[Video] Investing in Foreclosed Assets – An Overview

This is a quick overview (only 8 minutes long) on investing in foreclosed properties / acquired assets in the Philippines. This was the only recording I found of an interview I had at ANC On The Money way back in 2013.

When I first watched this recording, I noticed it was not a complete recording (it got cut short). However, it still provides a good overview for beginners when it comes to investing in foreclosed assets, so I’m sharing it here.

Anyway, I’ll be creating and uploading more videos, so let me know in the comments if you have questions.

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Video Transcript

Jay Castillo: Any property that can be mortgaged, if the buyer defaults they can be foreclosed. Real estate, vehicles (repossessed cars), sometimes they call it chattels (personal property).

Edric Mendoza: Okay…

Jay Castillo: So office equipment… although we don’t get that much chattels.

Edric Mendoza: Okay…

Jay Castillo: Mostly real estate, and we also have tax delinquent properties.

Edric Mendoza: Interesting…

Jay Castillo: Those are foreclosed by the local governments, for not paying real property taxes. And some are foreclosed by the BIR.

Edric Mendoza: Okay, so the question is, how are you able to source all of this?

Jay Castillo: Oh, we have contacts, we have relationships with banks, and other government lending institutions, we get their listings, sometimes they send it to us also, so we put them all in our database.

Edric Mendoza: I see alright, and which one this is most lucrative?

Jay Castillo: I would be biased for real estate.

Edric Mendoza: Why?

Jay Castillo: First of all, you only need to put up a small percentage for the down payment. Usually ten or twenty percent and then you have control of the whole asset.

Edric Mendoza: Really? Okay…

Jay Castillo: Yeah, and you own it. You can sell it later on. You can lease it out. [All this] for only 20% down payment.

Edric Mendoza: Whereas for the other asset types like vehicles etc?

Jay Castillo: Usually it’s cash. Full amount.

Edric Mendoza: When you talk about those options that you mentioned, what’s the most affordable?

Jay Castillo: I saw a foreclosed vacant lot in Santa Ignacia, Tarlac. Four hundred square meters, a vacant lot, it’s only one hundred thousand pesos. Imagine that, two hundred thirty pesos per square meter.

Edric Mendoza: Wow!

Of course it’s in Tarlac. [But] these are the possible numbers that you’ll get.

Edric Mendoza: Okay. As high as? Since we looked at that?

Jay Castillo: As high as… last year we saw one property got sold for Php780 million.

Edric Mendoza: And for vehicles, what are the range of values that you will see?

Jay Castillo: Maybe the most expensive I saw was a BMW for around Php2 million.

Edric Mendoza: Okay, that’s the most expensive already?

Jay Castillo: Yeah.

Edric Mendoza: Okay. Typically, what would you see as foreclosed vehicles, say in your portfolio?

Jay Castillo: Around Php200,000 for a 2013 car.

Edric Mendoza: Okay, and generally the condition of these things? Because properties will
remain as properties, but for vehicles, are they still in good condition, or any
guarantees etc?

Jay Castillo: No guarantees. You have to bring your own mechanic. The thing is, you have to inspect it thoroughly because you cannot test drive it.

Edric Mendoza: Ah, you CANNOT test drive the vehicle.

Jay Castillo: The only thing you can do is start it. Then move an inch or two, that’s it. So you have to have a trusted mechanic go, under the car and check it out.

Edric Mendoza: That’s part of the risk I guess obviously involved in lieu. Let’s talk about the property, so you see a property that’s already existing, what sort of leeway do you grant the possible buyer to look, inspect, and and examine it?

Jay Castillo: We give them every chance to inspect.

Edric Mendoza: I see… You mentioned things that are under chattel right? Yeah. So that would be electronics, office equipment. If a person were to invest in it, my question is, how can a person actually make money from buying those things.

Jay Castillo: It’s like you can get them practically for free. You rarely see those listed. But you can have them come free with the foreclosed properties so you get them for free… practically for free, and then you can sell them. You don’t pay for them at all, and sell them. 100 hundred percent profit.

Edric Mendoza: Okay what typically are the margins that people can get from flipping.

Jay Castillo: Okay, for a real estate, you can practically get them for half the price. For example…

Edric Mendoza: Wow!

Jay Castillo: You get a property with a selling price of 1 million, but the market value would be 2 million, so you you get it for just 10% or 20% of the 1 million, and then you renovate it a bit, turn around, sell it for… don’t sell it for 2 million, sell it for maybe 1.8M or 1.9M, still below, so that you can dispose it quickly.

So imagine the profits there even after all the taxes.

Edric Mendoza: Okay, can a person be 100% guaranteed that there are no Liens, you know, in the titles… or there are no other buyers and issues with the vehicles for example they buy?

Jay Castillo: There’s no 100% guarantee.

Edric Mendoza: There is none… okay.

Jay Castillo: But as they say, they have a full disclosure policy.

Edric Mendoza: Who has a full disclosure policy?

Jay Castillo: The banks. Whatever information they have, they give it to you, it’s your duty as part of due diligence to verify the information they gave you, so you really have to do your homework.

Edric Mendoza: So let’s say in foreclosed properties, what sort of taxes are still involved and maybe even vehicles if any, when they now purchase these assets?

Jay Castillo: For properties the usual is, the buyer will shoulder the documentary stamps tax, transfer fees, transfer tax, registration fee, and the banks usually shoulder only the creditable withholding tax, similar to capital gains, but it’s CWT for banks.

Edric Mendoza: Okay.

Edric Mendoza: Payment schemes? For those who actually buy through you, from you?

Jay Castillo: Depends on the bank, the usual is 10% or 20% down payment upfront, and then the rest can be financed through in-house financing of the bank, or through a mortgage loan also from the bank, or other banks.

Edric Mendoza: I see, there are no financing schemes directly w/ you?

Jay Castillo: No.

Edric Mendoza: Tips for people who are now looking at foreclosed assets?

Jay Castillo: Do your homework, you can’t just go out there and buy any foreclosed property you see. Because I’ll be the first to tell you, not all are good deals.

Edric Mendoza: Okay, so how will a person know?

Jay Castillo: Depending on what your objectives are.

Edric Mendoza: Okay.

Jay Castillo: If you’re simply someone looking for a home, you don’t need to make money or make a profit, then you can be conservative, you can settle for a price that is equal to the market values.

But if you’re an investor, you want to make a profit, you can’t just buy a property at the price equal to the prices of other properties at the same location. You need to buy below market value.

So your homework would be to find those properties that are way below market value.

If you encounter a property that is occupied, just walk away… you don’t want the headache at the start… If you buy a property that looks like a good deal, but you know it’s occupied by the former owner, you’re acting in bad faith because you’re buying a property and you’re aware that there’s a problem and you can’t back out.

You have to buy it as is, and you inherit all the problems associated to it.

So if you’re just starting out, focus on the properties that don’t have any [or have the least] problems, and start small.

Edric Mendoza: When a person now sees a property right, they have to bid? Auction for it? Is that correct?

Jay Castillo: It depends on the bank. Some banks, they sell thru an auction. For those, you have to attend.

Edric Mendoza: Okay.

Jay Castillo: Some banks, they sell through a negotiated sale. So you just have to submit an offer.

Edric Mendoza: Okay and you would see those on the site?

Jay Castillo: Yeah, we make announcements. The moment the bank gives the listing, we already prepare the announcement, and once we announce it, it’s the soonest possible time that we can.

Edric Mendoza: Right. And I guess since the bank is giving it to you, then they’re also giving that to other people, is that right?

Jay Castillo: Yeah.

Edric Mendoza: So you are competing not just with the people who see it on your site, but everybody else, but would you say that your from a first… ForeclosurePhilippines.com, you’re one of the first…

Jay Castillo: Yeah.

Edric Mendoza: So everybody sees it there for the first time. Okay.

Too short? Want more?

If you feel something got left out of this video, you’re right. As mentioned above, this video recording is not complete.

I remember the interview lasted for more than 20 minutes, but the recording they uploaded to anc.yahoo.com (when it was still online) was just 8 minutes long. 🙁

Anyway, my wife and I will be more active in youtube… what topics do you want to see?

Let us know in the comments below.

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