend? Are there publically available resources in the RP that are reliable regarding property values and real estate sales that you utilize? Are you or your spouse a dual citizen of the U.S. and RP or a naturalized U.S. citizen using one of the existing RP laws allowing for limited real estate property ownership?

--As I am 13 years older than my wife and cannot own property in the RP unless it is a condominium that has a specific % of domestic-foreigner ownership would this property be excluded from the community spouse calculations should I need nursing home care at some point? In other words are there some benefits of having my wife as the sole owner of this property with survivor rights to our children that I may not be properly evaluating? I am not 100% sure of this but I believe our two kids can also become dual U.S. and RP citizens and then this property can be put into a trust to pass to them once my wife passes.

My apologies for the long post but hopefully the additional details will make it easier to evaluate our financial picture and the potential opportunity should you have time to review.

Sincere thanks in advance for any advice you can provide!

Best regards,

Joe

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geerhardusvos
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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by geerhardusvos » Sat Jul 25, 2020 2:57 pm

careerdata wrote:
Sat Jul 25, 2020 2:52 pm
I am not sure this is the correct forum for these questions but my wife has presented me with a situation that is putting me in a place where I feel I am out of my depths to properly evaluate.

Background:

--My wife was born and raised in the Philippines and is now a naturalized U.S. citizen. We have discussed her seeking dual citizenship in the Philippines (RP) to potentially purchase property in the RP but that was to be several years out after she completed nursing school.

--My wife's brother lives in the RP with his family in the home they were both raised in.

--A property immediately adjacent to where my brother-in-law (BIL) lives could be available for purchase in the near future.

--The owner of the property is connected to my wife and BIL in that the owner's older brother is married to my wife and BIL's aunt. He has received an offer of purchase from another individual to pay the full purchase agreement of $112k by November but so far only $12k has been paid to the owner as a retainer. There is no formal purchase agreement in place between the two parties. I am told by my wife that this is how the RP rolls in many purchases in order to keep transaction fees down but this is all new to me.

--The purchaser is no longer sure they can push through with the purchase and now the owner has reached out to my wife and BIL to discuss interest in the property if the original purchaser ultimately backs out and request a return of the retainer.

--The property is located in a residential area with close access to schools and the international airport in Paranaque, which is in the metro Manila region. At first blush It appears the owner is pricing the property at a reasonable market rate of 25,000 pesos per square meter but I have to research that more to be 100% sure.

--Due to the family relationship the current owner allows right-of-way through his property to direct access to the main road and school but my wife and BIL are concerned that a new owner could decide to close off this access, as would be his or her right, and as often occurs in the RP. My BIL is also able to park his car on the owner's property and there is no guarantee a new owner would be willing to do that.

--The house is in good enough condition to rent as-is right now but most rental homes in the area have been converted to renting rooms with a common kitchen instead of renting the entire house to one person or family. The market rate for a room with a common kitchen ranges between $125 and $150 per month as that is about all that can be afforded for many individuals and small families. As many families do not have vehicles they will even rent just one room of a house in order to be within walking distance of the nearby public schools and the mass transit pickup points for work. Some homeowners had to put a limit of no more than 2 or 3 individuals per room due to this demand coming from families. So getting rental income back on this purchase is a possibility but limited in dollar terms given the income levels of those who would be interested in renting a room. To get more rental rooms at $125 to $150 per month we would have to invest some additional money over time to rearrange the layout of the house and expand into an open area of the lot currently not currently utilized. As it stands today the house has two relatively large rooms and a smaller third room that could be rented out after purchase.

--Due to the family relationship the owner is telling my wife that if the current purchase falls through he would be willing to take $75k down from us and allow us to spread out the remaining balance at $1k per month, which would take about three years to fully pay off. The owner may be willing to return the $12k retainer and begin the process with us but that would on the condition we could make the $75k down payment in the next 30 days or so.

--According to Fidelity I have $58k and my wife $39k that could be taken out of our Roth IRAs without tax penalties as they represent the original contributions we made over the years. The rest of the balance in the combined Roth accounts, which is around $53k, is either earnings or tied up in a five-year rule that I need to better understand related to our conversions of TIRAs to our Roth accounts that we completed in 2018. I just turned 55 and my wife is 42 so I am still 5 years away from being to access the earnings in my Roth account if needed without a penalty.

--Between our two paychecks we have $1,250 in free monthly cash flow that is currently going into a savings account for unexpected expenses and home down payment for here in the U.S. My wife is one year away from completing her BSN and once she starts her full-time work as a nurse that will increase our monthly free cash flow another net $1,900 assuming currently hourly BSN rates of $25.50 and then there would another $1,000 on top of that would be freed up as that is being directed to the monthly BSN tuition payments we are currently making that is not covered by her scholarships and loans. So in about a year our monthly free cash flow will increase from about $1,250 today to $4,150 ($1,250 + $1,900 + $1,000). It would be ideal if the owner could wait another year as we would be in a much better financial situation but it sounds like for financial reasons he may have to seek other offers if the current purchaser backs out.

Questions:

--As there appear to be many experienced real estate purchasers in the BH community how would you approach trying to evaluate this opportunity should the original purchaser have to back out? My wife and I have never purchased real estate so we don't know what we don't know at this stage.

--Come this November we will have no remaining fixed debts (car loans and legacy credit card balances will all be paid off) but almost all of our net worth other than $15k in a savings account is tied up in the stock market ($150k for Roth IRAs and $610k for 401ks). We had discussed diversifying into real estate but that was going to be for own home purchase in the U.S. The thought of purchasing a property in the RP was something we were considering further down the road as my wife's vision was to split our retirement years between the U.S. and the RP. How important is it to diversify outside of the stock market in the bigger picture and does diversifying into a rental property make sense as the first step into diversifying our net worth?

--If you are BH community member who has purchased and/or rented properties in the RP do you have reputable real estate and attorney resources you could recommend? Are there publically available resources in the RP that are reliable regarding property values and real estate sales that you utilize? Are you or your spouse a dual citizen of the U.S. and RP or a naturalized U.S. citizen using one of the existing RP laws allowing for limited real estate property ownership?

--As I am 13 years older than my wife and cannot own property in the RP unless it is a condominium that has a specific % of domestic-foreigner ownership would this property be excluded from the community spouse calculations should I need nursing home care at some point? In other words are there some benefits of having my wife as the sole owner of this property with survivor rights to our children that I may not be properly evaluating? I am not 100% sure of this but I believe our two kids can also become dual U.S. and RP citizens and then this property can be put into a trust to pass to them once my wife passes.

My apologies for the long post but hopefully the additional details will make it easier to evaluate our financial picture and the potential opportunity should you have time to review.

Sincere thanks in advance for any advice you can provide!

Best regards,

Joe
Hi Joe, this is a lot to read, can you please tightly summarize your net worth, annual spending, income, asset allocation, and ages? It will help you get better answers re: this purchase
VTSAX and chill

Topic Author
careerdata
Posts: 53
Joined: Sat Sep 09, 2017 7:12 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sat Jul 25, 2020 4:31 pm

My sincere apologies for the length! Here are some answers to your questions:

Ages:
--Me = 55
--Wife = 42

Income from Current Positions / Cash Flow for Expenses:
--Me (Senior Benefits Consultant) = $155.5k Gross (Biweekly net take-home pay of $3,100 for annual cash flow of $80,600)
--Wife (Part-time Patient Care Tech) = $15.8k Gross (Biweekly net take-home pay of $550 for annual cash flow of $14,300)
Combined = $171.3k Gross (Biweekly net take-home pay of $3,650 for annual cash flow of $94,900)

Monthly Expenses
--I am still trying to track for a longer period of time and in more detail the exact breakdown of expenses but my net pay currently covers all the fixed expenses (rent, food, auto maintenance, tuition cable, phone, etc.) and on average I am carrying over about $250 to the next month. This will grow to about $1,000 per month of carry-over per month after November 2020 after I complete the final payments left on a final legacy credit card balance at $750 per month that is under a balance transfer offer. We are looking at changes to our phone plan that may free up another $175 per month.
--Our monthly rent is $1,175 and the other large categories are tuition ($1,000 per month on average until she graduates from nursing school in August 2021) and food ($1,250 to $1,500 per month--higher since COVID-19).
--After paying off another legacy credit card balance in June 2020 all of my wife's take home pay has been directed to a savings account and these funds are not currently allocated to any specific expense.

Asset Allocation
-- We have the same asset general allocation across our respective Roth IRA and 401(k) accounts of 70% stock (42% U.S. and 28% International) and 30% U.S Bond. We are only using Index funds in our Fidelity and Vanguard accounts.

Social Security (Me only for now as my wife was a stay-at-home mom until a few years ago)
--$3,160 monthly benefit at FRA age 67 and $3,942 at age 70

Pension (Me Only)
--I am currently vested for a monthly pension benefit of $1,650 but that is without joint-survivor rights for my wife so I need get a more up-to-date number on this with various joint survivor percentages.

Let me know if there are any other details that may be helpful.

Many thanks!

Joe

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Matigas
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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by Matigas » Sat Jul 25, 2020 9:25 pm

You are thinking about purchasing a property for the initial purpose of rental income, in a foreign country, where you will never be allowed to have any control or title to because you are not a citizen of said country? Let me guess, BIL thinks this will be an opportunity with unlimited potential, and he will manage said property in your absence?

000
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Location: Ursa Minor

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by 000 » Sat Jul 25, 2020 9:57 pm

Unless I am a very wealthy individual and this property is <1% of my net worth, I would not do this investment.

Here is the main risk that would concern me: if the deal "goes bad", how do I defend my investment (1) in a country where I don't reside (2) whose language I don't speak (3) without alienating my wife. Seems like a lot of downside potential for little upside relative to other real estate investments that may be available locally.

Edit: a poster below indicated that most business in the Philippines is conducted in English, so the language issue may be less relevant. Of course, the cultural issue - not having an innate understanding of the political, legal, and cultural practices/systems - still remains.
Last edited by 000 on Sun Jul 26, 2020 3:45 pm, edited 1 time in total.

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by Jack FFR1846 » Sat Jul 25, 2020 10:21 pm

careerdata wrote:
Sat Jul 25, 2020 2:52 pm
I am not sure this is the correct forum for these questions but my wife has presented me with a situation that is putting me in a place where I feel I am out of my depths to properly evaluate.

Background:

--My wife was born and raised in the Philippines and is now a naturalized U.S. citizen. We have discussed her seeking dual citizenship in the Philippines (RP) to potentially purchase property in the RP but that was to be several years out after she completed nursing school.

--My wife's brother lives in the RP with his family in the home they were both raised in.

--A property immediately adjacent to where my brother-in-law (BIL) lives could be available for purchase in the near future.

--The owner of the property is connected to my wife and BIL in that the owner's older brother is married to my wife and BIL's aunt. He has received an offer of purchase from another individual to pay the full purchase agreement of $112k by November but so far only $12k has been paid to the owner as a retainer. There is no formal purchase agreement in place between the two parties. I am told by my wife that this is how the RP rolls in many purchases in order to keep transaction fees down but this is all new to me.

--The purchaser is no longer sure they can push through with the purchase and now the owner has reached out to my wife and BIL to discuss interest in the property if the original purchaser ultimately backs out and request a return of the retainer.

--The property is located in a residential area with close access to schools and the international airport in Paranaque, which is in the metro Manila region. At first blush It appears the owner is pricing the property at a reasonable market rate of 25,000 pesos per square meter but I have to research that more to be 100% sure.

--Due to the family relationship the current owner allows right-of-way through his property to direct access to the main road and school but my wife and BIL are concerned that a new owner could decide to close off this access, as would be his or her right, and as often occurs in the RP. My BIL is also able to park his car on the owner's property and there is no guarantee a new owner would be willing to do that.

--The house is in good enough condition to rent as-is right now but most rental homes in the area have been converted to renting rooms with a common kitchen instead of renting the entire house to one person or family. The market rate for a room with a common kitchen ranges between $125 and $150 per month as that is about all that can be afforded for many individuals and small families. As many families do not have vehicles they will even rent just one room of a house in order to be within walking distance of the nearby public schools and the mass transit pickup points for work. Some homeowners had to put a limit of no more than 2 or 3 individuals per room due to this demand coming from families. So getting rental income back on this purchase is a possibility but limited in dollar terms given the income levels of those who would be interested in renting a room. To get more rental rooms at $125 to $150 per month we would have to invest some additional money over time to rearrange the layout of the house and expand into an open area of the lot currently not currently utilized. As it stands today the house has two relatively large rooms and a smaller third room that could be rented out after purchase.

--Due to the family relationship the owner is telling my wife that if the current purchase falls through he would be willing to take $75k down from us and allow us to spread out the remaining balance at $1k per month, which would take about three years to fully pay off. The owner may be willing to return the $12k retainer and begin the process with us but that would on the condition we could make the $75k down payment in the next 30 days or so.

--According to Fidelity I have $58k and my wife $39k that could be taken out of our Roth IRAs without tax penalties as they represent the original contributions we made over the years. The rest of the balance in the combined Roth accounts, which is around $53k, is either earnings or tied up in a five-year rule that I need to better understand related to our conversions of TIRAs to our Roth accounts that we completed in 2018. I just turned 55 and my wife is 42 so I am still 5 years away from being to access the earnings in my Roth account if needed without a penalty.

--Between our two paychecks we have $1,250 in free monthly cash flow that is currently going into a savings account for unexpected expenses and home down payment for here in the U.S. My wife is one year away from completing her BSN and once she starts her full-time work as a nurse that will increase our monthly free cash flow another net $1,900 assuming currently hourly BSN rates of $25.50 and then there would another $1,000 on top of that would be freed up as that is being directed to the monthly BSN tuition payments we are currently making that is not covered by her scholarships and loans. So in about a year our monthly free cash flow will increase from about $1,250 today to $4,150 ($1,250 + $1,900 + $1,000). It would be ideal if the owner could wait another year as we would be in a much better financial situation but it sounds like for financial reasons he may have to seek other offers if the current purchaser backs out.

Questions:

--As there appear to be many experienced real estate purchasers in the BH community how would you approach trying to evaluate this opportunity should the original purchaser have to back out? My wife and I have never purchased real estate so we don't know what we don't know at this stage.

--Come this November we will have no remaining fixed debts (car loans and legacy credit card balances will all be paid off) but almost all of our net worth other than $15k in a savings account is tied up in the stock market ($150k for Roth IRAs and $610k for 401ks). We had discussed diversifying into real estate but that was going to be for own home purchase in the U.S. The thought of purchasing a property in the RP was something we were considering further down the road as my wife's vision was to split our retirement years between the U.S. and the RP. How important is it to diversify outside of the stock market in the bigger picture and does diversifying into a rental property make sense as the first step into diversifying our net worth?

--If you are BH community member who has purchased and/or rented properties in the RP do you have reputable real estate and attorney resources you could recommend? Are there publically available resources in the RP that are reliable regarding property values and real estate sales that you utilize? Are you or your spouse a dual citizen of the U.S. and RP or a naturalized U.S. citizen using one of the existing RP laws allowing for limited real estate property ownership?

--As I am 13 years older than my wife and cannot own property in the RP unless it is a condominium that has a specific % of domestic-foreigner ownership would this property be excluded from the community spouse calculations should I need nursing home care at some point? In other words are there some benefits of having my wife as the sole owner of this property with survivor rights to our children that I may not be properly evaluating? I am not 100% sure of this but I believe our two kids can also become dual U.S. and RP citizens and then this property can be put into a trust to pass to them once my wife passes.

My apologies for the long post but hopefully the additional details will make it easier to evaluate our financial picture and the potential opportunity should you have time to review.

Sincere thanks in advance for any advice you can provide!

Best regards,

Joe
No.

Or more specifically.....Hell No.
Bogle: Smart Beta is stupid

Topic Author
careerdata
Posts: 53
Joined: Sat Sep 09, 2017 7:12 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sat Jul 25, 2020 11:05 pm

Matigas wrote:
Sat Jul 25, 2020 9:25 pm
You are thinking about purchasing a property for the initial purpose of rental income, in a foreign country, where you will never be allowed to have any control or title to because you are not a citizen of said country? Let me guess, BIL thinks this will be an opportunity with unlimited potential, and he will manage said property in your absence?
Thanks for your reply! I think the more accurate description would be that if there is any rental income that comes out of the transaction that would be a bonus to me but more importantly I am very happily married and want to listen to my wife's hopes and dreams and to try my very best to make them happen if I can. The property has clear title to the owner and the owner grew up with my wife and BIL as there are of a similar age. The owner inherited the property from his parents. The property is adjacent to my BIL's house and my BIL's vested interest is not so much financial as it is wanting to help my wife find a property we can build upon in retirement that is close to him. My BIL is a professional working for a global corporation in Manila as a risk manager and while it would be correct to say he thinks the opportunity is promising he has been doing very methodical due diligence on the market, layout of nearby rental homes, and cost per square meter for developed and undeveloped properties. We are still jointly gathering more information and I am doing my part to reach out for insight for the BH community while building alternative budget and cash flow models to see if we can complete the payment over the next three years and not break the family budget.

As I have come to better understand the culture that my wife grew up in after 16 plus years of marriage I think I greatly undervalued initially the importance of her family and friends. Due to our daughter's autism we had to make many financial sacrifices over the last 10 years including just being able to afford one visit for my wife to the RP three years ago to see her family and friends. She misses the food, her brother and her friends greatly and I wish things could have been different financially to allow more frequent visits. When my wife graduates with her BSN in August 2021 and starts full-time work we will still be able to save a large percentage of our annual income but now be able to afford annual trips for her to the RP, which is what many of her fellow Filipino workmates already do. So while I am very focused on seeing if I can salvage some financial benefit from the property until such time that we are able to build on it there is another non-financial factor to this opportunity that is not as easy to convert to dollars and cents (or pesos in this case). My wife is the best thing that has ever happened to me by an exponential factor so I want to do whatever I can for her and our kids.

Regards,

Joe

Topic Author
careerdata
Posts: 53
Joined: Sat Sep 09, 2017 7:12 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sat Jul 25, 2020 11:43 pm

000 wrote:
Sat Jul 25, 2020 9:57 pm
Unless I am a very wealthy individual and this property is <1% of my net worth, I would not do this investment.

Here is the main risk that would concern me: if the deal "goes bad", how do I defend my investment (1) in a country where I don't reside (2) whose language I don't speak (3) without alienating my wife. Seems like a lot of downside potential for little upside relative to other real estate investments that may be available locally.
Thank you for you reply! For the total investment of $112k to be 1% of total net worth I think that calculates to a net worth of $11,200,000 ($112,000 / 0.01)!! My wife and I definitely will not ever be getting to that level of net worth but we are doing our best and after paying down several hundred thousand dollars of legacy medical debt for the care of our autistic daughter we finally have some breathing room budget-wise. Without factoring in my vested pension benefit our net worth is now up to $775k so the $112k paid out over three years in this proposal to secure the house and property would represent approximately 14.5% ($112k / $775k) of our net worth as of last week's measurement.

Your stated concerns are all valid and I am trying to think of ways to mitigate the known risks. One of my wife's high school classmates is a prosecuting attorney in Manila and has been helping us with the laws regarding property ownership and one of my wife's workmates herein the U.S. owns several properties in the RP and we are going to reach out to the attorney she and her family have used for many years regarding the legal document requirements should we proceed with the purchase. But we will try to seek counsel from as many resources as possible to minimize the chances of overlooking something. There is a definite down-side risk but if the financials shake out that the property is fairly priced and I can confirm we can fit the payments into the family budget and still reach all our annual savings goals I think she will want to explore further with the owner regarding the flexibility of the payments.

Starting next year our family budget will allow for my wife to make annual visits to the RP and she will be able to visit in person with the individuals we will be working worth but as my wife is fluent in both English and her native Tagalog she will be able to translate for me if and when needed. My wife has a computer science degree and will have her second bachelor's degree in nursing by August 2021 and is very methodical, careful and sharp as a tack. There is not much anyone can slip past her so even if I am not present I have little worries about her representing our position in the negotiations.

Regards,

Joe

casualflower
Posts: 326
Joined: Thu Jul 16, 2015 9:36 am

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by casualflower » Sat Jul 25, 2020 11:52 pm

careerdata wrote:
Sat Jul 25, 2020 11:05 pm
My wife is the best thing that has ever happened to me by an exponential factor so I want to do whatever I can for her and our kids.
Joe,
The best thing you can do for your wife and kids is to gently decline to be involved in this transaction.

You are an inexperienced real estate investor. A SINGLE red flag should absolutely sink a real estate deal. (If you had some experience, two red flags should sink a deal.)

I'm seeing FIVE red flags.

1) The property does not come remotely close to paying for itself. I won't look at a property unless I can rent monthly it for 1% I won't look at it. Your saying maybe you can get $425 a month for it? That's .35%. Never ever. Think about it. You'd invest $112K to make $4,250 (after maintenance, taxes, vacancy, etc, maybe). That's less than a 4% return. For a higher risk investment. Even doubling the number of people per room, gets 7%, with a lot more work. Not worth it.
2) You do not have the cash to afford this property. If you have to borrow from retirement accounts, the answer is no.
3) The property is in a foreign country.
4) There are easement issues.
5) Family is involved.

Any one of these should prevent this from happening.

Your wife wants to spend time in her home country in retirement. But she has not even started her career yet. When is retirement? Five years? Fifteen? When you're one year away, then start looking for property, maybe. A million things can change in fifteen years.

I understand there are cultural issues around family here, but your wife and children will suffer and you will regret this purchase.

But it seems like you're rejecting everyone who's telling you the same. So, why are you asking for input here if you're refusing to listen to our advice? You're admittedly out of your depth. Let us prevent you from drowning.

000
Posts: 1002
Joined: Thu Jul 23, 2020 12:04 am
Location: Ursa Minor

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by 000 » Sat Jul 25, 2020 11:53 pm

careerdata wrote:
Sat Jul 25, 2020 11:43 pm
000 wrote:
Sat Jul 25, 2020 9:57 pm
Unless I am a very wealthy individual and this property is <1% of my net worth, I would not do this investment.

Here is the main risk that would concern me: if the deal "goes bad", how do I defend my investment (1) in a country where I don't reside (2) whose language I don't speak (3) without alienating my wife. Seems like a lot of downside potential for little upside relative to other real estate investments that may be available locally.
Thank you for you reply! For the total investment of $112k to be 1% of total net worth I think that calculates to a net worth of $11,200,000 ($112,000 / 0.01)!! My wife and I definitely will not ever be getting to that level of net worth but we are doing our best and after paying down several hundred thousand dollars of legacy medical debt for the care of our autistic daughter we finally have some breathing room budget-wise. Without factoring in my vested pension benefit our net worth is now up to $775k so the $112k paid out over three years in this proposal to secure the house and property would represent approximately 14.5% ($112k / $775k) of our net worth as of last week's measurement.

Your stated concerns are all valid and I am trying to think of ways to mitigate the known risks. One of my wife's high school classmates is a prosecuting attorney in Manila and has been helping us with the laws regarding property ownership and one of my wife's workmates herein the U.S. owns several properties in the RP and we are going to reach out to the attorney she and her family have used for many years regarding the legal document requirements should we proceed with the purchase. But we will try to seek counsel from as many resources as possible to minimize the chances of overlooking something. There is a definite down-side risk but if the financials shake out that the property is fairly priced and I can confirm we can fit the payments into the family budget and still reach all our annual savings goals I think she will want to explore further with the owner regarding the flexibility of the payments.

Starting next year our family budget will allow for my wife to make annual visits to the RP and she will be able to visit in person with the individuals we will be working worth but as my wife is fluent in both English and her native Tagalog she will be able to translate for me if and when needed. My wife has a computer science degree and will have her second bachelor's degree in nursing by August 2021 and is very methodical, careful and sharp as a tack. There is not much anyone can slip past her so even if I am not present I have little worries about her representing our position in the negotiations.

Regards,

Joe
Frankly, and with all due respect, I suggest you seriously reconsider proceeding with this at all.

Topic Author
careerdata
Posts: 53
Joined: Sat Sep 09, 2017 7:12 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sun Jul 26, 2020 12:06 am

Jack FFR1846 wrote:
Sat Jul 25, 2020 10:21 pm
careerdata wrote:
Sat Jul 25, 2020 2:52 pm
I am not sure this is the correct forum for these questions but my wife has presented me with a situation that is putting me in a place where I feel I am out of my depths to properly evaluate.

Background:

--My wife was born and raised in the Philippines and is now a naturalized U.S. citizen. We have discussed her seeking dual citizenship in the Philippines (RP) to potentially purchase property in the RP but that was to be several years out after she completed nursing school.

--My wife's brother lives in the RP with his family in the home they were both raised in.

--A property immediately adjacent to where my brother-in-law (BIL) lives could be available for purchase in the near future.

--The owner of the property is connected to my wife and BIL in that the owner's older brother is married to my wife and BIL's aunt. He has received an offer of purchase from another individual to pay the full purchase agreement of $112k by November but so far only $12k has been paid to the owner as a retainer. There is no formal purchase agreement in place between the two parties. I am told by my wife that this is how the RP rolls in many purchases in order to keep transaction fees down but this is all new to me.

--The purchaser is no longer sure they can push through with the purchase and now the owner has reached out to my wife and BIL to discuss interest in the property if the original purchaser ultimately backs out and request a return of the retainer.

--The property is located in a residential area with close access to schools and the international airport in Paranaque, which is in the metro Manila region. At first blush It appears the owner is pricing the property at a reasonable market rate of 25,000 pesos per square meter but I have to research that more to be 100% sure.

--Due to the family relationship the current owner allows right-of-way through his property to direct access to the main road and school but my wife and BIL are concerned that a new owner could decide to close off this access, as would be his or her right, and as often occurs in the RP. My BIL is also able to park his car on the owner's property and there is no guarantee a new owner would be willing to do that.

--The house is in good enough condition to rent as-is right now but most rental homes in the area have been converted to renting rooms with a common kitchen instead of renting the entire house to one person or family. The market rate for a room with a common kitchen ranges between $125 and $150 per month as that is about all that can be afforded for many individuals and small families. As many families do not have vehicles they will even rent just one room of a house in order to be within walking distance of the nearby public schools and the mass transit pickup points for work. Some homeowners had to put a limit of no more than 2 or 3 individuals per room due to this demand coming from families. So getting rental income back on this purchase is a possibility but limited in dollar terms given the income levels of those who would be interested in renting a room. To get more rental rooms at $125 to $150 per month we would have to invest some additional money over time to rearrange the layout of the house and expand into an open area of the lot currently not currently utilized. As it stands today the house has two relatively large rooms and a smaller third room that could be rented out after purchase.

--Due to the family relationship the owner is telling my wife that if the current purchase falls through he would be willing to take $75k down from us and allow us to spread out the remaining balance at $1k per month, which would take about three years to fully pay off. The owner may be willing to return the $12k retainer and begin the process with us but that would on the condition we could make the $75k down payment in the next 30 days or so.

--According to Fidelity I have $58k and my wife $39k that could be taken out of our Roth IRAs without tax penalties as they represent the original contributions we made over the years. The rest of the balance in the combined Roth accounts, which is around $53k, is either earnings or tied up in a five-year rule that I need to better understand related to our conversions of TIRAs to our Roth accounts that we completed in 2018. I just turned 55 and my wife is 42 so I am still 5 years away from being to access the earnings in my Roth account if needed without a penalty.

--Between our two paychecks we have $1,250 in free monthly cash flow that is currently going into a savings account for unexpected expenses and home down payment for here in the U.S. My wife is one year away from completing her BSN and once she starts her full-time work as a nurse that will increase our monthly free cash flow another net $1,900 assuming currently hourly BSN rates of $25.50 and then there would another $1,000 on top of that would be freed up as that is being directed to the monthly BSN tuition payments we are currently making that is not covered by her scholarships and loans. So in about a year our monthly free cash flow will increase from about $1,250 today to $4,150 ($1,250 + $1,900 + $1,000). It would be ideal if the owner could wait another year as we would be in a much better financial situation but it sounds like for financial reasons he may have to seek other offers if the current purchaser backs out.

Questions:

--As there appear to be many experienced real estate purchasers in the BH community how would you approach trying to evaluate this opportunity should the original purchaser have to back out? My wife and I have never purchased real estate so we don't know what we don't know at this stage.

--Come this November we will have no remaining fixed debts (car loans and legacy credit card balances will all be paid off) but almost all of our net worth other than $15k in a savings account is tied up in the stock market ($150k for Roth IRAs and $610k for 401ks). We had discussed diversifying into real estate but that was going to be for own home purchase in the U.S. The thought of purchasing a property in the RP was something we were considering further down the road as my wife's vision was to split our retirement years between the U.S. and the RP. How important is it to diversify outside of the stock market in the bigger picture and does diversifying into a rental property make sense as the first step into diversifying our net worth?

--If you are BH community member who has purchased and/or rented properties in the RP do you have reputable real estate and attorney resources you could recommend? Are there publically available resources in the RP that are reliable regarding property values and real estate sales that you utilize? Are you or your spouse a dual citizen of the U.S. and RP or a naturalized U.S. citizen using one of the existing RP laws allowing for limited real estate property ownership?

--As I am 13 years older than my wife and cannot own property in the RP unless it is a condominium that has a specific % of domestic-foreigner ownership would this property be excluded from the community spouse calculations should I need nursing home care at some point? In other words are there some benefits of having my wife as the sole owner of this property with survivor rights to our children that I may not be properly evaluating? I am not 100% sure of this but I believe our two kids can also become dual U.S. and RP citizens and then this property can be put into a trust to pass to them once my wife passes.

My apologies for the long post but hopefully the additional details will make it easier to evaluate our financial picture and the potential opportunity should you have time to review.

Sincere thanks in advance for any advice you can provide!

Best regards,

Joe
No.

Or more specifically.....Hell No.
Thanks for your reply! So you're saying there might be a chance to make this work financially? :happy

Seriously, my initial response when my wife asked for my thoughts was not too far off of yours but then again she is my wife and she is the key to my happiness. She asked me to look at it financially but to also factor in her wish to build a home there and split our retirement time 50/50 between the RP and the U.S. She wants to live next to her brother and his family and this property is literally adjacent to her brother's property with just a wall currently separating the properties. So if this location is just where she wants to live and she wants me to build a plan to reach that goal if the ideal property presents itself how do I evaluate it? Money in the bank is always best but money in the bank with a wife who loses faith and confidence in you is not good at all. This is why I am trying my best to figure out if I can still make this work and not lose too much money in the end.

Regards,

Joe

Luckywon
Posts: 991
Joined: Tue Mar 28, 2017 10:33 am

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by Luckywon » Sun Jul 26, 2020 2:43 am

You are not in a good position to evaluate or manage this property, which is probably largely the reason this deal is being offered to you. Run away. Sorry you are in this difficult situation.

denovo
Posts: 4505
Joined: Sun Oct 13, 2013 1:04 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by denovo » Sun Jul 26, 2020 3:17 am

careerdata wrote:
Sat Jul 25, 2020 2:52 pm
I am not sure this is the correct forum for these questions but my wife has presented me with a situation that is putting me in a place where I feel I am out of my depths to properly evaluate.

Background:

--My wife was born and raised in the Philippines and is now a naturalized U.S. citizen. We have discussed her seeking dual citizenship in the Philippines (RP) to potentially purchase property in the RP but that was to be several years out after she completed nursing school.

--My wife's brother lives in the RP with his family in the home they were both raised in.

--A property immediately adjacent to where my brother-in-law (BIL) lives could be available for purchase in the near future.

--The owner of the property is connected to my wife and BIL in that the owner's older brother is married to my wife and BIL's aunt. He has received an offer of purchase from another individual to pay the full purchase agreement of $112k by November but so far only $12k has been paid to the owner as a retainer. There is no formal purchase agreement in place between the two parties. I am told by my wife that this is how the RP rolls in many purchases in order to keep transaction fees down but this is all new to me.

--The purchaser is no longer sure they can push through with the purchase and now the owner has reached out to my wife and BIL to discuss interest in the property if the original purchaser ultimately backs out and request a return of the retainer.

--The property is located in a residential area with close access to schools and the international airport in Paranaque, which is in the metro Manila region. At first blush It appears the owner is pricing the property at a reasonable market rate of 25,000 pesos per square meter but I have to research that more to be 100% sure.

--Due to the family relationship the current owner allows right-of-way through his property to direct access to the main road and school but my wife and BIL are concerned that a new owner could decide to close off this access, as would be his or her right, and as often occurs in the RP. My BIL is also able to park his car on the owner's property and there is no guarantee a new owner would be willing to do that.

--The house is in good enough condition to rent as-is right now but most rental homes in the area have been converted to renting rooms with a common kitchen instead of renting the entire house to one person or family. The market rate for a room with a common kitchen ranges between $125 and $150 per month as that is about all that can be afforded for many individuals and small families. As many families do not have vehicles they will even rent just one room of a house in order to be within walking distance of the nearby public schools and the mass transit pickup points for work. Some homeowners had to put a limit of no more than 2 or 3 individuals per room due to this demand coming from families. So getting rental income back on this purchase is a possibility but limited in dollar terms given the income levels of those who would be interested in renting a room. To get more rental rooms at $125 to $150 per month we would have to invest some additional money over time to rearrange the layout of the house and expand into an open area of the lot currently not currently utilized. As it stands today the house has two relatively large rooms and a smaller third room that could be rented out after purchase.

--Due to the family relationship the owner is telling my wife that if the current purchase falls through he would be willing to take $75k down from us and allow us to spread out the remaining balance at $1k per month, which would take about three years to fully pay off. The owner may be willing to return the $12k retainer and begin the process with us but that would on the condition we could make the $75k down payment in the next 30 days or so.

--According to Fidelity I have $58k and my wife $39k that could be taken out of our Roth IRAs without tax penalties as they represent the original contributions we made over the years. The rest of the balance in the combined Roth accounts, which is around $53k, is either earnings or tied up in a five-year rule that I need to better understand related to our conversions of TIRAs to our Roth accounts that we completed in 2018. I just turned 55 and my wife is 42 so I am still 5 years away from being to access the earnings in my Roth account if needed without a penalty.

--Between our two paychecks we have $1,250 in free monthly cash flow that is currently going into a savings account for unexpected expenses and home down payment for here in the U.S. My wife is one year away from completing her BSN and once she starts her full-time work as a nurse that will increase our monthly free cash flow another net $1,900 assuming currently hourly BSN rates of $25.50 and then there would another $1,000 on top of that would be freed up as that is being directed to the monthly BSN tuition payments we are currently making that is not covered by her scholarships and loans. So in about a year our monthly free cash flow will increase from about $1,250 today to $4,150 ($1,250 + $1,900 + $1,000). It would be ideal if the owner could wait another year as we would be in a much better financial situation but it sounds like for financial reasons he may have to seek other offers if the current purchaser backs out.

Questions:

--As there appear to be many experienced real estate purchasers in the BH community how would you approach trying to evaluate this opportunity should the original purchaser have to back out? My wife and I have never purchased real estate so we don't know what we don't know at this stage.

--Come this November we will have no remaining fixed debts (car loans and legacy credit card balances will all be paid off) but almost all of our net worth other than $15k in a savings account is tied up in the stock market ($150k for Roth IRAs and $610k for 401ks). We had discussed diversifying into real estate but that was going to be for own home purchase in the U.S. The thought of purchasing a property in the RP was something we were considering further down the road as my wife's vision was to split our retirement years between the U.S. and the RP. How important is it to diversify outside of the stock market in the bigger picture and does diversifying into a rental property make sense as the first step into diversifying our net worth?

--If you are BH community member who has purchased and/or rented properties in the RP do you have reputable real estate and attorney resources you could recommend? Are there publically available resources in the RP that are reliable regarding property values and real estate sales that you utilize? Are you or your spouse a dual citizen of the U.S. and RP or a naturalized U.S. citizen using one of the existing RP laws allowing for limited real estate property ownership?

--As I am 13 years older than my wife and cannot own property in the RP unless it is a condominium that has a specific % of domestic-foreigner ownership would this property be excluded from the community spouse calculations should I need nursing home care at some point? In other words are there some benefits of having my wife as the sole owner of this property with survivor rights to our children that I may not be properly evaluating? I am not 100% sure of this but I believe our two kids can also become dual U.S. and RP citizens and then this property can be put into a trust to pass to them once my wife passes.

My apologies for the long post but hopefully the additional details will make it easier to evaluate our financial picture and the potential opportunity should you have time to review.

Sincere thanks in advance for any advice you can provide!

Best regards,

Joe
This is a stupid idea.

viewtopic.php?f=2&t=226980

Please read this thread.

So many red flags (1) Getting investments involved with family (2) Involves emptying retirement accounts (3) In a country you are not familiar with the laws, may not be able to actually own anything.

Please be sure to update this thread in future years when it turns out to be a disaster so it at least can serve as a warning for others.
"Don't trust everything you read on the Internet"- Abraham Lincoln

Topic Author
careerdata
Posts: 53
Joined: Sat Sep 09, 2017 7:12 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sun Jul 26, 2020 10:46 am

casualflower wrote:
Sat Jul 25, 2020 11:52 pm
careerdata wrote:
Sat Jul 25, 2020 11:05 pm
My wife is the best thing that has ever happened to me by an exponential factor so I want to do whatever I can for her and our kids.
Joe,
The best thing you can do for your wife and kids is to gently decline to be involved in this transaction.

You are an inexperienced real estate investor. A SINGLE red flag should absolutely sink a real estate deal. (If you had some experience, two red flags should sink a deal.)

I'm seeing FIVE red flags.

1) The property does not come remotely close to paying for itself. I won't look at a property unless I can rent monthly it for 1% I won't look at it. Your saying maybe you can get $425 a month for it? That's .35%. Never ever. Think about it. You'd invest $112K to make $4,250 (after maintenance, taxes, vacancy, etc, maybe). That's less than a 4% return. For a higher risk investment. Even doubling the number of people per room, gets 7%, with a lot more work. Not worth it.
2) You do not have the cash to afford this property. If you have to borrow from retirement accounts, the answer is no.
3) The property is in a foreign country.
4) There are easement issues.
5) Family is involved.

Any one of these should prevent this from happening.

Your wife wants to spend time in her home country in retirement. But she has not even started her career yet. When is retirement? Five years? Fifteen? When you're one year away, then start looking for property, maybe. A million things can change in fifteen years.

I understand there are cultural issues around family here, but your wife and children will suffer and you will regret this purchase.

But it seems like you're rejecting everyone who's telling you the same. So, why are you asking for input here if you're refusing to listen to our advice? You're admittedly out of your depth. Let us prevent you from drowning.
First of all many thanks for the time you took to share your experience and knowledge. This is an excellent post as it is very specific and shares guidelines you use as an apparently very experienced real estate investor to evaluate a property. I am not ignoring or rejecting the advice the BH community is providing but trying my best to look at it from all perspectives.

Your 1% minimum rule-of-thumb measure is especially helpful in that this is something I can easily translate to my wife and BIL and apply it to this specific property even if they would not 100% agree with some of your other red flags.

As with every financial decision we have made in our 16 years of marriage we will sit down together as a couple to weigh the pros and cons after we have gathered all the information we can obtain and talked with as many trusted friends and family members as we can. We will do the same with this situation and I will have my wife review this entire thread as part of the evaluation process. My wife is extremely intelligent and level-headed and she will be able to make her own assessments of the red flags that you and the other BH responders have identified.

Regards,

Joe

Topic Author
careerdata
Posts: 53
Joined: Sat Sep 09, 2017 7:12 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sun Jul 26, 2020 10:51 am

denovo wrote:
Sun Jul 26, 2020 3:17 am
careerdata wrote:
Sat Jul 25, 2020 2:52 pm
I am not sure this is the correct forum for these questions but my wife has presented me with a situation that is putting me in a place where I feel I am out of my depths to properly evaluate.

Background:

--My wife was born and raised in the Philippines and is now a naturalized U.S. citizen. We have discussed her seeking dual citizenship in the Philippines (RP) to potentially purchase property in the RP but that was to be several years out after she completed nursing school.

--My wife's brother lives in the RP with his family in the home they were both raised in.

--A property immediately adjacent to where my brother-in-law (BIL) lives could be available for purchase in the near future.

--The owner of the property is connected to my wife and BIL in that the owner's older brother is married to my wife and BIL's aunt. He has received an offer of purchase from another individual to pay the full purchase agreement of $112k by November but so far only $12k has been paid to the owner as a retainer. There is no formal purchase agreement in place between the two parties. I am told by my wife that this is how the RP rolls in many purchases in order to keep transaction fees down but this is all new to me.

--The purchaser is no longer sure they can push through with the purchase and now the owner has reached out to my wife and BIL to discuss interest in the property if the original purchaser ultimately backs out and request a return of the retainer.

--The property is located in a residential area with close access to schools and the international airport in Paranaque, which is in the metro Manila region. At first blush It appears the owner is pricing the property at a reasonable market rate of 25,000 pesos per square meter but I have to research that more to be 100% sure.

--Due to the family relationship the current owner allows right-of-way through his property to direct access to the main road and school but my wife and BIL are concerned that a new owner could decide to close off this access, as would be his or her right, and as often occurs in the RP. My BIL is also able to park his car on the owner's property and there is no guarantee a new owner would be willing to do that.

--The house is in good enough condition to rent as-is right now but most rental homes in the area have been converted to renting rooms with a common kitchen instead of renting the entire house to one person or family. The market rate for a room with a common kitchen ranges between $125 and $150 per month as that is about all that can be afforded for many individuals and small families. As many families do not have vehicles they will even rent just one room of a house in order to be within walking distance of the nearby public schools and the mass transit pickup points for work. Some homeowners had to put a limit of no more than 2 or 3 individuals per room due to this demand coming from families. So getting rental income back on this purchase is a possibility but limited in dollar terms given the income levels of those who would be interested in renting a room. To get more rental rooms at $125 to $150 per month we would have to invest some additional money over time to rearrange the layout of the house and expand into an open area of the lot currently not currently utilized. As it stands today the house has two relatively large rooms and a smaller third room that could be rented out after purchase.

--Due to the family relationship the owner is telling my wife that if the current purchase falls through he would be willing to take $75k down from us and allow us to spread out the remaining balance at $1k per month, which would take about three years to fully pay off. The owner may be willing to return the $12k retainer and begin the process with us but that would on the condition we could make the $75k down payment in the next 30 days or so.

--According to Fidelity I have $58k and my wife $39k that could be taken out of our Roth IRAs without tax penalties as they represent the original contributions we made over the years. The rest of the balance in the combined Roth accounts, which is around $53k, is either earnings or tied up in a five-year rule that I need to better understand related to our conversions of TIRAs to our Roth accounts that we completed in 2018. I just turned 55 and my wife is 42 so I am still 5 years away from being to access the earnings in my Roth account if needed without a penalty.

--Between our two paychecks we have $1,250 in free monthly cash flow that is currently going into a savings account for unexpected expenses and home down payment for here in the U.S. My wife is one year away from completing her BSN and once she starts her full-time work as a nurse that will increase our monthly free cash flow another net $1,900 assuming currently hourly BSN rates of $25.50 and then there would another $1,000 on top of that would be freed up as that is being directed to the monthly BSN tuition payments we are currently making that is not covered by her scholarships and loans. So in about a year our monthly free cash flow will increase from about $1,250 today to $4,150 ($1,250 + $1,900 + $1,000). It would be ideal if the owner could wait another year as we would be in a much better financial situation but it sounds like for financial reasons he may have to seek other offers if the current purchaser backs out.

Questions:

--As there appear to be many experienced real estate purchasers in the BH community how would you approach trying to evaluate this opportunity should the original purchaser have to back out? My wife and I have never purchased real estate so we don't know what we don't know at this stage.

--Come this November we will have no remaining fixed debts (car loans and legacy credit card balances will all be paid off) but almost all of our net worth other than $15k in a savings account is tied up in the stock market ($150k for Roth IRAs and $610k for 401ks). We had discussed diversifying into real estate but that was going to be for own home purchase in the U.S. The thought of purchasing a property in the RP was something we were considering further down the road as my wife's vision was to split our retirement years between the U.S. and the RP. How important is it to diversify outside of the stock market in the bigger picture and does diversifying into a rental property make sense as the first step into diversifying our net worth?

--If you are BH community member who has purchased and/or rented properties in the RP do you have reputable real estate and attorney resources you could recommend? Are there publically available resources in the RP that are reliable regarding property values and real estate sales that you utilize? Are you or your spouse a dual citizen of the U.S. and RP or a naturalized U.S. citizen using one of the existing RP laws allowing for limited real estate property ownership?

--As I am 13 years older than my wife and cannot own property in the RP unless it is a condominium that has a specific % of domestic-foreigner ownership would this property be excluded from the community spouse calculations should I need nursing home care at some point? In other words are there some benefits of having my wife as the sole owner of this property with survivor rights to our children that I may not be properly evaluating? I am not 100% sure of this but I believe our two kids can also become dual U.S. and RP citizens and then this property can be put into a trust to pass to them once my wife passes.

My apologies for the long post but hopefully the additional details will make it easier to evaluate our financial picture and the potential opportunity should you have time to review.

Sincere thanks in advance for any advice you can provide!

Best regards,

Joe
This is a stupid idea.

viewtopic.php?f=2&t=226980

Please read this thread.

So many red flags (1) Getting investments involved with family (2) Involves emptying retirement accounts (3) In a country you are not familiar with the laws, may not be able to actually own anything.

Please be sure to update this thread in future years when it turns out to be a disaster so it at least can serve as a warning for others.
Thank you for your reply and for sharing the thread link. I will review that and also share with my wife to get her thoughts.

Regards,

Joe

sergio
Posts: 560
Joined: Sat Jun 20, 2015 6:52 pm

Re: Evaluating a Potential Purchase of Property in the Philippines

Post by sergio » Sun Jul 26, 2020 11:11 am

Matigas wrote:
Sat Jul 25, 2020 9:25 pm
You are thinking about purchasing a property for the initial purpose of rental income, in a foreign country, where you will never be allowed to have any control or title to because you are not a citizen of said country? Let me guess, BIL thinks this will be an opportunity with unlimited potential, and he will manage said property in your absence?
If you consider this purchase as a six figure gift to her family, specifically her BIL, then go ahead and proceed, and hope her other family members don't start hitting you guys up for their own properties when word gets around (and it will in the PH).

As another poster said, if this was a tiny portion of your net worth then maybe you could swing it. But to be frank you cannot afford this. You are not in exactly the best shape for 55 years old:

1. You have credit card debt, car loans, and tuition to pay.
2. You are still renting in the US - do you really want to retire as a renter?
3. You mention having a daughter with special needs - will there be long term care issues involved that you may want to save for?
4. Do not count your wife's BSN income until she hits the hospital floor - right now many hospitals are facing a cash crunch and laying off or furloughing workers. My mom who is an RN just got reduced from full time to 60% time.
5. There's also a chance she may want to stop working (I've seen this happen before).
6. What about your kids college?
7. $750k in retirement for a 55/yo seems on the low side, especially given your excellent salary.
8. Take every issue brought up and increase the uncertainty by 50% due to COVID still being an issue.
9. You are at an age where "ageism" starts to become a serious issue if you lose your job.
10. All the issues brought up with owning foreign property, issues with family, etc.

So, conclude, HELL NO.
Last edited by sergio on Sun Jul 26, 2020 11:16 am, edited 2 times in total.

RocketShipTech
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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by RocketShipTech » Sun Jul 26, 2020 11:13 am

sergio wrote:
Sun Jul 26, 2020 11:11 am
6. $750k in retirement for a 55/yo seems on the low side, especially given your excellent salary.
If OP plans to retire 50% in the PH his expenses will basically be negligible for that period, and cut in half for the year.

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careerdata
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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by careerdata » Sun Jul 26, 2020 11:31 am

Luckywon wrote:
Sun Jul 26, 2020 2:43 am
You are not in a good position to evaluate or manage this property, which is probably largely the reason this deal is being offered to you. Run away. Sorry you are in this difficult situation.
Thank you for your reply. This opportunity was definitely not in the multi-year plan and after a decade of tightening the belt to pay down an enormous amount of medical debt for our autistic daughter I was excited to see finally cash flow left each month that was not needing to be immediately earmarked to pay down some other debt. In about a year from now things will be even better once my wife starts work as full-time nurse, as we have built our budget to live off my paycheck and her earnings can be to build even more savings on top of the $40k we save each year to our 401(k)s and Roth IRAs.

I was showing my wife a simple calculation a couple months ago that once she starts work as a full-time nurse if we both max out our 401(k) and Roth IRA accounts each year and we get an average 4% return on our existing account balances of $770k we would soon be in a position to start growing our net worth $100k per year between contributions and earnings. In retrospect I think I was more excited about the calculation than she was but she was happy to see our net worth growing and that my vested pension amount and social security projections were increasing as well. :happy

I think we need to stick with the plan we have been working on for many years now but this needs to be a joint decision that we both agree with so all the comments from you and the other responders are sincerely appreciated!

Regards,

Joe

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by fredflinstone » Sun Jul 26, 2020 11:37 am

RocketShipTech wrote:
Sun Jul 26, 2020 11:13 am
sergio wrote:
Sun Jul 26, 2020 11:11 am
6. $750k in retirement for a 55/yo seems on the low side, especially given your excellent salary.
If OP plans to retire 50% in the PH his expenses will basically be negligible for that period, and cut in half for the year.
I'm not so sure about this. It's not free to live in the Philippines. People who have become accustomed to a high-income country's standard of living are likely to spend far more than most Filipinos do.
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Luckywon
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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by Luckywon » Sun Jul 26, 2020 11:47 am

careerdata wrote:
Sun Jul 26, 2020 11:31 am
Luckywon wrote:
Sun Jul 26, 2020 2:43 am
You are not in a good position to evaluate or manage this property, which is probably largely the reason this deal is being offered to you. Run away. Sorry you are in this difficult situation.
Thank you for your reply. This opportunity was definitely not in the multi-year plan and after a decade of tightening the belt to pay down an enormous amount of medical debt for our autistic daughter I was excited to see finally cash flow left each month that was not needing to be immediately earmarked to pay down some other debt. In about a year from now things will be even better once my wife starts work as full-time nurse, as we have built our budget to live off my paycheck and her earnings can be to build even more savings on top of the $40k we save each year to our 401(k)s and Roth IRAs.

I was showing my wife a simple calculation a couple months ago that once she starts work as a full-time nurse if we both max out our 401(k) and Roth IRA accounts each year and we get an average 4% return on our existing account balances of $770k we would soon be in a position to start growing our net worth $100k per year between contributions and earnings. In retrospect I think I was more excited about the calculation than she was but she was happy to see our net worth growing and that my vested pension amount and social security projections were increasing as well. :happy

I think we need to stick with the plan we have been working on for many years now but this needs to be a joint decision that we both agree with so all the comments from you and the other responders are sincerely appreciated!

Regards,

Joe
Your motivation and diligence are admirable. Your wife and daughter are very fortunate to have you. I hope things turn out well in this matter and the rest of your retirement plan!

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by sergio » Sun Jul 26, 2020 11:48 am

fredflinstone wrote:
Sun Jul 26, 2020 11:37 am
RocketShipTech wrote:
Sun Jul 26, 2020 11:13 am
sergio wrote:
Sun Jul 26, 2020 11:11 am
6. $750k in retirement for a 55/yo seems on the low side, especially given your excellent salary.
If OP plans to retire 50% in the PH his expenses will basically be negligible for that period, and cut in half for the year.
I'm not so sure about this. It's not free to live in the Philippines. People who have become accustomed to a high-income country's standard of living are likely to spend far more than most Filipinos do.
Depending on OP's home airport and time of year, SE Asian countries can be very expensive to fly to - a round trip ticket can easily be several thousands - note OP mentioned before his wife being unable to travel back home much at all because of costs.

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kramer
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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by kramer » Sun Jul 26, 2020 11:56 am

I live in the Philippines and agree with the posters here advising you not to proceed for the same reasons they are stating. I can't add much more but I can tell you that the PI economy is devastated by Covid, more than the US and other developed countries, and property and rental prices have dropped. Also, technically no one is required to pay rent until the declared crisis is over. In the area of your potential property (Manila metro), there has been a 4.5 month lockdown (way stricter than anything seen in the US) with no end in sight except the potential arrival of a vaccine (and such has been stated by the government). Cases are vastly under-reported and it's getting worse, not better.

The only admonishment I don't agree with that was stated above (and it's a small issue) is the language issue ... basically all business here is done in English, including courts, contracts, and leases and it's especially so in the metro Manila area where your property is located.

To your current problems, you can add the burden of filing annual tax returns in the Philippines on your rental income.

Absentee ownership is just not a good idea here, there is not strong rule of law, and there can be squatters issues .... civil matters can take decades to settle. You can't trust all the information you are receiving about the property via the extended family members, either. Something else I really dislike about Filipino law is mandatory heirs, you have to leave a certain percentage to certain family members, and it can't be overridden by a will.

I don't ever plan to own property here, if I can avoid it, and renting is quite inexpensive. If I could title land in my own name, I would consider it someday, but it's not possible. The way it often works for married couples is the wife is the land owner and the foreigner husband owns the house on the land and has a 50 year lease to control the property (25 year lease plus renewable for 25 more years). Doing it is a bit sketchy under the law but it mostly works.

It sounds like you have not spent much time in the Philippines. I would not count on retiring in the Philippines until you have spent a fair amount of time living here. Also, I personally would never live in Metro Manila even though I am a city guy and I love certain large cities like Mexico City... Manila is just not a pleasant place, in my opinion, and is completely lacking in urban beauty.

Feel free to PM me for anything.

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by denovo » Sun Jul 26, 2020 2:35 pm

careerdata wrote:
Sun Jul 26, 2020 10:51 am


Thank you for your reply and for sharing the thread link. I will review that and also share with my wife to get her thoughts.

Regards,

Joe
As another poster pointed out and I missed, you have car and credit card debt, plus you want to empty out retirement accounts. OP, this is by no means a good idea, even if it was stateside.
"Don't trust everything you read on the Internet"- Abraham Lincoln

clip651
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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by clip651 » Sun Jul 26, 2020 2:43 pm

I will throw out a few other ideas for your consideration.

You talk of this being a property for you and your wife to enjoy in retirement. She's not quite gotten started on her nursing career (still in school), and you're not financially ready to retire soon, so retirement is a long way off. A lot can change between now and then that may change your plans for how you want to spend retirement, or what either of you are capable of doing.

A few unknowns for 10+ years from now when you might retire:

1) Covid and long term impacts from that - what will your personal financial situation be, what will the economic climate be like in the Phillipines, property values, etc. We are pretty early in this mess. Governments around the world are struggling with how to cope with it in terms of health and economics and politics and travel restrictions and ... Who knows how long this will go on and what the recovery will be like in different areas. Hopefully in 10 years, we'll all just be reminiscing about that pandemic from years back, but the future is uncertain.

2) Your health and your wife's health at retirement age. Either of both of you could be unlucky and pass away early, or get a serious illness or injury that restricts your ability to travel, etc. Obviously, we all hope this is not the case, but buying a second retirement property that will stretch your finances now is betting that everything goes well for both of you with health, finances, etc, for years to come. And what about your autistic daughter? Will she be independent enough for you to leave her for extended periods of time, even when she's an adult? Or will she come with you, etc?

3) Your wife's brother's situation might also change in coming years - maybe he moves, or gets married (if not already), or has health problems, or whatever. Maybe his part of the city becomes less desirable. Or maybe he meets an American girl and moves here. Who knows.

4) Risk of typhoons and other natural disasters - again 10+ years is a long time to buy a property ahead of when you'll really be able to use it like you and your wife want. If there is damage to the property, who will repair it for you? Who will pay for that? etc.

Given your current financial situation, I think it would make the most sense to keep dreaming about and saving for retirement. When the time gets closer, your financial picture is clearer, hopefully covid is in the rear view mirror, and you've had time to travel back and forth to the Philippines for shorter visits to be sure you know what you both really want and will enjoy, at that point you can start making decisions about how to spend part of your retirement there. When the time is closer to you actually spending more time in retirement in the Philippines, then you and your wife can decide the best way to be close to her friends and family. Maybe that will be renting instead of buying property. Or frequent short visits staying in hotels. Or one long visit a year. Or whatever.

At the moment, you and your wife are being enticed by this property that seems like an opportunity to buy your future dream now. But you're not ready to live that dream yet. With Covid, you likely can't even travel to see the property and visit her brother, and it's unknown when that will change.

Meanwhile, your wife's brother might have some issues if a stranger buys the adjacent property and leaves him with less access to parking and other things about his property that he values. If that's the case, he can try to work out an arrangement with the new owner (perhaps pay for the parking, etc). Or maybe he learns to live with the new limitations. Or maybe he looks for a new place to live. He likely has various options to consider. Any other relatives currently living in the Philippines that want to buy that property, by chance? I don't think you and your wife are in a financial position to solve this problem for your wife's brother at the moment.

When Covid hopefully eases, put some of your extra money into travel to the Philippines regularly, for your wife, and for you too if possible.

best wishes,
cj

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by retire2022 » Sun Jul 26, 2020 3:00 pm

Op

My friend who is half Filipino and white American has expressed the country is lax in laws and it is corrupt.

Your wife is tugging you at your heart strings and others here say this is a bad deal.

Your daughter is special needs child, you maybe overextended, my cousins have two special needs child, in which their father untimely demise due to cancer.

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by 000 » Sun Jul 26, 2020 3:43 pm

kramer wrote:
Sun Jul 26, 2020 11:56 am
The only admonishment I don't agree with that was stated above (and it's a small issue) is the language issue ... basically all business here is done in English, including courts, contracts, and leases and it's especially so in the metro Manila area where your property is located.
I was not aware of this - thanks for the info. I thought Filipino/Tagalog was the language of the courts.

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by sergio » Sun Jul 26, 2020 5:00 pm

RocketShipTech wrote:
Sun Jul 26, 2020 11:13 am
sergio wrote:
Sun Jul 26, 2020 11:11 am
6. $750k in retirement for a 55/yo seems on the low side, especially given your excellent salary.
If OP plans to retire 50% in the PH his expenses will basically be negligible for that period, and cut in half for the year.
I have a lot of experience with traveling/living in SE Asia - it think "negligible" is a huge fallacy.

For one thing, travel costs to SE Asia can be shockingly expensive as there is a lack of competition on these routes. I've seen two people pay $5k to travel to Vietnam round trip with two stops in coach. Second, when he stays in the Philipines, he'll still have to pay things like property tax in the US, health insurance, etc. in the US.

Areas like the Philippines can be very cheap for a healthy 25 year old backpacker who can rough it staying in hostels, eating street food, has no need for medical care, and can put up with very budget transportation options.

A 60+ year will probably want private health/dental care, live in a comfortable house or condo in a "nice" area, eat decent quality food, have comfortable transportation options, and so on. These can be shockingly expensive in SE Asia, and he ain't gonna have that life on $500/month. Maybe $2500/month for himself and his wife, which is certainly not negligible and on par with his after-rent/after-debt-payment expenses in the US.

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by Rubric » Fri Jul 31, 2020 10:48 pm

This is a really bad idea, for all the reasons others have said much better than I will. However, let me add a few.

Manila floods. Often. And building codes/quality of construction are not on par with what you see in the West. Or even Thailand or Singapore. You can’t do a proper home inspection with you there. And you can’t live in the area, observe your surroundings, the infrastructure, the smell. You can’t even decide if you like the neighbors, the karaoke parties, the guy next door with 3 roosters waking you up, the pollution, the traffic, the constant intrusion from the airport a stone’s throw away.... I would need to know all this before deciding to buy my retirement home.

It’s not an indictment of your finances or your love for your wife (although I completely agree that cannibalizing the Roths would be disastrous). You could live near your wife’s family for the ENTIRETY of your retirement without ever buying a piece of property and do it for less money, probably, than buying this place. But it’s not even that. You can’t do your due diligence on this... For that reason alone, it should be passed up.

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by gr7070 » Sat Aug 01, 2020 12:31 am

0. I won't make bad decisions just to make my wife happy; I certainly wouldn't ask that of her! I don't care how much we love each other. Actually, *because* we love each other, is why this won't happen; ever.

1a. Do you want to be a landlord? If yes, 1b. is this a viable option financially? Does the rent cover PITI+M+whatever Philippines ownership might add. At $125 a room it doesn't sound like it's a remote chance.

2. If yes to 1a. and 1b. should you be a landlord across the world? I'm not wholly opposed to absentee landlording; though it's not optimal.

3. Are you certain you've accounted for all possible gotchas involved in buying property in a foreign country?

4. Have/can you properly value this property? Can you properly assess long-term risks of ownership?

5. As a 4 decades long landlord I would not own a rental wanting to live in it eventually. Granted refurb money can overcome this concern.

6. I'm absolutely not buying property you readily concede you don't even have contractual access to. This would have to be as part of the purchase contract and binding to future situations - unclear if current owner is also adjacent property owner and able to grant this contractually???

I'm a big proponent of rental property. Unless this makes sense as an investment it is not "rental property". If you want to buy this for other reasons that's an entirely different decision. But the finances must make sense with that reason in mind.

I'm perfectly OK with owning a second home, as well - I expect to have one internationally in retirement myself. However, that absolutely must be reasonably easily affordable, as well.

It's either rental property and a go for those reasons. Or you can justify the cost (loss) for other reasons. Don't conflate the issues

Certainly don't justify it to make another happy - as that won't long-term.

Sounds like a giant, fat mess blinded by a spouse's irrational desires. What can go wrong.

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Re: Evaluating a Potential Purchase of Property in the Philippines

Post by politely » Sat Aug 01, 2020 1:16 am

Lots of good advice here, and thought to add two considerations. Income projections based on inexperience are usually more optimistic than reality. Given the difficulties here, in particular, your inability to manage, inability to visit, inability to inspect, inability to collect or enforce, and ... inability to be the legal owner, I would consider this dead money or lost money until you actually start living there. And, given the usage of the land by your family members - how will you ever sell it? If it's difficult now to say no now, how will you say no when you own it? If you are determined to move forward, then I would make sure to engage trusted (or respectable, since it seems you don't have local contacts) third-party experts or lawyers to handle valuations, inspections, titling, negotiations, contracts, ownership issues, renting, collection, etc. I would not rely on BIL or BH for any of that, especially when it's 14-15% of my portfolio.

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