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.