Housing

Renting your first home:

For a realtor with a good reputation among ELRAP members, we suggest that you go to the ELRAP Index of Professionals on this website and click on Realtors, and find one in your area that has been recommended by ELRAP members.

When you first move to the Philippines, we suggest that you rent a condominium, apartment, or house before deciding to buy a place. Buying is a little tricky here for a foreigner, and Bruce discusses those details in The Freedom Handbook for Living and Retiring in the Philippines. Right now, we want to talk about how to rent a place.

Most folks will make several trips here before finally deciding to make a permanent move. If this is you, then you might be ready to buy a place when you do make the move. I would still advise you to consider renting, at least for the first year you are here.

Before renting a place, it would be a good idea to have a local attorney review the contract of lease, and to assist you throughout the transaction. Ask old-timer expats for some help in recommending a good attorney, or for some history of what they did when they signed their own lease. If you already have good Filipino friends when you move here, ask for their advice as well. You can also go to the ELRAP Index of Professionals, on this website, and look up a lawyer in your area with an ELRAP recommendation.

The lawyer you hire should do a bit of research on the property you are considering renting. First and foremost, he should determine whether the person leasing you the property actually owns it, and has the right to lease it out. The lawyer should look over the lease and advise you as to how well protected you, as the tenant, are on the lease. He should also clearly answer any questions you may have about the lease to your satisfaction. The lease, by the way, should be written in English. This legal service should cost you between US$25.00 to US$50.00 and is well worth it. Even in well-established subdivisions, where a realtor would handle the lease arrangements, this is a good idea.

You can, and should, also ask your lawyer, and most definitely NOT your real estate agent (who stands to make a few bucks when the rental deal closes), to arrange for a good contractor to come and give the residence a general looking over, checking the plumbing, electrical wiring, the roof and gutters for leaks, check the drainage, and check for termite infestation before you sign a lease. This should be done at your expense, and should not take longer than a day, nor cost more than about US$100.00 for a property of about two thousand five hundred square feet in size.

Leases, more often than not, are for one year at a time, often renewable for a second year with a 10% escalation in the rental price for the second year. This is a good thing, because if you hate your place, you have an out after one year, and if you love your place, you can stay on for another year. Most leases require a two month security deposit followed by a two month advance payment of rent. This is pretty standard.

Everything is negotiable, however.

If you have the cash, you might want to reduce your monthly rent by offering to pay the landlord the rent as a lump sum, at a reduced rate, for six months or up to one year in advance. Or, you could offer to pay the rent in six-month or one-year lump sums throughout the life of the lease, in exchange for no increase in the rental rate for the second year of the contract.

Not every landlord will agree to reducing rent in favor of a lump sum payment; but I guarantee that every landlord will at least consider doing so. If the landlord does agree, request that your own attorney draw up the lease. If your landlord does not agree to this, make sure that your own attorney reviews the lease very well.

The more money there is for the landlord up-front, the better your chance of lowering the monthly rent. If your lease calls for a yearly 10% increase in the price of the rent, for the life of the lease –pretty standard here–I suggest that about three months before the end of the lease, inform your landlord that you would like to stay for another year, but that you would like a lower rate in the percentage of the increase of your monthly rental in exchange for a lump sum payment of the rent. This request is not at all unusual, and often, many landlords are happy to do this, especially if you have been a good tenant. We had been in our condominium for two years and renewed for a third year, with a total combined rent increase of only 5% for each year we lived there. After that, we bought our own condominium.

Many landlords – especially in the super upscale areas of the country – will ask for as much as one year advance payment of rent. My previous landlord asked me outright for six months advance payment for the rent. I live in Baguio and he lived in Manila, so he didn’t want the hassle of driving to Baguio monthly to collect the rent. I offered to pay him two months rental in advance, and to give him ten postdated checks, one per month, for the balance of the rent. He was happy to accept this arrangement. Postdated checks are respected here; writing a bad check is an extremely serious criminal offense, especially for a foreigner.

Possession of real estate is 99% of the law here. It is very hard to get an unwanted tenant out of your property. Because of this need for self-preservation, leases are often skewed totally in favor of the landlord. Try to understand where your prospective landlord is coming from when you first read a lease. As a landlord, it is not uncommon to have your property trashed by a tenant, and there is not that much recourse (hence the two months of security deposit) if and when that happens. Most landlords are glad to have western tenants because, wrongly or correctly, they feel that the rent will be easier to collect, and that generally, the tenant will pose fewer problems.

Some landlords will insist on using only “standard” leases, which makes it harder to get concessions you may want. “Standard”, by the way, means a lease that is standard for the landlord, not one that is standard as per law.

One issue to be very, very aware of in the wording of your lease is the maintenance clause. Some landlords expect you to make any and all repairs, and not only to source the workers to make the repairs, but to bear the full cost of the repairs as well. I had a lease I was reviewing where the landlord expected me to take care of any and all maintenance issues, including replacing a five-year-old hot water heater should it cease to function. I had this clause removed from the lease. Replacing that hot water heater would have been fairly costly!

If you can get your landlord to agree to it, put in a maintenance clause that is fair to everybody. A clause that works says that the tenant is responsible for any and all individual repairs up to, say PHP5,000.00 (about US$100.00) in any given month, and that the landlord is responsible for any and all individual repairs of PHP5,000.00 and above in any given month. Go a little further and say that repairs must be undertaken within ten days of being reported (in writing) to the landlord. You should definitely seek the advice of your lawyer when wording this clause.

If you are having a hard time negotiating with a prospective landlord, before you sign the lease, consider very well what it would be like to work with that landlord over the course of the lease. If you think it would be difficult, it may be time to consider looking around for another property with a nicer landlord.

The most important thing for me, after safety, is security.

After living in a country in Central America where I always felt my family and I were in danger, I have a great deal of respect for safety–which means effective security. In the condominium building where we live, we have front gate security, and each building in the compound has separate front desk security.

When renting a place, be absolutely certain that the security offered to you as the tenant is indeed secure. If you are not happy with it, and you can afford it, you can simply hire your own security for your home or condominium. Like everything else in the Philippines, the price is pretty reasonable. Another option is to opt to rent elsewhere if the security is not to your liking.

Renting a home in the Philippines, like anywhere else, is pretty much just good common sense.

With a little preparation and diligence, renting a place here is no problem.

IMPORTANT NOTICE REGARDING BUYING A PIECE OF LAND, A HOME (“HOUSE AND LOT”), OR A CONDOMINIUM: PHILIPPINE LAW DOES NOT ALLOW A FOREIGNER TO OWN MORE THAN 40% A PIECE OF LAND (or a corporation that owns land); THE REMAINING 60% OF THE LAND (or the corporation that owns the land) MUST BE OWNED BY FILIPINO(S).

That being said, there are many ways that foreigners DO legally control their ownership of land in the Philippines. Once again, for more detailed information on how to do this, please refer to THE FREEDOM HANDBOOK FOR LIVING AND RETIRING IN THE PHILIPPINES by Bruce Silverman.

In a condominium building, the overall ownership of the units in the building may not be comprised of more than 40% foreign ownership.

RULE #1: NEVER NEVER NEVER NEVER NEVER BUY A PIECE OF PROPERTY WITHOUT THE ADVICE AND GUIDANCE OF A LAWYER YOU TRUST! You should ask Filipino or expat friends to recommend someone, or else look up a few possibilities on the ELRAP Index of Professionals, and then interview several candidates before you choose a lawyer!

A few basic guidelines:

1. ONLY buy a property with a “clean” title (that’s the first thing your lawyer should confirm).

2. Always purchase property with a proper Deed of Sale. The “Deed of Sale” is the document proving legal transfer of real estate property ownership. The deed of sale is taken to the Registry of Deeds to be officially recorded. “Tax Declarations” are sometimes used, but accepting a “Tax Declaration” in lieu of a “Deed of Sale” in our opinion, is tantamount to throwing away your money. A “Tax Declaration” is not very enforceable in court because there may be many others with a tax declaration claiming ownership to the same property. A property may become titled by taking the “Tax Declaration” to the Registry of Deeds to undergo a process which transforms a “Tax Declaration” into a legal title, but the process can be arduous, expensive, and ultimately (especially if there is contention for ownership of the property from several parties) irreconcilable. It is completely possible for two or more “Tax Declarations” to be issued to different persons with exactly the same technical description, or referring to the same property. If a property does not have a clean title, don’t buy it.

3. If a foreigner is married to a Filipino/a, then ownership of the property can be in the names of both spouses. There are pitfalls to this, however, particularly if you are unsure of your marriage. Suggest you go over the details by referring to Bruce’s book, The Freedom Handbook to Living and Retiring in the Philippines.

4. There are different taxes to be paid upon purchase of a property, and these can and are structured in creative ways. Once again, rely on your lawyer’s advice. Generally speaking though, there is a Capital Gains Tax, of between 6% and 10% of the actual sales price, depending on what type of entity is selling the property, there is a Documentary Stamp Tax of 1.5% of the sale price, there is a transfer tax of .5% per the sale price, and there is a Registration Fee of .25% of the sale price. Talk to your lawyer, as well as to your Filipino and expat friends about the many matters involves in purchasing property in this country, and how to protect your ownership of same.

“ More and more folks are retiring at an earlier age, while they are still healthy enough to enjoy their lives. The problem is, in the First World, even a couple in their late fifties that have a $500,000 investment portfolio, which includes their home equity and other investments, won’t have enough retirement income to take advantage of their hard-won freedom. ”

The FREEDOM HANDBOOK
By Bruce Silverman
http://funphilippinesretirement.com
“ELRAP is a friendly website! On our pages please--no vulgarity, and no politics or religion discussed!”