How I started with investing in foreclosed properties (What happened to my first purchase?)

People often ask me “How can they get started with investing in real estate?” which I answered in this talk during the TGFI Financial Literacy Summit last April 2, 2017 at the SMX Mall of Asia.

I shared my journey and how I was finally able to start with investing in foreclosed properties (and why I started). I believe “a big why” is just as important as the “how” because, without the “why”, I probably would have given up on real estate investing and never got started.

I also explained what happened with my first foreclosed property purchase (along with some lessons learned), which I bought via auction.

Part 2 of this video where I explain why I decided to buy the property mentioned here (because I believe it was a good deal) is now available: https://youtu.be/ZL1zCtCShWY

Timestamps

0:00 Intro

0:04 Too much stress at work

0:39 The book Rich Dad Poor Dad (2005)

0:57 Think Rich Pinoy book

1:22 Studied for the 2007 real estate brokers’ exam (for the knowledge)

1:41 I learned a lot from Engineer Enrico Cruz

1:59 Raising capital for my first property

2:15 How I tracked my expenses

2:40 The book Simplify by Bo Sanchez

2:53 The “Money Jar” method

4:06 The goal of tracking my expenses

4:27 My first completed real estate deal (2009)

5:32 What happened to my first purchase?

5:59 Rent-to-own converted to bank financing

6:32 My tenant-buyer’s concerns

7:00 A Win-win-win deal

7:29 More deals

7:53 I finally quit my IT Manager job

8:12 My blog foreclosurephilippines.com

8:42 Up next: How was I able to identify a good deal?

Video Transcript

How did I start with investing in foreclosed properties?

Too much stress at work

I was too stressed at work, I was the IT Manager for the company I used to work for.

Who are in the I.T. field?

Which of you are stressed?

There you are. I hope you won’t get too much stress.

For me, it was too much already. I was already diagnosed with hypertension at a young age.

I know my job was the cause of the problem and stress because I was not yet married. When I got married and was stressed, it was easy to identify the cause. Joke only! My wife is here… sorry! Sorry!

The book Rich Dad Poor Dad (2005)

I was too stressed at work, and then, I had this office-mate who introduced me to a book, Rich Dad Poor Dad.

Who of you here have read the book?

There, a lot of you have read it.

They say this book launched a lot of real estate investing careers and I agree.

So I read Rich Dad Poor Dad in 2005.

Think Rich Pinoy book

But it was this book, Think Rich Pinoy, that showed me how to actually do it in the Philippine setting.

I also attended the seminar, just like you guys. But that seminar of TRP was small.

That’s me, so I was just sitting at one corner.

That was Doctor Larry Gamboa speaking. I learned a lot from that seminar and it inspired me to pursue a more deeper understanding of real estate.

I Studied for the 2007 real estate brokers’ exam (for the knowledge)

I also reviewed for the 2007 real estate brokers’ licensure exam, and I passed, but I attended the reviews mostly for the knowledge.

I did not intend to become a broker. My real purpose was to use the knowledge so that I can actually invest in real estate, which I got from Engineer Cruz.

I learned a lot from Engineer Enrico Cruz

Who of you have attended trainings of Engineer Cruz?

There, so some of you.

Okay so Engineer Cruz is very “No Non-sense” and I maximized the trainings because I asked questions about the foreclosed properties I was going to buy.

Raising capital for my first property

And I wanted to raise capital for my next deals.

Who here tracks their expenses?

Very good!

Because, it was one big building block which was how I was able to start investing in real estate.

I tracked my expenses. This is a screenshot from my O2 XDA.

Who of you are familiar with XDA’s?

None of you, I’m really like a dinosaur.

Anyway, this is a bit small, but you’ll see all of my expenses, and there were days I did not spend money on expenses, I was so proud.

The book Simplify by Bo Sanchez

And then, because of my tracking of my expenses (Actually this came from Brother Bo Sanchez, Because of the book Simplify, I simplified everything, I was able to save a lot…

I was able to save money for capital for foreclosed properties that I wanted to buy.

The “Money Jar” method

I used the “Money jar” method.

So for 1 whole year from August 2007 to July 2008, here are my statistics.

I was able to save from a target of 15% of my monthly income, I was able to save 25.72%.

FFA stands for Financial Freedom Account (Money for investments)

25% of my entire salary for 1 year.

LTSS: Long Term Savings for Spending. That’s is for doodads, gadgets etc.

17% was very bad because it should only be 10%. But it was still okay.

For my “Play” this is for vacations or whatever, it was supposed to be 10%. I was good with this.

I spent less than 1%, which probably made my wife bored, we did not spend on vacations.

And next, for Education/seminars, I also spent little, only 1.43%

For Tithe… 5% was the target…

I was very bad, I only saved 1.35%

Expenses, I cut it down to 52.7%

The goal of tracking my expenses

What’s the point of this?

This is what you need to do for you to be able to invest in anything, not just real estate.

You need to manage your finances. Financial literacy is this and because of that I was able to start.

The money jars, I got from the Secrets of the Millionaire Mind [book]

My first completed real estate deal (2009)

This is my first completed deal (2009).

So it took awhile, from 2005… to 2009, before I got a deal.

I had a few obstacles.

But since we don’t have enough time, I will just focus on what you can learn from my first deal.

This is an auction from RCBC Savings Bank…

This is my lucky paddle, the thing you raise during the auction and this is the property that I was able to win during the bidding.

So the foreclosed property was for sale at Php1.194 million and I won at minimum bid price there were no other bidders.

Actually I was very worried.

If there were no other bidders, what do you think was on my mind?

Any guesses?

Overpriced!

Ugly property!

Right!

I thought of that. It’s like, maybe they saw something. I was the only one dumb enough not to see any problem. That was my dilemma.

But still, you already know that I still made a bid.

What happened to my first purchase?

What happened?

I sold it for Php1.9 million. Rent to own.

So from Php1.194M… let’s say Php1.2M, I was able to sell for Php1.9Million.

Not bad.

And after 2 years, my buyer…

Actually more than 2 years, almost 3 years…

My buyer paid in full through a bank loan.

Rent-to-own converted to bank financing

So from rent-to-own, we converted it.

Actually, that’s one of my tips: Because rent-to-own…

As my wife often says, it’s an animal that we don’t understand, because…

How is the taxation of rent-to-own?

If there’s anyone here who can answer me with a definite answer, lets talk.

It’s really hard…

My wife is a CPA-Lawyer, and she’s asked so many people, no one can give a definite answer

How is the taxation for rent-to-own scheme’s?

My tenant-buyer’s concerns

Even my tenant buyer has many concerns.

What if something happens to me, I’m the one dealing with the bank.

If something happens to me (knock on wood), I won’t be able to pay my monthly amortization to the bank.

And then, my buyer, who is a third-party…

The bank will not recognize them.

That is the risk. That is the risk of rent-to-own

So what we did was, we converted it to bank financing

The buyer got a loan take-out.

A Win-win-win deal

The selling price was Php1.9M, was that okay?

For me it’s okay, but for my buyer? Did I take advantage of my buyer?

No.

The property was appraised by a bank for Php2.4Million.

Meaning, Win-Win-Win.

It’s a win for the bank.

It was a win for me.

It was a win for my tenant-buyer.

So that was the goal. Admittedly deals like this are harder to find.

But if you are patient and persistent, you will find one like this.

More deals

So because of that deal, that led to more deals, one after another.

Actually in 2009, my target was 4 properties, I was able to buy 3 out of 4.

What prevented me from doing a 4th deal… The name was [Typhoon] “Ondoy”.

Because our house was devastated by [Typhoon] Ondoy, I no longer bought a 4th property.

I finally quit my IT Manager job

But, it was still enough for me to quit my job as an I.T. Manager, and I focus full-time on real estate, obviously, and also my blog ForeclosurePhilippines.com.

Who here is familiar with my blog?

Oh there, thank you, thank you guys!

My blog foreclosurephilippines.com

For the benefit of those not familiar, I blog about Foreclosure prevention, Real estate investing tips, foreclosed property listings, and auction schedules.

Listings are the most popular, but for Foreclosure prevention, I want everyone to learn that, because naturally we don’t want many people ending up in foreclosure right?!

And yet no one wants to listen, no one wants to read. But still, I won’t give up.

So next, how was I able to identify my property as a good deal?

Conclusion

As you can see, I went through a long journey before landing my first deal.

From having a “big why”, to learning from books and mentors, and to finding a way to save money for my first deal, it took a long time, but it was all worth it!

That experience from that first property helped me to land more deals and finally quit my job, that was literally killing me.

I hope you will learn from this and help you you find success with your real estate investing journey!

Part 2: How was I able to identify a good deal?

Check out the second part of this video series: https://youtu.be/ZL1zCtCShWY