Buying a home for investment or personal use takes months of search, planning, and decision-making. Missteps can happen during any of the crucial stages of acquisition. Here are five common mistakes that our property experts say buyers commit – and which you now can avoid:
Misunderstanding values and taxes
There can be multiple issues regarding values in the acquisition of a residential property. One basic exercise is to check the prevailing values in the neighborhood to understand how close they are with the selling price. Research on zonal value is necessary, too. Buying below zonal value may seem attractive, but note that the 6% capital gains tax (CGT) is computed differently in such case.
The Bureau of Internal Revenue defines CGT as “tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets” in the Philippines. If the gross selling price of a property is below zonal value, CGT will be computed based on the higher value – which means one has to pay for more tax proportional to the agreed upon selling price.
Failing to do due diligence
Due diligence is defined as the act of risk and compliance checks, verification of information, and investigation. This is particularly important for high-value transactions such as real estate properties – even homes. Ideally, due diligence must be done by both the agent and the buyer separately.
For instance, there are VAT implications when a condominium unit has been leased to a tenant as an income-generating residential property. Proper due diligence will also reveal whether dues have really been settled, such as the real property tax, association dues, and estate tax (if inherited). These are risks that could be passed on by the uncompliant seller to the new owner.
Mistaking needs with wants
As a buyer, you must understand what you really need and define those aspects that fall under “wants”. What kind of view do you want? How many bedrooms and parking slots? What quality of flooring and structure are non-negotiable to you? Deciding on similar questions will help you avoid being led outside your budget.
In addition, you must determine why you are getting a property in the first place. Is it to generate income or for your own personal use? As an investment, a residential property must provide a reasonable yield and be attractive to tenants – or to future buyers, if you were to flip. You must also be conscious that, even if you acquired this as a personal use, there may be a time in the near future when your life plans change and you decide to lease this to a tenant.
Reserving before a pre-approved home loan
Funding the acquisition is an important matter to consider. If the acquisition will be funded by debt from a bank, it is advised to secure a pre-approved bank housing loan prior to providing a reservation to the seller. Avoid payments until bank pre-approval has been secured and due diligence has been conducted. Otherwise, one may end up having pre-approval only on a portion of the desired loan amount or the discovery of a false or undesirable fundamental information from the due diligence.
Lack of a turnover list
You may be buying a property that includes non-real estate assets, such as furniture or paintings. Without checking the state of these assets or without any documentation of their being part of the sale transaction, a buyer may find that some promised assets are amiss.
During the offer letter or contract of sale, a turnover list of appliances, furniture, and items included in the sale transaction must be clearly defined.
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