Filipinos love houses. It’s no secret that the ubiquitous Filipino seaman pays for a window this month, a wall next month, the backyard the following month…all in the name of a happy house for his family.
Today’s Money Myth Buster is really easy. The tip is: Buy your second house first.
The common tendency is to buy the dream house on the first try. That means buying the one that has the ideal living room, the kitchen that opens up to the east, the house with a bath for every bedroom and two or more guestrooms. Budgets are stretched to the limits. A few months later, amortizations and other hidden costs and series of unexpected expenses become totally agonizing. This tip says this is not a smart way to buy a house.
Go for your second house first. Buy a simpler, more affordable one that will fit your cash flow and shelter your family without putting your savings and retirement planning in the backburner. When the cash flow gets better, then upgrade to a better house and lease or sell the first one.
Makes very good sense to me.
Also, be very careful in analyzing projected amortization costs, especially when you are considering in-house financing. These days, developers use balloon payment methods that make monthly amortizations appear very affordable. They will show a computation sheet that will put monthly payments at below P25,000 for example, and then require you to pay P150,000 on the 20th month. That’s dangerous because majority of Filipinos don’t have the discipline to program their spending.
In general, bank financing is cheaper than developers’ in-house financing. I heard that Megaworld’s financing deal with Security Bank is the most attractive deal in town. I haven’t seen the figures yet, but because the statement came from a competitor, I would say it’s worth taking a second look. 
Don’t forget to budget for one-time expenses and hidden costs like transaction fees or broker fees, new appliances and furniture which you will surely buy for your swankier home, installation costs of these appliances, real estate tax, the cost of moving to your new home, among other things. These are smaller expenses, but taken together can set you back at least P50,000.
Remember the seaman? Contrast Filipinos with the traditional Chinese businessman, who puts off buying a ritzy house for his family. He will rent a P20,000 apartment, use the first floor as a warehouse or automotive supply store or whatever, then use the second floor as his family’s living area. His revenues from the store more than pays for the P20,000 rent and he doesn’t have maintenance and real estate tax payments to worry about.
I know not all of us will follow the footsteps of the Chinese businessman. There is nothing wrong with wanting to get a good home for your family. But go into the deal with wide eyes, well prepared for the expense. You may think it is an investment, but it really will be first and foremost, a sinking black hole of expenses if you are not careful.
August 1st, 2007 at 9:45 pm
Pinoy Investor,
your story is great. im 19 and have owned my home for over a year now. to get this far it has needed a savings plan and a good think about every move. i borrowed 170k with 30 down flat. am now putting all what i can into my repaiments. my repaiments each week are 287 but am paying 500. i have one person living with me paying $100 each week wich makes it easer. in a few years i will sell my house for about 40k more and use that money for a second house. i wont stop lurning wich in my mind means, no matter what happens i will never fall back.
June 6th, 2007 at 12:39 pm
This belongs to an entrepreneurship blog but I’ll put it here anyway as it might help would-be entrepreneurs.
In entrepreneurship, the key to success is failure. It’s easy to see why. Statistics say only 1 out of 10 small businesses succeeds. So if you don’t try, you will not succeed. If you try once, the odds are against you, you will unlikely succeed. But if you try 10x, the odds favor you, you will likely succeed. This means you’re unlikely to see success until you’ve seen 10 failures. Maybe the only difference between a successful entrepreneur and a failed entrepreneur is that the latter gave up too early.
When Thomas Edison was developing the incandescent lamp, he tested 10,000 different filament materials before finding a successful one. When asked why he had so many failed experiments, he said those are not failed experiments, those are 9,999 prototypes.
If you’re thinking of starting a business, the question is not whether you will lose money. The question is how much you will lose. Remember you have to spend 9 prototypes. So don’t be afraid to fail.
June 6th, 2007 at 9:55 am
Pinoy Investor,
I salute you man! your story is inspiring …then living modestly inspite of your wealth…and sharing your experience here…that is really good individual you have there…may we all in the same path you are in one of these days!
cheers!
June 5th, 2007 at 7:22 pm
Nice n inspiring story u have man, keep it up! Being cheap almost always accompanies being rich, e.g. Gates and Buffett. And being daring in ventures counts a lot, too.
I had to be somewhat more defensive w/ my money on TV given the glaringly public circumstances it came. One false move would mean public insult in addition to injury. I don’t think you or me or my parents would ever wanna endure coming out in the news like this:
http://showbizandstyle.inquirer.net/breakingnews/breakingnews/view_article.php?article_id=69631
Oh I’m so relieved I just grabbed the money and ran (and invested). coz man, entertainment now has ten times more sex and trash! No, really…
June 5th, 2007 at 12:37 pm
hachiko:
Thanks for the complement. It’s not true I avoided the pitfalls. It’s more like getting out of the pits after the fall. My wife and I tried and failed in so many things. We tried selling drugs, clothes, fashion accessories, jewelry, dry goods, motor oil, comics, watches, bags, food, health products, kitchenware. We tried everything including a stall in the wet market. I probably lost 70% of my net worth before we succeeded in anything.
We’re lucky we didn’t lose everything and now we have 17M investments. We still live modestly. I still drive my old corolla. She still shops in divisoria. We both wear ukay. We’re cheap you know.
June 4th, 2007 at 7:20 pm
pinoyinvestor - I could relate to you my aunt in New York, she owns a Central Park West one-bedroom apartment for just $130k in 1986, as of 2004 it could rent for $2,000 a month and fair value of around $550k… dunno if the S&P 500 grew more than that though. And I get to sleep in NY for free so I’m not complaining
http://www.inquirerbloggers.net/moneysmarts/2007/05/29/are-all-pre-need-products-worthless/#comment-2405
Have comments for you above. Just wonderin about all the inconveniences you’ve had to bear in building up your fortune. I was still in elementary c 1989
June 4th, 2007 at 4:14 pm
hachiko:
Real estate is not good investment if you buy at market price. I only buy at big discount. I got into real estate business by default. My wife inherited large tract of raw land. We had to develop and sell it to make money. (we’re developing a residential subdivision with a joint venture partner)
Given a choice, I’d rather be in the banking business. Last year my business partner and I tried to buy a small bank but the stockholders wouldn’t sell. Oh well, win some, lose some. Not bad I guess for a soda boy in Jollibee. (yup, that’s my first job in 1989)
June 4th, 2007 at 1:23 pm
Salve,
can you ask Miro Quimbo of Pag-ibig about their housing bonds? Im interested with these housing bonds to add to my protfolio as fixed income. Thanks!
June 4th, 2007 at 10:36 am
http://biz.yahoo.com/fool/070518/117951154741.html?.v=1&.pf=real-estate
here’s da link…
June 4th, 2007 at 10:35 am
Hi everyone, what u think of this link on real estate being bad investments?http://biz.yahoo.com/fool/070518/117951154741.html?.v=1&.pf=real-estate
I don’t really buy it 100%, good point though on a few facts. Case-to-case basis really, making money on real estate
June 2nd, 2007 at 8:49 pm
what’s the current real estate tax per sqm in the ortigas area??? Do we also have real estate taxes for condos? thanks!
June 2nd, 2007 at 2:13 am
juan, hmm thats an interesting information you got there. perhaps we should ask megworld to comment. my problem with getting a house down south is the toll cost. i dont recall the computation i made about that before, but using the “multiply by 12″ tip we discussed in a previous post, it was pretty high.
pinoy investor, as PBF said, you deserve a big round of applause. when the cash flow allows it, being smart with investments, especially real estate may reap rewards.
starter boy, stay tuned. im going to arrange an interview with Miro Quimbo of Pag-ibig pretty soon!
June 1st, 2007 at 9:21 pm
how about taking a loan with pag-ibig? we have a property in the province and i was planning to make a big long-term loan with pag-ibig ang build an apartment/1st hosue for me. hehehe
June 1st, 2007 at 5:33 pm
PBF:
My boss once said if you’re such a good businessman, what are you doing here working for this company instead of out there making money for yourself. He was right. I asked myself why can’t I do both? So I did. I’m both employed and self-employed. But I make twice as much from my business and investments. My job is business development so I do the same thing for the company and for myself.
June 1st, 2007 at 3:43 pm
pinoy investor
That’s not my game-borrowing. I’m still on the saving part though. But good to read an inspirational story from you. I’m still optimistic and I think it is not too late. I know I’ll need to loan money someday, and I will be prepared by that time =) You really live up to your name, i wish I have the same courage as yours =)
I just wanted to know if you have an 8-hr day job or full time investor?
June 1st, 2007 at 2:52 pm
PBF:
It’s a small house 100 sqm floor. Financed by savings + borrowed money. We sold the second house but we bought 2 more so we now have 4. We’re going to sell all except our home. We only buy when it’s cheap.
June 1st, 2007 at 1:57 pm
pinoy investor,
First house at 22? You are really lucky! you must have earned so much after graduating from college =)
June 1st, 2007 at 12:45 pm
I bought my “first” house 12 years after building my first house. I built my first house at age 22. I didn’t need it. I was single then and living in my parent’s house. It was purely opportunistic. The land was cheap and I got a good price from the contractor. I bought my second house at 26 for investment. I was still single and living in my parent’s house.
When I got married I owned 2 houses but we just rented our home because somebody’s renting house 1 and we were selling house 2.
We made more money that way. We would have continue renting our home but the owner was selling it. We had to buy it to prevent somebody else from buying it and evicting us.
May 31st, 2007 at 12:15 pm
Hi Charles - I guess it depends on your purpose for buying. If you plan to sell it, it’s an investment. If you plan to live in it, then it’s an expense (luxury).
But then again if you just want to earn from the real estate boom, another alternative is trading shares of real estate companies. easier to trade than a house and lot. = )
May 29th, 2007 at 5:37 pm
very interesting. i thought all along that investing in a house and lot first was the best and only advise for people but apparently not.
May 29th, 2007 at 3:55 pm
plus… the Chinese businessman is able to deduct the rental of his house/store as expense for running his business/enterprise. (it’s a legal tax-deductible business expense after all). so that means a smaller taxable income for him.. ; - )
May 29th, 2007 at 10:10 am
Hi Salve, reminds me of your comment here: http://www.inquirerbloggers.net/moneysmarts/2007/04/25/what-love-can-do-to-your-finances/#comment-1249
Just like marriages, real-life utilitarian houses will always be better than white elephant dream houses.
May 29th, 2007 at 9:46 am
I’ve read in a MSN article last month, that sometimes it is better to rent than to own a house, and invest the money that are supposed to be mortagage payments, and save yourself from a whole lot of other money problems associated with owning a house (i.e. real estate taxes, maintenance/repairs). But of course when rent=mortgage payment, why not?
May 29th, 2007 at 9:03 am
I’m really not sure about megaworld. I just have some hesitation with their construction ideology of putting up high buildings in Libis which is an earthquake fault. I actually just heard about this from friends. Maybe i’ll buy my second house somewhere in the south where there are a lot of developments on going.