Can You Afford That Property?

There you are looking at the classifieds, searching for the perfect home for you and/or your family. You don't want to get the services of a broker because you thought you'd have to pay him/her (FYI, you don't) so you're going to take your chances and find something on your own, your pride depends on it!  Well, OK, sure, why not, it's your prerogative if you don't want to get the services of a broker, but just so you know, you don't HAVE to pay the broker/agent.  Let's clarify some terms before we move on to the meat of the story.

An agent may or may not be a licensed broker.  An agent is somebody utilized by the developer to market their properties.  In that sense, even a licensed broker may work as an agent for a developer.  However, a salesperson is somebody who works for a licensed broker.  So if you were looking to find a property that is no longer owned by the developer (resale properties), then you should not be talking to an agent, you should seek the assistance of a licensed broker or a salesperson who is accredited under a licensed broker.  So if you want a property that is still sold by the developer, talk to an agent working in-house for the developer, or find a salesperson with a broker who's accredited with the developer, or the broker himself.  If you want a resale property (property that's being resold), then look for a salesperson accredited under a broker, or a broker, not agents. 

Why look for a broker or salesperson accredited under a broker?  Well, the seller is the one who pays the broker/salesperson the commission, not the buyer.  Of course, if you want to give the broker/salesperson some incentive for helping you out, or you're so very happy with the service extended to you, then you may do so, but you are under no obligation to.  In fact, if the broker is being compensated by one party (either buyer or seller), he should make it known to the other party so the other party may choose not to pay the broker anymore.  So really, it's to your best interest to get the assistance of a licensed broker or an accredited salesperson (or an in-house agent) if you're buying property because IT'S FREE!

Now, once you find that dream property, how do you know if you can afford it?  It's really easy.  Well, I say easy in terms of computing for it, not in terms of affording it.  That's up to you!  If you know the monthly amortization, how do you know what your gross income should be to find out if you can afford the monthly payments?

• Monthly amortization / 30% = Gross income needed

If all you have is your gross income, how much can you afford in monthly amortization payments?

• Gross income x 30% = Monthly amortization

Let's have an example:  Your gross monthly income is P50,000.  How much monthly amortization can you afford to pay?

• 50,000 x .30 = 15,000

Another example:  The ad you saw says that the monthly amortization is P12,000 for 15 years.  Your gross monthly salary is P30,000  How do you know if your income can pay for that?

• 12,000 / .30 = 40,000 (Since you only make 30k a month, you can't afford it)

Now don't feel bad.  This isn't the end of the world.  You have other options.  One is to look for a bank or lender with lower interest rates.  Another is to look for a co-borrower.  One other option is to look for a lower-priced property.  You could also opt for in-house financing, if it's available.  Yet one more option is to marry a rich guy or girl... Just kidding!  If you can find an acceptable property priced just right, and find a lending institution that has low interest rates (preferable less than 10%) fixed for 10 years, then that would be great.  After doing your due diligence when looking for a good bank, make sure you ask your broker to help you figure out if it's the best deal.

Good luck!

Jon

Time value of money

The other day, I was looking for a site where I could learn more about the time value of money.  Unfortunately, I wasn't learning it well enough in the real estate broker's class I am currently attending, because the teacher is a grouch, and does not like to go into details.  Fortunately, I came across some websites that helped me understand the concepts a little better.

First up, Investopedia.  Their article about Understanding The Time Value Of Money is gold!  I endorse it whole-heartedly.

Second, and never the least, thismatter.com and their excellent article The Future Value and Present Value Of An Annuity helped me make a formula in MS Excel to determine how much you can loan if you can only afford to pay a certain amount every month, as well as how much will your amortization payments be given an interest rate and payment period.

Why don't you guys check those articles out?  You'll definitely learn a lot!

To our success,

Jon

Real Estate Investment: Determining if you can afford a property

Guys, I get that many people are in the dark about whether they can afford to purchase a property or not.  First of all, it would be wise to determine 2 things:

1. Downpayment - Typically, the downpayment is 15-20% of the total contract price (total list price + VAT + other fees).  Usually, if you can pay cash for the d/p, you get a discount (varies among developers).  If not, developers offer terms as long as 30 months for 0% interest (such as in the case of 2 Torre Lorenzo).  If you can afford to pay more than 20%, I'm sure the developer would offer no objections.  This is your first hurdle.  If you can get over this, then it's time to look at...
2. Balance - Assuming you paid the 20% d/p, it's now time to start paying for the balance.  If you don't mind paying interest, find out the longest term the developer will agree to.  Then, shop around for bank financing.  Let's talk about the monthly mortgage payment you will be making.

• Assuming the 80% balance is 1M, and you got a term of 20 years at 8% fixed-rate interest.  That means you will be paying the bank P8,364 monthly for 240 months.
• A good precaution when deciding if you can afford a property is to determine how much you can afford to pay monthly for the loan amortization.  I would say if you can pay the monthly amount with 40% of your net monthly income, then you have enough left over in case of emergencies, and your budget won't be stretched too tightly.

It's safe to say that when buying property for investments or for your own use, shop around for the best rates that you can get, and don't go overboard with your budget.  It would be a total waste if you started paying for something then default on the payments, resulting in the loss of the property due to foreclosure.

If you would like to play around with mortgage amounts to see if you can afford a certain property investment, check out this amortization calculator.

Talk soon,

jon