Aside from practicing project selling as real estate brokers, our firm is also investing in real estate. After all, you have to live what you preach, right? And we believe that the best investment, especially in today’s volatile market is real estate. It may not be as liquid as cash in the bank but the value definitely increases more than the banks could give as interest.
Aside from keeping an eye out for good deals for clients, we are also looking for good investments. We saw an advertisement selling a 100 sqm lot for slightly below market value. The lot was said to be located in a reputable subdivision. We also know that the subdivision is gearing up for more developments. So it seemed to be a good idea to invest in that subdivision now and wait for the new developments to increase the value of the lot a few years later.
So we contacted the seller and went about the process of purchasing the property. But we did not eventually push through.
Why not when it seemed to be a good buy? Because we found out that the lot being sold is not actually located in the subdivision the seller said it was. The lot was located in a densely populated area with no proper roads leading up to it. So aside from the wrong address, with no roads to the lot, how are we supposed to get there? Right of way was not included in the title.
We would have lost money on a bad deal if we did not do our due diligence.
So what is due diligence? Due diligence according to Merriam Webster is:
In simple terms, due diligence is doing your homework to make sure that you get things right. When you buy your car, you take the car out for a test drive and look over the engine to see if it is supposed to be what is it supposed to be. When you buy a new phone, you ask friends what they would recommend and you go to the store and try out the unit. That is due diligence. You may not know it, but you do it. If you don’t, there might be regrets down the line.
If you do due diligence when buying your phone, why not do your due diligence when investing in real estate as well? We cannot stress enough how important it is for you to do due diligence. Doing due diligence is a must when transacting resale lots. When you buy from a developer, there is minimal risk as you know that these are clean titles owned by the developer.
But if you are planning to buy “second hand” or what we call resale properties, may it be through bank foreclosed assets or other sellers, then DUE DILIGENCE IS A MUST.
So, now you ask, how to do due diligence? We’ll make it simple.
Step One: Ask the seller for a copy of the title.
Most sellers would readily supply you a copy of the title. Make sure that you request for copies of all pages including the back of the title. Because usually, it is at the back of the title that liens and/or encumbrances on the property are stated.
Step Two: Request for a Certified True Copy of the TCT (Transfer Certificate of Title) or CCT (Condominium Certificate of Title)
Go to your Municipal or City Registry of Deeds (ROD) and fill up a form to request a copy of the property’s TCT or CCT. This is a very important step, do not simply rely on the title given to you by the seller. It might be that the title is incomplete or it is an invalid title if they are selling the property again to a second buyer.
We paid P196.00 for a certified true copy and waited about 30 minutes for it to be released.
Once you have your certified true copies, check if the title given to you by the seller matches the title from ROD. Check if there are pending loans or cases against the property as well. If you see liens and encumbrances, or if there are discrepancies between the two, it’s a red flag.
Step Three: Request for Land Tax ID
If the title is “clean” proceed to your Municipal or City Assessor’s office and request for the property’s land tax ID.
Step Four: Request for Tax Declaration
Once you have your Land Tax ID, proceed to the Land Tax Division and request for the account balance for the property. They will check if the property has updated land tax or arrears. If you do not know how to interpret the print out, ask the staff to explain it to you. The land tax must be paid up to the current year and the account name has to coincide with the name listed on the title. There are instances that the current owner may not have transferred the Land Tax Declaration to his/her name. Should you push through to buy, you have to transfer the Land Tax Declaration from the first owner to your seller then to you as the current buyer.
Step Five: Check the actual location.
You may get a geodetic engineer to locate the actual lot for you using the coordinates printed on the title. This may cost anywhere from P5,000.00 to P8,000.00. It is important that you locate the lot yourself and do not rely on the address given to you by the seller. Why? Because the seller might have misleading information. This is what exactly happened to us.
However, P5,000.00 – P8,000.00 is a big amount. And not all of us can spare this. Well, our tip is to go to the City’s Land Tax Mapping and request for help in locating the lot based on their tax records.
The Land Tax Division has a map of the entire city broken down to areas according the codes printed on the title. For a minimal research fee to be paid to the cashier, the staff can assist you to locate the lot on their maps. Research fee is only P55.00.
Step Six: Visit the actual property.
If you are satisfied going through steps one to five, then it is time to see the property itself. It is important to set aside time for this so that you can see for yourself the community, the roads leading to the property and the topography. Is the lot lying low with potential for flooding? Check the property if you actually like it now that you have seen it.
Final Thoughts on due diligence:
Due diligence is a bit of hard work but it is better than seeing your hard earned money gone.
In our case, during the initial conversation, the seller was smart. She gave us a reasonable offer, not raising any red flags with offering a too good to be true deal. The seller was professional and seemed credible. She just did not expect that we would go through the trouble of verifying her property.
We paid P251.00, spent a day at the Registry of Deeds and the City’s Land Tax Division and saved ourselves the headache of a bad deal.
We were almost victims and you shouldn’t be too. Do your due diligence and enjoy real estate investing.
If you have any questions or clarifications on the topic, comment or send us a message! If you have any real estate related topics you want to us discuss, tag us in Facebook with #SyRealtyINeedToKnow and we’ll talk about it here!
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