HAPPY APRIL 15th!
Before I start, I want to wish my fellow CPAs, accountants, tax preparers, and other financial service people a “Happy Tax Day (April 15)”!
Work was long and arduous this year (with all of the new and strange tax provisions), but you’ve survived. Have a Happy 4/15!
Now, here’s this week’s article. . . .
Dream Houses
Over the past few weeks, Live in the Philippines Web Magazine showcased a couple of “dream houses” in The Philippines. The articles and their accompanying pictures stirred up some thought and
generated a few comments and questions. Several readers expressed a desire to own their own place here in the islands.
Aside from the “if only’s” (“If only I could [fill in the blank].”), some questions focused on money. “How would I pay for it?” “Can I finance it or do I have to pay cash?” Very valid questions asked at the most proper time – before starting construction or house hunting. They are very difficult questions, too.
Traditional Financing
Traditionally, a house is constructed or purchased for cash, worldwide. The affluent among us may have the cash available. The rest of us will look to borrowing. In many countries, home mortgage loans are available to provide the cash payment at the final handshake.
Regardless of the options available to you locally, in The Philippines “Cash is King.” Banks and lending agencies do offer home mortgage loans, but will normally shun enquiries from a foreigner. Interest rates are high, loan lives are short, amounts that you can borrow are limited, and the paperwork and red tape are limitless.
I’ll be honest with you: It is very difficult for a foreigner to obtain a home mortgage loan.
There are housing developments springing up around the country. Though primarily aimed at Balikbayans and OFWs, foreigners can “buy in” as well. That means sacrificing personal artistic flair for that of the developer. (You can choose from Model A, Model B, and so on.)
Almost no banks or lending institutions in a foreigner’s home country will provide a home mortgage loan secured by property outside of that home country. For them, providing individual consumer financing for foreign real estate is just not going to happen.
Not having cash in hand and not being able to obtain a home mortgage loan from a local or Philippine bank should not crush your dreams. Other, “non-traditional” methods of obtaining and using cash may be worth considering.
Non-Traditional Financing
“Cash strapped” potential homeowners in The Philippines may want to consider “outside the box” financing. A non-traditional method of financing your dream house, or a combination of non-traditional methods, may be the answer to your finance questions.
Whether building or buying: The name of the game is Cash Flow.
Here are a few non-traditional financing methods to ponder:
- Relatively Speaking – You may be able to obtain cash from relatives through personal loans, gifts, etc. If you do borrow money, make it formal with a loan agreement. Include the prevailing interest rate and life of the loan, just as if you are borrowing from a bank. Additionally, record the reason for borrowing in the agreement, and spend the money ONLY for that purpose.
- Credit Where Credit Is Due – Periodically, larger credit card companies offer reliable cardholders cash advances at ridiculously low interest rates (even 0%). Using such an advance for your house construction or purchase is just like having a below-market mortgage (the kind that the very affluent obtain for their mansions). Take care in making monthly payments, as poor payback performance can either jump that interest rate into the 20%-30% range or, worse yet, make your total outstanding balance on that particular credit card due immediately.
- Insurance Help – Normally, you can borrow against a whole-life insurance policy an amount up to a stated percentage of the policy’s current cash value. Interest rates for these loans are at market level. Often, you can arrange to make annual interest-only payments until you pay back the loan’s principal and remaining interest due. If something happens to you prior to loan payback, your beneficiary will receive the face value of your policy less any outstanding loan balance.
- Sign Here – You may be able to swing a signature loan from your bank or other financial institution. Interest rates for this and other unsecured loans are nominally higher than most other types. Financial institutions will check your credit history a little closer when you apply for a signature loan. If you’re thinking of one, make sure that the loan payments will fit into your budget before you borrow.
- Quid Pro Quo – (Latin for “This for that.”) You may be able to obtain certain items for your dream house through negotiations and barter. Trading your personal sweat and labor, or some item you seldom use but others may have an interest in, for house materials could help. The most common form of quid pro quo is a second job (trading labor for wages).
- One Man’s Junk – Garage sales may help provide a source of cash, plus help you get rid of unused items that you no longer need or will not want to ship with you to the islands. It sounds a little corny, but they must work – many people have them.
These are some of the options available for helping finance that dream house in The Philippines. Of course, not everyone can enjoy every option – having a poor credit history can put the damper on a lot of the options. Still, other methods exist. If this topic is of interest to you, further researching “creative” or non-traditional financing may be your next step.
Disclaimer:
The author and Live in the Philippines Web Magazine do not promote or endorse any of the financial methodologies presented in this article. We have not received remuneration for mentioning any of the methods discussed. We present the methods described herein as information only. Readers are encouraged to further research these and similar methods prior to considering their use. If in doubt, we recommend that readers interested in non-traditional finance check with a professional personal finance counselor prior to engaging in any financing activity.
Can the Pinay wife apply for the loan using her Foreinger husband as her “official” source of income?
Hi Bob – She sure can. (Anyone, for the most part, can apply – it’s the stuff between submitting the application and the final determination that changes person to person.)
She would probably stand a better chance at obtaining the loan than if “her husband” applied. She would provide the stability, ties to the area, local references and many more intangible positives for acceptance. Proof of an income stream would be yours. Both would provide proof of credit worthiness and trustworthiness.
Keep in mind, though, you won’t find 30 year mortgages here. As I said, high interest, short lives, limited principal and limitless paperwork!
Also keep in mind, if the loan officer had a bad night the day before or is having a terrible morning, a negative result may occur for no apparent reason other than “I say so.” It’s totally up to the financial institution to make the decision, but the loan officer makes your case for you – good or bad.
When you go to apply, look at the loan officer first and mentally inspect him/her. If you see coffee stains, spots, signs of unkempt appearance or other things that might hint of a bad night before or morning after, only mention that you are inquiring about types of loans available, rates available and amortization plans. Then bow out gracefully and await another time to apply. 😉
Thanks Paul. I’m already getting a taste of how things work there and I’m not even there yet. As I get closer to coming I ‘m getting a better idea of things work there. Today my fiance got a bad surprise with “marraige fees” and had to brief me. I was’nt very happy about that. By the way, this is an excellent site, extremely informative and funny at times!. I’m new on here but have been reading it for about a month. I’m coming to CDO in May then headed over to Saudi Arabia. Take care and keep up the good articles!
Hi Bob – Thanks for your most kind comments.
The unexpected will always arise, regardless of where you are or when it happens. Sometimes you can “fix” it, sometimes you just “bite the bullet” with a smile. You’ll find that nothing is worth a “coronary incident” when your here!
Please keep visiting the site and reading all of the articles – even the “boring” ones I put out every now and then! There’s a wealth of info in the archives, too. If you can’t find info about a particular issue, just make a comment – you’ll get replies! 😉
Hi Paul
I wanted to get away from the traditional 30 year morgage, working
in the Middle East gave me the opertunity to build my dream without
borrowing a pesos,I would send 90% of my check home for the last 2 years and my wife would shop around for matarials, I also beleive labour and matarials are cheeper in the province.
Hi James – I totally agree with you. As far as I’m concerned, I want nothing more to do with 30 year mortgages in this lifetime.
We found that labor expenses were far cheaper in the province we live in than elsewhere near the larger cities. Materials, on the other hand, depended on what they were, where they were purchased, and where the supplier obtained them.
We made trips to the NCR (Manila and surrounds), Subic and Tarlac to purchase items that we couldn’t find in the province or were more expensive in the province. Almost always, we could talk suppliers into free shipping as we’d place substantial orders – ordering more in one day that the supplier probably sold in a week’s time.
Buying materials at the right time helped, too – prices always climb, never fall, and are only negotiable when the supplier is having a “slow” period! 😉
Hi Paul
I would think that if you have to borrow money to build a house in the P.I., you should stay where you are until you are ready. The P.I. is not the place to be if you are short on cash.I would not think of burying $40 – 50K in something that I may not be able to get back out in a reasonable amount of time.
I recently bought a second property at a resort lake about five hours from where I live.Only way I could afford it was to borrow it. So, I answered the following questions:
1) Is it worth it to borrow the money? Is it worth the financial risk? Yes, I can afford it
2) Can I get my money back if I need to? Yes, I bought it 20% under assessed value. I could sell it today and pocket money.
3) In the long run, is it a good investment? Yes, property values are climbing here. This property went up 500% in the last twenty years.
4) I am going to use the property? You bet. It is in a great fishing area and I have already bought a quad for when I want to do something different.
I do not believe the answer would be yes to any of those questions unless you are retired and can afford to go to the P.I. whenever you want.
Hi Allan – You’ve made some intriguing points. I wonder, though, if those points are more in line with investing rather than home ownership.
I do know resort owners here in the islands who are not retirees, but are dreamers living their dreams in the tropical resort they built and opened. They’re doing well; not one wants to sell. They see their resort as an investment only in a very small way; they prefer to think of it as the business of their dreams that comes with a place to stay.
I do know that our “publisher and owner” of this web magazine, MindanaoBob, is here, not retired and has financial interest in some land on Samal Island. As an entrepreneur, he makes his own way through life with what he earns. Perhaps, another dreamer but there’s nothing wrong with living one’s dreams.
I agree about loans and Cash being King here. It’s more a cultural facet of life here – buying something when you have saved up enough cash for it or when you have some disposable income that you can divert to the purchase. In Western countries, the use of credit has blossomed into a nightmare, putting economies in jeopardy (not to mention personal finances), and making life dependent on “funny money.”
To each his or her own, I guess, is all that can be said. I can only speak with authority about my situation: Our house was built on land that my wife and I would fight for to keep others from having it. It’s not really an investment – it’s a home. We built it when we were financially and emotionally ready.
I do enjoy your views. They definitely bring out another facet that sometimes gets lost when thinking about a dream home in the Philippines. Thanks for posting them.
Nice article Paul what I did was build a smaller house paid about a million pesos for it now I save the money that would be rent or a house payment to save for my “dream house” I have been putting away 30,000 pesos a month for 3 years for the dream house it may take me about 10 years maybe more but it will be paid for cash for now im content in my 100 sqm house.
Hi Jason – I think you have the best plan for your situation! You know how “money talks” and planning for future purchases with cash (to include sticking those “savings” into an interest-bearing bank account instead of borrowing money and paying interest to the bank) is the best bet in the Philippines.
Be optomistic! It may take less than 10 years! 😉
Yeah thats what I am doing Paul I deposite the money into a time deposite at bpi in a tax free 5 year time deposite when I first started I think it was 8.25% intrest but now only about 6% but thats better than nothing hey in 10 years Ill only be 35 so still plenty to look foward to but I hope it does take less than 10 years.
Like the Boy Scouts’ motto, it’s best to “be prepared” prior to “taking the plunge”! You’re doing extremely well with 6% – it’s hard to find financial instruments with that kind of return these days. 😉
Paul, I read a lot about rent to own. Is that basically rent for a few years, apply the rent that was paid to the down payment or purchase price with a balloon at the end-say a period of set years? I am not sure that buying even makes sense for some. For me – time will tell. I have to get there first and then start looking at what to do for a long-term home. We are not even sure where we will live. Ron
Hi Ron – Yes, I’d say renting first is good in your situation. Building or buying is a pretty large commitment to staying (at least for a while) in one location. If you have reservations about that location, or that butterfly in the stomach feeling, or an outright dislike for the location, you’ve got problems if you’re not renting.
It’s wise of you to plan a little “shopping” before deciding the if, when and where questions. I’m sure your answer will be pleasing to your tastes. 😉
Paul;
The other day I was on the phone with NFCU to get a confirmation number on a wire transfer I’d made. The young lady was asking me those trick questions to prove I’m me, and one was “How much do I owe on your outstanding loans with NFCU? I started laughing and said I think I paid it off in 1980. That was the last time I’d ever borrowed money.
My house was paid for in cash, and it was never going to be an investment in anything but our future, a place to grow old together and live in relative comfort. What is its value today? I don’t know nor care, for as with the VISA ad, it’s priceless and not for sale. In a year or so I’ll buy my new car, as soon as I have the cash, and am able to walk in to the dealership and drive home that day. As you so appropriately stated “Cash is King!”
Hi Paul – You know, the answer to that trick question about how much do you owe on your outstanding loans with NFCU is, “All of it.”
After all, if you did have an outstanding balance, wouldn’t you “owe” every penny of it? 😆
You rich Kano’s and your fancy new cars bought with cash! You should be helping out poor guys like me so that we don’t become burdens on society! 😆
Hi Paul,
Written by the truly financially prudent. I now believe in pay as you go, although I still have my credit card which is amply covered. Foreigners can’t get loans in the country which I think is to their benefit. Even balikbayan and now dual citizen like me, I probably won’t get a loan without one to one collateral, even on a credit card. (I got a local one then gave it up.) My advise to foreigners or non filipinos is stick to cash and carry, and forget about the North American way to success via credit – in debt tot he gills. That’s just from me….Alex
Hi Alex – Pay as you go is a great way to live if you never have an incident requiring large sums of money at a moment’s notice (e.g., a visit to the hospital emergency room).
Credit cards and credit in general have their place in one’s personal finances. Their purpose is valid, too. The current problems with credit cards and credit is that too many users pay with a credit card for items that should be paid for in cash.
I don’t mind a “debit card” or a “cash card” or a “bank check card” being used to purchase food in a grocery store, but using a credit card to buy an extremely short-term consumable with long-term debt is one of the largest first steps toward a bankruptcy court.
As to dual-citizenship, I’ve seen a few instances where the dual-citizens received preferential treatment with their applications. One can never tell what the final decision is – so many subjective factors come into play. 😉
It’s probably too late to comment on this, as in nobody will read it 🙂
First off, this is an excellent article. Very well written, some excellent comments and insightful responses. You continue with your sage advice, especially with things financial.
Secondly, if there’s one financial rule to live by while in the Philippines it is indeed “cash is king!” I love this rule on many levels.
I want to comment on the usage of debit cards instead of credit cards for everyday purchases. This probably applies more to the US, but is valid for those living here too. I actually recommend against using cards for everyday purchases in RP, but there are times a card might be required, or at least much less hassle, like when checking into a higher end hotel.
Using a card for everyday purchases is convenient, plus can help track your spending because everything is itemized on your monthly statement. Make sure to actually READ your statement(s). Some have the discipline to track purchases when using cash, most don’t. Using a card can help in this regard and can make it easier to import the info into a personal finance application. – although this still requires discipline.
I agree from a money management principal that using a debit card is more like using cash or checking account, and therefore you won’t incur debt while making everyday purchases. In practice, I would recommend against this because of potential liability and inconvenience.
I have no idea how many credit / debit card numbers are stolen every day, it has happened to me twice. There are “eBay-like” auction sites where people buy and sell large blocks of stolen numbers. It is ridiculously easy to steal numbers, and it is easy to use the numbers for online purchases or to make your own cards.
US
oops, that’s called a keyboard faux pas 😉
US issued Visa and MasterCard offer zero liability. A US issued debit card with one of these logos are also covered by their policies (read the rules, PIN transactions are NOT covered). However, I still recommend against their usage for credit-card like transactions.
1. If the card number is stolen and used as a credit card (no PIN), the card is still linked to actual money in your bank account. The money will be reimbursed per policy. However, most banks will not give you access to this money until cleared by Visa or MasterCard as a fraudulent transaction. You MAY be liable for any overdraft charges and / or late charges for bills you cannot pay because you currently do not have access to money that you had in your account. Some banks will reimburse all of this, know your bank’s policy.
If this had been an actual credit card, however, you would not be waiting for money to be reimbursed. Your available credit would simply be reduced until things work out.
2. When using a credit card for a reservation, or at a restaurant, the merchant often obtains an authorization higher than the actual amount of the transaction. Hotels do this for potential damages or unaccounted charges, restaurants do this for tips. The difference between the actual charge and the authorized amount may take a day or two to clear. If linked to your bank account, this money may not be available until then. That’s post transaction. If you’re staying a week in a hotel, take this into consideration.
3. PIN transactions are the biggie – you are not covered by Visa or MasterCard policy. You are covered by your bank’s policy. You should know what their policy is. I recommend PIN transactions only at ATMs that are on a bank’s premises. Privately owned ATM machines, merchant machines where you enter a PIN to make a purchase, and offsite bank owned ATMs are much riskier than an ATM at a bank branch.
So how do you take advantage of the convenience of a credit card, limit your liability, but still not incur debt and interest charges? Discipline! Track your expenses and know your budget. Use a credit card as if it’s a debit card linked to an actual account, and pay your credit card in full every month.
Ah, that’s better! 🙂
Don’t worry about anyone not reading your comments – there are plenty who do and don’t comment. At least I read the comments, though a little late myself.
Thanks for all of the kind words. Like the wise old man says, “Even a blind squirrel finds a nut every now and then.” Guess this article was one of those found nuts! 😆
My personal rule for spending (outside of “DON’T”) pretty much revolves around: if you can’t fold it, you can’t spend with it.
I truly don’t like credit cards or debit cards. The ease and convenience to plastic money in any form takes away that one last chance to look at the actual money you have and ask, “Do I really need this – can I afford it?” Too, impulse buying relies heavily on plastic users. Somehow that last minute, impulse driven purchase doesn’t seem financially burdensome when plastic pays the way.
Life isn’t as simple as I’d like it to be, so I have to bite the bullet and have credit cards. I try not to use them at all, save for an occassional purchase to keep it active. A surprising fact is that your credit score can go down a little if you have credit cards without any balance and without any activity. Those cards should either be “closed at consumer’s request” or have some activity every couple of months. Both actions will help the credit score.
All of your words are sage advice, Gary. I can predict that I will send others here to view them – I get a number of people wanting a little “free advice” concerning their credit problems. 😉
Hi Gary – My comments below. Type too fast and things do get out of hand – will take my time! 😉
Make that comments above – caffiene hasn’t kicked in yet.
Hi Paul,
Well said by the truly financially prudent. I now believe in pay as you go, although I still have my credit card which is amply covered. Chances are that I as now dual citizen will probably not qualify for loans, but may end up becoming the lender because they always think I’m awash in cash. Alex
Hi Alex – Remind them that some of the largest lenders in the USA have gone “belly-up” because of bad loans they made, and you have an “irrational” fear of doing the same thing. Plus, you would be willing to lend them the money if the economy was better. But, with the current economic situation worldwide, you believe it would be in both the borrower’s and the lender’s best interests not to borrow/lend. 😉
Paul,
When I first arrived in Davao, in 1991, my wife & I opened accounts at a few banks. When at the local PNB, out of curiosity I asked what their interest rates were for my account & for loans. If I recall correctly, the bank manager stated that my account was earning 2.9%(may have been higher) and that interest on a loan would be 29-30%!
Over the years, my wife has made the mistake of buying a few Philippine properties through financing, each time without my knowledge. As she had an issue with the financing of one property, last year, she had to bring these issues to my attention. Once I explained to her that she was paying more than twice the value of the property(3x, in fact), due to interest, she finally understood why I flatly refused to involve myself in the financing of any properties. I was fortunate, in that, my father often told me that, “If you can’t pay cash, you can’t afford it!”, and that I had faced debt at an earlier age, when I chose not to listen to my father’s sage advice. Believe me, in regard to financing Philippine properties, there is not an easier way for a foreigner to bring his filipina wife into the light of reality, Than by showing her how much she will actually have paid, hopefully, before she has signed the contract.
Btw, I notice that you did not mention 5/6 as a financing option!
Mike2
Hi Mike – Yes, I’ve found out over the years that sometimes you can turn the flashlight (torch) on, shine it in their face and they still don’t see the light! 😆 (Just an observation – nothing that can really be changed unless, of course, they “discover it” on their own. 😆
Didn’t want to touch “5/6” as it could be confusing – different plans use “5/6” as a name gimmick. Could be lending $5 for $6 payback, 5% for 6 months then adjusting either the rate or including a “balloon” payment, etc. Won’t be able to find much of the latter available in these economic times, and the former seems to have jumped to 5/7 or 5/8. 😉
Paul I’m vaguely troubled by those pictures. To me they don’t look anything like Filipino houses; they look like places built by foreigners to be the houses they wish they could have owned back home. Or to extend the description, like houses built by Filipinos who wanted to disown their heritage and be faux Americans.
Without daily interaction with family and friends, my asawa would be utterly miserable. Living in a house like those in the pictures would cause deep-seated alienation from the Filipino community.
Maybe it’s good for some people, I wouldn’t know. But anyone planning a move here, please don’t take it for granted that a move to a house like this would be the greatest blessing your asawa ever had. It might be the cruelest thing you ever did.
Hi Ken – Please don’t be troubled. Believe it or not, they are (at least ours is) Filipino – the blueprints, etc., are Philippine registered, produced and owned by a Filipino real estate development company.
After going through their catalog of prints, my wife picked the one she wanted for her “dream house.” We then paid the necessary purchase and royalty fees for the design. You’ll find that these style of houses are becoming a trend and a draw for OFWs and Balikbayans to come home to retire.
The only way we were to come back to retire here was if “the boss” had her own house, built to her own liking. “And so it came to pass.” I only had less than 5% of any say-so in its design, construction, additions, furnishing, etc. 🙂
To tell you the truth, I was a little embarassed about its “size and grandeur” at first. But I put my Kano self-depreciation aside and took a look at it from a “local” viewpoint.
As far as community involvement, interaction with friends and family, etc., you can relieve yourself of such pessimism. Our barangay and our neighbors close by have all thanked us (actually thanked my wife – I still have difficulty with the language, but am working on that) for building the house.
To them, it added beauty to the community, provides the community with a landmark by which they can give directions, serves as a stop for various modes of transportation as drivers are familiar with its sight, and also serves as a venue for a function or party if they wish.
An additional benefit is that it is “neutral ground.” During this election cycle, our house has been the venue for a few parties where government employee friends and relatives could come and mix, as well as politicians from different partys and lists, all having a good time without politicking raising its ugly head. Too, it has served as a site where two “unfriendly” groups or clans could discuss their issues while taking merienda or a meal.
One thing I have discovere, Ken, it’s not the house that causes either great times or bad times; it’s not the house that causes friendship, camaraderie or alienation, be it deep-seated or superficial; it’s the attitude of the people living in the house that makes it fit in to the barangay. Miserable people living in a shack are disliked by others, not because they live in a shack, but because they are miserable.
My wife and I are quite well-adjusted to our neighbors and our environment. We wtill have more adjusting to do, but one thing we are sure we don’t want is to be an island or castle-keep in the midst of wonderful people.
Perhaps you need to step back, set the “Kano guilt” aside, and reevaluate the situation. If you find that you prefer a “century house” up on columns with capiz shell shutters over the windows and a ladder or wooden stairs to get to the living quarters, that’s fine. If you decide that you want a mansion, that’s fine. If you decide you want a nipa hut at the beach, that’s fine. If you decide otherwise, that’s fine too. I won’t rain on your parade. I wish you and your asawa all the best in your choices. Just remember: man makes his own miseries. Take a little time in life to enjoy it. 😉
You hit the nail right on the head. It’s not the house that sets you apart, it’s you. If you can’t sit around with the neighborhood guys and share a beer & a laugh or stop and talk to people when you go for a walk, you will be lonely and not fit in.
Hi Allan – Yes, you have to love the life and live it in order to be loved by the life and those in it.
Didn’t mention, Ken, that this house is a step down from what we have owned in the USA. The days of five or six bedroom, four to six bath abodes nestled on at least an acre and a half are in our past. Since we are “empty nesters,” we have no need for what we had owned.
YOUR QUOTE:
. ” . . . they look like places built by foreigners to be the houses they wish they could have owned back home. Or to extend the description, like houses built by Filipinos who wanted to disown their heritage and be faux Americans.”
Now that I thought about it, I find the comment rather insulting, to both us “foreigners” and to us “Faux American Filipinos.” You will definitely have problems trying to fit into a Filipino community. I’m sorry for you.
Hello Ken
My wife built that house I simply fianaced her, for americans to say what philippinos like in a house is crazy, the philippinos I work with in Kuwait are here making sacrafices being away from the family
and freinds to build nice houses, they are philippino family,s living
near us with big family houses, botom line is me and my wife grew up poor, and through hard work and dedication we built our dream, its not for everybody, but it is what we want
Amen, Brother James!
Hi Paul, I will be paying cash for my house in the Philippines. I was wondering what is the best way to get the funds to a bank in the islands? I have a account with PNB in Palawan. I am aware that the Filipino banks only insure the account up to 250K pesos. I need to transfer 4 mil. pesos. Is there a safe way to do this with out the bank or the government taking 3mil 375K.? I have thought of opening many accounts but what a major effort. Thanks Scott
Hi Scott – I’ll start right off by restating a disclaimer:
– – – – – – – – – –
I (and LiP) do not promote or endorse any financial methodologies. Nor do I(we) subscribe to or recommend any and all financial transactions, strategies or implementations whether legal, illegal or of borderline legal standing that may be included herein. In this, I(we) do not serve as an authoritative source of information; comments or statements made in this response are speculative at best, uttered without regard for concerns dealing with legality, illegality, soundness, unsoundness, morality, and/or immorality.
– – – – – – – – – –
That being said –
Personally, I would take a second look at Philippine banks. There are a number that are solid and sound (at the present time – pre-election) and, even though accounts are only insured up to PHP 250K, I would make bank-to-bank transfers. That account insurance would only pay off if something outside the norm would occur to your account. Employing a bank that is free of such circumstances would be prudent.
If the cash is to be used for house purchasing or construction, its stay in a bank account, etc., would be short term (less than a year). If longer (or if deposit time isn’t certain), sound investments in instruments with good liquidity would provide an additional element of security plus interest/dividends. Rule of thumb: The sounder the investment (i.e., the lower the risk) the lower the interest/dividend. Since you’re looking at a temporary situation, interest isn’t as important as security & liquidity.
Keep in mind that many countries have financial transaction reporting statutes (e.g., USA mandates reporting of transactions of USD $10,000+ and of an apparent series of transactions just below that threashold). As money laundering is an international affair as well as a local one, these laws are set in place as flags for potentially illegal activity.
Note that many, if not all, monetary transfers into the Philippines are reported and could possibly be taxed.
I’ve heard rumors of “stealthy” individuals who “braved inspectors, scanners, pickpockets and thieves” and carried large amounts of cash on their person when flying into the Philippines. Of course, they would have had to fraudulently answer their customs questionaire, stating that they were not transporting large sums of money into/out of the Philippines.
Inquiring at the nearest Philippine Consulate with regard to methods to transfer or import large sums of money will provide you with optional methods to do so, their legality or illegality and whether safe of not. The info you receive may also stimulate ideas of other possible methods that you can research. (An anonymous inquiry would keep any “pots from being stirred” or cause “administrative confusion” at the consulate.)
Additionally, inquiring at your bank or a national or international bank (similar to the consulate inquiry, above) could provide further information and options.
Finally, you may be able to obtain additional information and ideas from OFWs, Balikbayans, those who’ve “gone before you,” etc. Your situation is far from being unique – many have been down the path and it’s worth listening to their viewpoints and experiences.
I hope you don’t take this response as a cop-out. My intent is to keep things “above board,” legal, inoffensive and general in nature, in keeping with the general policies of the LiP web magazine.
BTW, just a side note… last year, the bank insurance was raised to P500k on accounts in Philippine banks. It may have been lowered back to P250k, but I am not aware of that. As far as I know, it’s 500k at this time.
Thanks for the input, Bob.
I did a quick check with the Philippine Deposit Insurance Corporation (PDIC) and found a slightly different but most disconcerting position. They state that the “maximum deposit insurance for each depositor” is PHP 500,000.
Amplified, they state:
“Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together.
“Under R.A. No. 9576, the PDIC may propose to adjust the MDIC, subject to the approval of the President of the Philippines, in case of a condition that threatens the monetary and financial stability of the banking system that may have systemic consequences.”
So, everyone please be aware that the PHP 500,000 maximum deposit insurance coverage is PER DEPOSITOR, NOT PER ACCOUNT. 10 accounts owned by an indivudual depositor in the same bank that each contain PHP 100,000 receives the same coverage as a single account of PHP 500,000.
Hi Paul, I believe that the “per institution” has been in place for years. Best way to spread the risk is to use different banks. Also, different depositors (you have an account, your wife has an account, etc.).
Hi Paul when I bought my land I sent a check from my checking account for 1.2 mil and it took about 45 days for it to clear, but it worked out fine when the check cleared my wife bought the property, and I do agree with what you said about some of the major banks being sound,
I am curently using 1 now and I plan to diversisfy into several banks
i dont want to put all my eggs in 1 basket.
Thanks, James – It’s always great to have additional input on situations that make questions appear.
Totally agree on the eggs. Seems as though they have a habit of cracking or breaking when they’re in hand! 😉
Hey Paul since you are a Cpa and it is a new tax season do you think you could write an article about tax deductions for expats who live abroad and earn a living abroad and who also have income coming in from the states as well.Some of these deductions might help us all.
Hi Jason – To tell you the truth, I’ve been compiling information on that subject with the goal of producing an article or series of articles aimed at the expat tax scene. I want to make it or them narrow enough to answer the basic USA expat questions and broad enough to where some info will coincide with non-USA expat tax concerns. (A little something for everyone.)
According to current industry journals, the next focus of the IRS will be based on this and similar topics regarding money and income “offshore.” In lay-person terms, that means that if I wrote and published something valid tomorrow, it could either be made “moot” (no practical value) or would “permutate” (change) into something quite different.
What I have assembles so far would suffice for the past two tax years, but with possible changes just around the corner, I’ll withhold publishing and continue collecting info. When it looks safe to “open my mouth,” I’ll shout! 🙂
(In the past couple of years, some changes in tax law have taken on a venomous element of retroactivity. I’d hate to see that with expat issues. It’s no fun for a taxpayer to think he/she is getting a head start by filing taxes early, only to find out the rules changed – were made retroactive – and he/she has to file an amended return.)
The IRS does have a publication (Publication 54 “Tax Guide for U.S. Citizens and Resident Aliens Abroad”) which provides information on tax issues that may affect expats over and above the regular tax issues that all taxpayers face. It is available at:
http://www.irs.gov/pub/irs-pdf/p54.pdf
(My article composition task will include putting much from this publication into understandable, readable lay-person-speak 😉 )
Hi Paul,Thanks for the expert advise. It will help in my decision. I have to thank James for the answer he gave about just writing a check from a U.S. account, i am assuming it was a U.S. account he was talking about.
I do not like the idea of traveling with that much U.S. cash. If you get caught they will, i think take the funds & then make you prove those funds were not tied to illegal actions. I work to hard for my money to have it taken away.
I hope i can find other options as time goes on.
Thanks Scott
Hi Scott – I thank you and I’m sure James thanks you, too.
Yes, the method of writing a check is good trade-off compared to the bank-to-bank transfer. All writing the check really costs is time – the time needed to clear (30-45 days, usually). Bank-to-bank transfers, as I’m sure you’ve discovered, have fees that add up quickly when large sums transfered are involved.
The safety of writing the check, as you correctly surmise, truly puts one’s mind at ease, unlike carrying large amounts on your person.
I encourage other readers to provide us with their experiences.
Additionally, there are articles in the archives of this web magazine (some may contain ideas or links to ideas that my prove fruitful).
Hi Paul, I have a question off the subject a little. I am not married to a Filipina, I would like to take title to the resort or house i want to buy. Is there a way to take title to the property in my own name? The realtor that i am dealing with suggested these 2 options. I know that the property will not be titled in my name but these options are seem almost as good. I would like your advise to see what you think. Thanks Scott
1)The foreigner register’s the property into a local Filipino resident.
To insure the foreigner’s interest in the property, the local person will execute a special power of attorney. This will give the foreigner all the rights & power to sell or mortgage the property without the needed signature of the Filipino.
2)The next option is after the transfer of the property to the name of the local, that local will execute for a mortgage agreement in favor to you. That agreement will be annotated in the documents so the local can not sale or mortgage the property without your consent. Thanks again Scott
Hi Scott – My answer will sound a little strange, but it is provided based on both the technical aspects of law and on the reality of law enforcement.
(1) Technically:
(a) As you may know, for the most part, a non-citizen cannot own Philippine real property (real estate/land/etc.). There are exceptions which deal with inheritence and residence issues, and the like, but generally speaking, non-citizens cannot own real property.
(b) Any sale of real property by a Philippine citizen to a non-citizen (unless specifically allowed by law) is null and void (legally unenforceable and invalid) immediately upon the entering into the sale (at every point in the process).
(c) Use of the real property and enjoyment of benefits provided by the real property are separate and distinct from ownership. Non-citizens can use and enjoy the benefits provided by Philippine real property. Use and enjoyment of the real property, or restraint from use and enjoyment of the real property, is at the discretion of the real property’s owner.
(2) Reality-based:
(a) Based on item (1)(a) above, a non-citizen legally cannot be designated as the owner on a real property title.
(b) Also based on item (1)(a) above, real property titles must reflect a Philippine citizen as owner (unless a specific exception applies).
(c) Based on item (1)(b) above, since any sales agreement or contract of purchase of Philippine real property a non-citizen enters into with anyone else, for the most part, is invalid and unenforceable in the eyes of the law: ownership of the real property never passes from the seller to the buyer. There is nothing to stop the seller from contracting another legal (or illegal) sale of the same property.
(d) Based on item (1)(c), a non-citizen can use and enjoy the benefits of Philippine real property. However, this use and enjoyment is at the discretion of the real property’s owner.
(e) A non-citizen may have an “interest” in the Philippine real property via an encumberance placed on the real property’s title. The amount of non-citizen interest in the Philippine real property may be limited by law.
(3) My take on it all:
(a) CAVEAT EMPTOR – Buyer beware!
(b) Remember that, unless you have entered into a valid contract with a realtor or other third-party presenting real property for sale to act on your behalf as your agent, that realtor or person is deemed working on behalf of the seller or for the seller’s best interests.
(c) Before you take any legally binding action (or perceived action) with regard to the purchase of Philippine real property, engage a lawyer licensed and admitted to the Philippine Bar, and discuss and consult with that lawyer the transaction that you are considering. Make sure that you discuss and understand, among other items, the implications and specifics of the Civil Code of the Philippines, [RA No. 386], Book II, Titles I, II & III (Articles 414 to 501).
(d) A Special Power of Attorney that confers rights and privileges, that are conferred on the citizenry by law or statute, to a non-citizen may be void.
(e) Remember that courts all over the Philippines are packed with land dispute-related cases on their dockets. Some cases take years to resolve, and legal fees for representation in court may, at some point, be cost prohibitive.
(f) Regardless of your decision, you will have a large element of risk involved with any outlays of money for real property. Only you can determine your level of risk aversion – the amount of risk you are willing to take. Also remember – crimes against friends, neighbors, relatives and family members (such as assault, battery, murder, etc.) have occurred over real property related disagreements.
(g) It would be better to ask your lawyer about legal alternatives for possessing real property (e.g., perhaps forming a corporation to purchase the real property).
I said it would sound strange! 😉
Hi Paul, I really have to Thank you big for your advise. I have considered forming a corporation to own this resort i am considering. It might be the least problematic Ave. Thanks Scott
If your cash is in an American Bank, how do you pay cash for a house in the Philippines? Do they honor checks written against a U.S. bank account in the Philippines?