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.
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?