Condotel Ivestments in the Philippines are Better For Investors than Condotels in the United States.

Condotel Investments: Not Always a Smart Idea in the United States !

Even with record room rates, owning your piece of the condo-hotel
business in the United States might not be so profitable, experts are
saying. Yet thousands of investors have yet to figure that out.
Economic indications show a trending towards recession in the United
States real estate industry with lower demand, higher interest rates
and falling property prices. Take Out from the equation recent yearly
average appreciation of real estate in the short-mid term. Any US
investment at this time is now viewed as long term.

American Real Estate Investors are buying Studio Suites in Florida
ranging in price from $500,000 each at a South Beach condo hotel. In
other areas prices are even significantly higher. But will that be
enough to cover the investment?

Only time will tell whether it was wise to purchase a Condotel Suite
in the United States for this kind of entry level price, with
optimism about profits from condotel operations -- where buyers rent
their units for a share of the rental revenue. Analysing the current
market prices and trend in interest and occupancy rates, we think
there's going to be a lot of disappointed buyers of Condotels in the
United States.

Condo-hotel buyers in the United States shouldn't think revenue from
the units they buy will cover a Florida mortgage, particularly with
current prices. A new study goes further and predicts most South
Florida real estate projects of this nature won't even cover
maintenance fees, property taxes or other costs.

In a recent report, issued by the National Association of Condo Hotel
Owners (NACHO), it projects returns for typical condo-hotel units in
Fort Lauderdale, Miami, Miami Beach and Coral Gables. Assuming owners
keep 35-40 percent of the rent (the standard share) they would pay
between $500-15,000 a year to cover expenses. That assumes they paid
cash for their units, too. There's the small matter of Florida home
mortgage payments and interest fees, which would be extra. On top of
insurance, Florida mortgage payments and property taxes, and a flood
of new luxury hotels, will keep rates too low to make the units
profitable. In fact, the study cites the small hotel market of Coral
Gables as the lone location where condo-hotel buyers could expect
returns (of a modest 1-2 percent) on their units.

Condotel Investments: A Smart Idea in the Philippines !

Owning your piece of the condo-hotel business in the Philippines will
be more profitable than the same investment dollar for dollar in the
United States. It's amazing that thousands of US property investors
have yet to figure that out.

Offshore Property Investors are buying Studio Suites in Metro Manila
and Cebu, Philippines ranging in price from $36,000 each. At these
entry levels, this will be more than enough to cover the investment.
Only time will tell whether it was wise to purchase a Condotel Suite
for this kind of entry level price, however simple mathmatics and
common sense dictates in the positive with increased optimism about
profits from condotel operations -- where buyers rent their units for
a share of the rental revenue. Hotels in Metro Manila operate on an
average high 80's% occupancy rate with Cebu even higher pushing into
the 90's% occupancy.

Analysing the current Philippine market prices and trend in the
Countries interest and occupancy rates, we think there's going to be
a lot of very happy investors and buyers of Condotels in the
Philippines.

Condo-hotel buyers in the Philippines dont even have to worry about
interest rates because developers offer short term payment plans over
2-5 years at zero interest so buyers can immeadiately think revenue
from the units they buy because they dont have to worry about
computing income to cover the interest portion on a developers
interest free payment plan. The savings on interest payments are more
than enough to cover maintenance fees, property taxes or other costs.

Returns for typical condo-hotel units in Metro Manila & Cebu,
Philippines are much higher because owners keep 60 percent of the
rent. With current market prices for Hotel Accomodation, assuming
they paid cash for their units, rental ROI's could go as high 16%-18%
per Annum and better yet, as most hotel clients pay their bills using
major US Credit Cards, the overseas investors are going to receive
their rentals in US Dollars avoiding any concerns over fluctuating
exchange rates !

Moreover, because the entry level is 90% less per Studio Suite in the
Philippines, the risk factor is greatly deminished. Moreover, real
estate appreciation is running 25% per annum on pre-construction
purchases and around 15% per annum on completed units..... combine
this with possible Tax benefits for US Offshore Investors and the
Philippines has to be a "Win-Win" opportunity.

...

For the price of garage in the US nothing to loose and everything to
GAIN ??

Guessing on Revenue from Condotels in the United States

Would-be buyers of condo-hotel projects in the United States are
largely left to guess at the revenue their units will generate
because Federal security law bars real estate developers from passing
on the projected hotel guest rate to condo-hotel buyers. Real estate
agents in the US can lose their licenses if they talk to you about
how much income you're going to generate, as a matter of fact. With
US hotels unable to provide their rate projections, staffers often
urge buyers to do their own research on nearby hotels. But that's not
exactly easy, as virtually no hotels release year-end financial data,
and rates quoted at the front desk fluctuate day to day.

Solid Information and Revenue Data from Condotels in the Philippines

Buyers of condo-hotel projects in the Philippines are not left to
guess at the revenue their units will generate because there are NO
Federal security law that bars real estate developers from passing on
the projected hotel guest rate to condo-hotel buyers. Real estate
agents in the Philippines can't lose their licenses if they talk to
you about how much income you're going to generate, as a matter of
fact. Philippine hotels are readily able to provide their rate
projections. This enables the Condotel unit investor all the
information he needs to calculate the rental returns and ROI on his
investments making the purchase practically risk free....

Condotel Investments in the Philippines.

A Condominium Hotel or "Condotel" combines the convenience of a
residential condo with the amenities of a hotel. It is not an
ordinary Condo Building. It is specifically designed architecturaly,
as a Hotel first and foremost with Hotel Style Suites which are
normally larger than regular residential units. A Condotel normally
has more amenities, facilities and services not found in condominiums.

Condotels are completely different from Residential Condominiums
where unit owners can act as a landlord and rent their units
privately or have someone rent their units for them.

Rental Income from a Condotel Unit is normally 30-40% higher that a
regular rental because the Hotel concept offers the option of daily,
weekly, monthly leases which ordinary private condo unit owners would
not normally entertain.

Unit owners in a "Condotel" may opt to join the rental pool where he
signs with a professional hotel management team who will convert the
project into a world class hotel / serviced apartment. A serviced
apartment is run just like a hotel but guests usually stay on a long
term basis. For the tenant, this means savings since he is not
charged a daily rate nor does he have to put up a security deposit
like in a regular apartment.

Aside from real estate appreciation, unit owners receive a steady
monthly income based on the size of their unit regardless of whether
said unit was leased or not. This is because the hotel management
will pool together the total income of the entire hotel and
distribute this to unit owners net of any expense. This makes the
investment cost efficient and practically risk free.

Unit owners in the rental pool enjoy totally hassle-free CONDOTEL
management. They need not worry about unpaid electricity bills,
unpaid rent, and other problems so common in conventional leasing.
All concerns, down to the payment of electricity bills and utilities
are taken cared of by the professional hotel management operator.

Condotel Suites can be purchased as vacation homes to buyers whom
would probably only occupy the units no more than one month per year.
In normal circumstances the unit owner pays the maintenance and
upkeep of the unit for the entire year without deriving any benefit.
However in a Condominium Hotel, during the time they do not occupy
their units, they have the option to rent out their Condo through the
hotel management and receive rental income on their property making
the ownership of a unit an income generating property and self-
liquidating investment with hassle-free property management as the
hotel can rent out their unit, with all the services provided, by
day, week or month. Because of the additional superior features and
services provided by the hotel, Condotel Suites are normally valued
15 to 20 % higher than same size residential units without added
hotel features and amenities...

There are in all Condominiums the "Monthly Condominium Dues" payable
to cover such recurring expenses as the maintenance of the common
areas, security guards etc….. however, in a Condotel, building
maintenance and operations is subsidized by the additional revenues a
condotel provides the building management

Guide when Buying real Estate in the Philippines

Check-List Before Buying Real Estate in the Philippines

Here are the tips a buyer must remember before buying any property in the Philippines, specially if you are buying a single property from an individual:

1. Make sure the "Transfer Certificate of Title" is authentic. The easiest way to check if the title to the property you are buying is authentic is by getting "Certified True Copy" of the title from the Register of Deeds. This office is usually located at the city or municipal hall where the property is located. Ask the seller of the property for a photocopy of the title -you will need the title number and the name of the owner to get a certified true copy of the title from the Register of Deeds.

2. Verify that title is clean - meaning the property is not mortgaged (no liens & encumbrances on the property). You can see that at the back of the title with the heading "Encumbrances". This page must be empty if you are told that the title is "clean". But sometimes the space for the technical description of the property on the front page of the title is not enough and the description of the property is continued on the "Encumbrances" page, this is of course all right.

3. Make sure that the land described on the title is really the land that you are buying. You can validate this at the Register of Deeds or by hiring a private land surveyor or a geodetic engineer. Land titles don't have any street name and number to pin point a property, it is a must to confirm that the actual property you are buying matches the technical description on the Transfer Certificate of Title.

4. Make sure that the sellers are the real owners. If you are buying from an individual property owner, ask for identification papers like passport or driver's license, it is also a good idea to talk to the neighbors to confirm the identity of the sellers (you might as well ask some history of the property).

5. Confirm that the yearly real estate taxes are paid. Ask for a copy of the Tax Declaration and Tax Receipts to confirm that real estate tax payments are up to date.

If the above check list is in order, it is safe to proceed with the purchase.

Taxes, Commission & Registration

This is the normal sharing of expenses between the buyer and the seller when transferring the real estate property title (TCT or Transfer Certificate of Title) to a new owner:

The Seller shoulders the:

Capital Gains Tax (6% of the contract price)

And all other unpaid taxes due.

Pays the Agent / Broker's commission (usually 3 to 5% of the selling price).

The Buyer Pays for the:

Documentary Stamp Tax - 1.5% of the contract price, or zonal value or fair market value, which ever is higher.

Transfer Tax - 0.5% of the contract price, or zonal value or fair market value, which ever is higher.

Registration Fee - 0.25% of the contract price, or zonal value or fair market value, which ever is higher.

The above sharing of expenses is the standard practice in the Philippines. However, buyers and sellers can mutually agree on other terms as long as it is done during the negotiation period (before the signing of the "Deed of Sale").

The "Deed of Sale" is the document showing legal transfer of real estate property ownership. The deed of sale is then taken to the Registry of Deeds to be officially recorded. Always purchase property with a proper Title & a deed of sale if possible, and if there is not one, a tax declaration is your last choice.

Your Agent / Broker will usually do the registration process without any additional payments (aside from the commission).

Documents needed for the Transfer of Certificate of Title (TCT):

Copies of the Deed of Absolute Sale

Latest tax declaration of the property

Certificate from the Bureau of Internal Revenue that the capital gains tax and documentary stamps have been paid

Transfer tax

Receipt of payment of the transfer and registration fees

An adapted form of the "Torrens" system of land registration is used in the Philippines. The system was adapted to assure a buyer that if he buys a land covered by an Original Certificate of Title (OCT) or the Transfer Certificate of Title (TCT) issued by the Registry of Deeds, the same will be absolute, indefeasible and imprescriptible.

7 Tips for Worry-Free Real Estate Transactions

Real Estate transactions in the Philippines are sometimes a cause for worry due to the many inherent problems in the system. What follows are some tips and rules to follow for a worry-free (or "less problematic") Real Estate transaction:

Tip #1. Deal only with Titled property.

There are many properties in the Philippines that are not titled, or registered under the Torrens system. If you buy an untitled property (usually evidenced by only a Tax Declaration), you would not enjoy the benefits of the Torrens system, and you will be forced to investigate for yourself the "chain of ownership" from the present owner up to the first, which usually dates back to the 1920's. With titled property, you can rely on the fact that the owner of the property is that which is stated in the title.

Tip #2. Stick to those properties registered in the names of actual sellers themselves.

Most properties in the Philippines are titled in the names of the grand parents or even great grandparents of the owners. thus, there is still the need to execute an extra-judicial settlement, which has a "grace period" of two years within which an excluded heir can question the settlement and the sale. This type of litigation is fairly common and is the usual source of problems. Thus, avoid properties not titled in the names of the actual seller.

Tip #3. Avoid SPAs (Special Power of Attorney) - deal with the actual sellers themselves.

Another of the common sources of property litigation in the Philippines are those involving special power of attorneys. This is an instrument that empowers a party to deal with the property of another, usually for the purpose of selling the property. Oftentimes, unscruplous individuals procure a special power of attorney surreptitiously from the unwitting owner who is led to believe that the document being signed is something else. Believe it or not, most of the property owners in the philippines have finished only primary schooling and cannot read english documents. If you must deal with property being sold through an SPA, verify the SPA by questioning the notary public who executed the same, and even meeting the property owner himself.

Tip #4. Always check the copy of the title on file with the register of deeds.

In the copy on file with the register of deeds are annotated the "involuntary liens" (i.e. claims of third parties and the government, road right of way, etc.). Although the title may still be registered in the name of a person, ownership might have been transferred, questioned, or otherwise affected, and this can be seen at the back of the title on file with the register of deeds. Secure a certified true copy of the title from the register of deeds. Do this yourself or through a trusted party, never from the seller or his middleman.

Tip #5. Always have the property identified by a licensed surveyor to be what is being stated in the title.

Once you have decided to buy the property, ask the seller to allow you to conduct a relocation survey. although you might be required to shell out additional expense for the survey, then you can actually be assured of the metes and bounds of the property and that the property you are buying is actually that stated on the title. Furthermore, by asking for a relocation survey, the adjacent owners are summoned, and thus if there be any unforseen questions some of them would be voiced out during the relocation survey.

Tip #6. Always see to it that you have a road right of way

Just merely looking at the property and seeing a road is not enough. Check the title and see whether or not it is actually bounded by a road lot, road, or street. The surveyor can point this out to you. Most foreigners like the countryside and coasts, where agricultural lands are located. Thus, most agricultural lands when subdivided into smaller parts do not provide for a road in the subdivision plan. Be sure therefore that you have access to the land otherwise, you might be required to purchase a right of way, oftentimes at exhorbitant prices such that you are forced to enter into litigation to have the court fix a reasonable price.

Tip #7. Never forget to have your deed of sale, contract of sale or other document over the land annotated on the copy on file with the register of deeds.

This should be clear enough to be sure that your records are correctly stored and your property properly transferred to you in official government documents.

We hope this small article would be of help to you and your real estate transactions. Nothing is still better than having the services of a trusted Real Estate broker or realtor helping you along the way.

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This article has been generously contributed with the express permission of Mr. Martin "Jerry" Cornelio. It has been slightly modified by InvestPH for better online reading. Our many thanks for sharing your expertise on this subject.