Investing in foreclosed properties is a smart choice for property buyers as it offers both homeownership and investment benefits, a property expert told The Manila Times.
In a recent interview, Property Forum Managing Director Noli Alleje explained that investing in foreclosed properties gives owners better “value for money.”
Referring to a concept he dubbed “Gypsy ownership,” Alleje said that in buying foreclosed properties, property buyers are able to purchase a cheap house, live in it and sell it at a profit later.
“You buy cheap, you live in it then you sell it, then you move to your next house,” Alleje said.
“Buying foreclosed and eventually selling this to the open market—it can really go up in value,” Alleje said.
Alleje noted that the money gained from selling a renovated foreclosed property can be used to buy a more expensive property, meaning that the investment returns have the potential to be progressively larger over time.
“You buy it again, you keep on moving on, you get a bigger and better-valued house,” Alleje said.
Alleje cautioned, however, of underlying challenges in buying foreclosed properties, especially if proper due diligence is not done.
“It’s just like any other pre-selling—you buy from a not so well known developer, you might end up with a not so nice property,” Alleje explained. “So when you buy a foreclosed property and you don’t do your due diligence, you might be shocked with what you see.”
In a separate interview, Lamudi Philippines Managing Director Jacqueline van den Ende echoed Alleje’s sentiments in acquiring, noting that buying foreclosed properties may entail some legal issues.
Van den Ende noted that there are banks that auction foreclosed properties without a clean title, which can be difficult to deal with if one is not a serious foreclosure investor.
“The clean title is easier if you’re not an experienced foreclosure investor. Otherwise, you cannot manage some legal issues,” van den Ende said.
“I think you have to be a professional foreclosure investor if you want to do less clean properties,” she added.
But van den Ende also acknowledged investment benefits foreclosed properties.
“I think definitely, you can simply get a big discount on market price if you fix it up and make sure that everything is good and then you sell it. You can resell it. A lot of foreclosure investors flip their investments,” van den Ende said.
In addition, because the foreclosed property market is less popular among house-hunters compared to the pre-selling condominium market or the house and lot market, Alleje said that another challenge in buying foreclosed properties is that the purchase requires immediate payment, unlike the lighter terms developers offer.
“The payment terms for a house and lot package are very light. It’s paid over a long time. If you buy foreclosure, up front cash, but the value is better,” Alleje said.
Furthermore, Alleje noted that it is better to buy foreclosed properties in the provincial areas where major infrastructure projects are currently underway, if you are buying for investment purposes.
“I’ll buy in the province because when the road goes there, the appreciation (of the property value) is bigger. For example, Makati, how much more can Makati go up, how much more can Ortigas go up if you buy there, 5, 10 percent, that’s it. But if you buy, and a road passes there—jackpot for you,” Alleje said.