PhilFAQS

As per request (and I do thank those of you who are sending in questions, about Traveling to, Moving to or Living in the Philippines, please keep it up) here is this weeks contribution, geared to several requests I have had for my take on the issue of:

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I Want To Move, But Can’t Sell My House

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Well this can certainly be one heck of an issue in today’s unsettled times, can’t it?  Many are in the “boat” of having faithfully invested most of what they cab afford into a house in an area where values have gone up and up and up and have counted on that house to sell and finance their retirement years.  Now, BANG!  perhaps the house is not worth anything near what it should sell for.  Retirement is “down the tubes” for now.  Or is it?

Well here’s a few ideas UI have that may or may not work for those in this position (lay opinions only, mind you, I shouldn’t need to tell you that when you have an issue as important as a large chunk of your net worth the money you pay for competent legal advice is a very, very small price for some sensible insurance and assurance).

Rent It Out: Many people I know will just reject this idea out of hand, dropping it like a hot potato.  “Not me”, they say, “No way am I going to be stuck with deadbeat tenants and clogged up toilets …” and the beat goes on.

It’s certainly true that any of the undesirable outcomes expressed above and even more could come from renting out your home, there certainly some steps you can take to make them very unlikely.

A personal example.  I moved from Colorado Springs to Tokyo in 1996 for career reasons, and had strong expectations I would be back in 3 to 5 years.  The sales market was good and I had equity in my home.  I even had deal with my employer that paid selling and later purchasing costs, so that would have added significantly to my bottom line had I sold.

But since I wasn’t sure I would be able to afford a similar house in three to five years (just as some of you ‘on the cusp” of a move to the Philippines are not sure you won’t be back) I decided to hedge my bet by renting the home.

I used a local real estate agent who specialized in property management, his fee was 10% of the rental price.  The place rented 2 days after I signed with the property manager (guess I asked too little, eh?) and the house stayed occupied for the whole three years I lived in Japan.   Repair costs while I was gone, all handled by the manager, amounted to less that$100 a year … a busted pipe, a gate fell off the fence, vandals smashed a lawn sprinkler head, that’s about all I remember.

When I returned to the house it was in decent enough condition, but I had already decided to spend part of the rental profits in advance to redecorate, replace the furnace and a few other wants.

I still eared more than $11,000 per year of rental and I got significant tax advantages.  (Hint, in addition to the usual things like depreciation and fees that you can deduct, check out what you can legally claim for trips back to the US to “supervise your rental property”.  Your tax advisor may make you smile).

So, especially if you aren’t sure about the move, or if you are pretty confident prices will go up again in a few years, renting is not a bad deal at all.

Contract It:

But suppose you really, really need to be rid of the place … and you’re sure you want a sale … but prices are just too  low and buyers too spares?  One technique many haven’t considered is a “rent to own’ or a ‘contract for deed’ deal.  These two procedures have some legal differences for state to state and are consider similar enough by some to explain in one definition.  Very simply:

• You decide on a price that meets your needs
• You find a buyer who agrees but can’t/won’t get financing now to meet the agreed price.
• The prospective purchaser pays you a fair market monthly;y rate and something extra … often 1 figure like 10% or 15% is used, which is placed in an escrow account towards the purchaser eventually paying the price and owning the property.
• Advantage to purchaser?  S/he gets to move in and buy much more house with (this is up to you) possibly much easier qualifying
• Advantage to seller:  It’s gets sold.
• The rent to own occupant is likely to take much better care than a regular tenant because he already has an investment to protect.
• If the renter/buyer defaults, the original owner still owns the property and the equity account defaults to the purchaser as compensation for keeping the house off the market.

More about rent to own and contract sales or contract for deed is here:

Reverse Mortgage It:  This is an idea in the area of a non-conventional use of a completely legal but often unknown device legally known as a HECM (home equity conversion mortgage), commonly called a Reverse Mortgage. It is typically only available to home owners 62 and older, but it could well be used as a ‘way out’ for some readers.  basically it works like this:  A home owner (house does not need to be free and clear) obtains a HECM from a lender which gives the owner a lump sum or an annuity based on the projected value of the home at the end of the borrower’s life expectancy.  (the older you are the more you’ll get, because you are assumed to be that much closer to EOL (End of Life).  If the house is worth less than expected upon your death, the lender ‘sucks up’ the loss.  If the house turns out to be worth more, your heirs get any profit over what the lender is due.  This does not sound at all useful to  a home owner who doesn’t want to live in the property, but read the typical ‘residence provision’ below: (in bold

The loan ends when the homeowner dies, sells the house, or, depending on the loan conditions, moves out of the house for 12 consecutive months (for example, to go into an assisted living home or due to physical or mental illness the borrower is not able to live in the property on which the loan has been taken). At that point, the reverse mortgage can be paid off with the proceeds of the sale of the house, or if the borrower has died, the property can be refinanced by the heirs of the homeowner’s estate with a regular mortgage. If the proceeds exceed the loan amount including compounded interest and fees, the owner of the house receives the difference. If the owner has died, the heirs receive the difference. For cases where the proceeds are not sufficient to pay off the loan, then the bank (or insurance which the bank has on the loan) absorbs the difference.  More Reverse Mortgage information here:

So it might be a very viable option to reverse mortgage your currently ‘slow moving’ property, move to the Philippines 9finaced with the tax free proceeds in your hand from the reverse mortgage deal) for 11 months and then do one of two things .. sell conventionally and pay off the reveres mortgage debt with the sale proceeds, or move back in and be assured of a place to live, mortgage and rent free until you want to try again … or decide to attend your own funeral.

Gift It Early: Many folks intend that at the end of their lives their children are going to inherit their home anyway.  Instead of waiting to die and never realizing your Philippine dream, you might consider setting up a trust in favor of your children, gifting the home to the trust and requiring the trust make payments (sufficient to carry the house) to you so you have something to live on.  It’s similar in a way to the HECM idea but done privately between family.  Your advantage is you have an income until you die.  The children’s advantage is, for a known amount of money (which might be made tax deductible) they get the benefit of their inheritance early and they can live in the place, rent it out or do whatever with it.  You certainly need professional guidance here but I am confident there is a way to do this legally and it can be a very advantageous deal in states with slow, expensive probate procedures.

Walk Away: (Jingle Mail): Saved this one for last because obviously it is the least desirable option in many ways.  yet it is an option that in today’s tough times may well be viable for some folks.

Let’s suppose you are relatively young, have a family, have little or nothing in the bank and can’t make your house payments.  The outlook isn’t pretty.  You’re debt to the finance company will just grow and grow, you’ll likely max out your credit, cars may get repossessed and eventually you are very likely to go bankrupt.  Obviously you should do anything and everything in your power to avoid this … but it isn’t always avoidable.

Certain relief may be forthcoming for forced mortgage renegotiations, foreclosure exemptions and such but at this point the US government is only bailing out big name, incompetent Wall Street millionaires … not working people who can’t pay for their house.  Your guess is as good as mine as to the situation getting any better after election day,so you certainly should wait until then, at the least.

But if you are going to go under before then, here’s my thought.  Personal bankruptcy versus “voluntary repossession”.  Both are evils.  But I feel bankruptcy is the larger f the two evils.  If the bulk of your debt is your mortgage and your mortgage company won’t grant you any relief, and you will have some income to live in the Philippines, I would seriously consider mailing them the key and moving.  One voluntary repossession on your credit report is less disastrous than an out and out bankruptcy.  The mortgage company can sell the property at a loss then then try to collect from you in a summary judgment, but depending on the amount and how much of your existing income they can attach, they may not even bother.  And, as I have pointed out before, you US or ‘western’ credit rating really has no affect on you here.  You’ve seen my posts on our cost of living here.  If you have a reliable income (like a retirement annuity) and you live cheap here and pay off your other legitimate debts, relieved from the burden of that over the top mortgage, only you and your credit advisor can decide … but it may be worth it as an escape tunnel.

Anyway, hope some of this has been of a little help in deciding issues about your move to the Philippines. There are more answers where these came from, ask away.

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OK I am going to take a little risk on this post.  It will not apply to everyone who reads this blog.  Some of you (statistically, probably very few) have been smart enough to escape the trap I am going to mention, so if you are among those fortunate and intelligent few, congratulations and don’t take offence at what I am going to write next.

To the rest of you (and let me add this included me for years), the reason you are not already living in the Philippines (or whatever your dream may be) is because you’re a sucker.

And the good old US government (both Republicans and Democrats by the way) have been allowing a bunch of scam artists to systematically (but legally, sadly) defraud you and I for years.  And not only is the beat going on, it is getting stronger.  The problem is getting larger and larger every year.  What am I talking about?  What is holding you back from making a move?  Those cute little pieces of plastic you are carrying around in your pocket.

US consumer credit card debt is like an epidemic of an insidious, financially dangerous disease and the law doesn’t do anything to stop it, it essentially aids and abets in the crime.  The problem is getting larger and more serious every year so there is little doubt in my mind you are not affected … almost all of us are.

Credit card debt is the most cunning financial adversary you will ever encounter. Credit card companies use enticing promotions to lure consumers by increasing credit limits and offering pre-approval. All of these strategies and tactics attempt to install the habit of spending now and paying later.

The interest rate you think you are paying, overall, is very likely a lie.  You know here in the Philippines the cost of borrowing money tends to be much higher than what Americans think they are paying. Unfortunately, many people don’t realize how destructive credit cards can be until their payments become the largest part of their monthly budget. Credit card debt,as a percentage of income, has been on the rise for the past two decades.

So what’s this got to do with moving to or taking a trip to the Philippines?  Simple.  If you don’t have the money in your bank account right now to do what you want to do in life, there are really three possible solutions.

One:  Make more money.  That’s certainly possible, and I write abut that often.  Supplementing and empowering my retirement certainly works for me.

Two:  give up your dreams.  I defiantly do not recommend this one.  I try to make it practice not to dwell on the past and dredge up regrets, but I’m human like you … regrets sometimes come to the surface.  Of all the regrets I can ever come up with, regret of things I didn’t do outnumber regrets about things I did about 1,000 to one.

Three:  make better us of what you already have.  That’s what I want to outline here, briefly, and credit card debt and credit card payments are frequently the number one way to make feast, effective change in your personal financial life.

Fist: (the single most important action).  Stop using your cards!  As Homer would say, "D-oh"!  The number of situations the average person encounters in a month where a credit card has to be used is virtually ‘\nil.  yes they can be convenient, but the debt is killing you.  Start using cash or personal checks.  Hmm, need to buy something and you don’t have the cash in your pocket?  Maybe you didn’t really need to buy it.  Good example.  For years I was paying my electric bill with my credit card .. very convenient just put the information on a from from the electric company, sign it and away it goes.  Well, guess what.  A real emergency came up and I had to charge something big on that card.  Until the entire card was paid off I was paying 19.9% on the entire balance … including that electric bill.  If your electric provider told you your bill was going up 19.9% you would likely be ready to chew nails and spit tacks, but millions of us gave ourselves a rate increase every year by being too lazy to write a check and mail it off.

Second:  Take stock.  Get the credit card statements out for everything you owe and read the fine print section at the bottom of the statement.  Many people would be shocked if they did this and saw that cards they thought had ‘bargain rates’, like 4.99%.  Look close and you are likely to find that your debt is divided into different categories such that what you think is at 4.99% is actually at 20-something percent or even 30% or more.  Make an honest comprehensive list of what you owe, what each amount is costing in interest, and what the minimum payment is for each card.

Third:  Make a pyramid list.  Write down the debts from highest interest to lowest. 

Fourth:   Make an honest assessment of what you have available to pay off each month.  Just recently I posted about how much you are likely wasting on your phone service as just one example.  What about cable TV or NetFlix or some other nice to have but non-essential monthly bill.  Include in the ‘must pay’ list the minimum payment for each card.

Fifth:  This is the most satisfying step.  Take that left over amount, whatever it may be and apply all of it to that highest rate ‘leach’ on the list.  Think of it this way … if that highest interest card is 25%, you are now investing that money in a safe, secure manner at 25% … try buying a CD and see what rate they give you.

]Sixth:  As soon as that highest rate card is paid off, apply this method again, starting on the next lowest .. remember you now have available all the money your were using for card one in addition to your best effort payoff … so number two will pay off much faster than the first one.

From now on, wash, rinse4, repeat.  You can save thousands a year with the method (depending on how deep you were in the pit to begin with of course).  And the best part?  Each little success gets rid of one more obstacle between you and your move.  hard to beat.  This method also goes under the ‘snowball’ debt relief principle, because after that first, perhaps painful, initial start, the debt disappears faster than a snowball rolling downhill.

One last tip … when you do get yourself to where you feel it is time for that trip to the Philippines? DO NOT PUT It ON YOUR CARD!  And if these tips aren’t enough, it might be wise to seek professional advice … because the problem won’t go away on its own. Stop living with bad credit! Let LexingtonLaw.com show you how!

You’ll be here before you know it if you stick to these principles.  Best of luck and do let me know how this article resonated with you … as I said, it’s a bit of a risk.

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My blogging friend Bob Martin just made an interesting post on the reactions of his friends and family to his decision to pick up and move his whole family to the Philippines.  I started to make some comments to Bob’s post and, as I so often do, wrote so much it could stand on its own, so, here it is.  read Bob’s post and then come back here so my comments make a little more sense, if you’d care to.

In 2005 my wife Mita and I spent the Thanksgiving holiday with one of Mita’s sisters, a nurse in Florida who has been in the US about 11 years now, plans to stay in the US for many more but still plans to retire to the Philippines.  One night we had a party attended mainly by friends of the sister, almost all of whom were medical professionals and Filipinos.  Most are quite successful, big-time investments, owning two or more homes, etc.

When Mita and I talked about our plan to be in the Philippines full time before Thanksgiving 2006 (we made it, PTL) I was very surprised by the polarity of reaction.

 About half the guests acted like they had suddenly found a couple raving lunatics in their midst.  They were incredulous that a couple, both American citizens, owning their own business would even dream of getting out of the US-normal “squirrel cage” where you run like the dickens in the same place, money comes in and money goes out just as fast to “feed” those who keep the squirrels in their cages for amusement and profit  … those “squirrel owners” are also called “employers”. (and in the US, when you are a “mom and pop” business owner, you are even _more_ in a cage, earning money for a whole list of government agencies and “providers” before you ever make a single dollar to call your own)

The other half just got a wistful look in their eyes and voiced that horrible Filipino refrain which I have grown to hate … “If only …”.

Not a single person in the “non-believer’s” group voiced a useful or rational reason for being against the move … every comment  centered around the concept of “Here in the US you can make money.” Well I have news for the doubting Thomases.  Money is not what life is about.  But since we all need it to live, realize:

• It is as easy, or even easier, to make money in the Philippines … and our money goes a lot farther.
• If you want to live a “rich” life, lose the phrase “If Only” and just do something about whatever it is you want to do.

So far I have only found one big error that I made in moving to the Philippines in 2006.  I waited 6 years longer than I planned to/needed to.  I should have moved in 2000.  The plus factor of this mistake was that Mita got to come to the US, learn about life there and attain her US citizenship.  The minus factor is, we both spent 6 unnecessary years in the squirrel cage.

It’s not the responsibility of your family or your friends to tell you how to live.  It’s your decision.  Choose wisely.

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It seemed to me at times that this day would never come, but it has.  It’s time to start documenting the process of a 61 year-old Colorado cowboy wnanna-be moving himself and his Filipina wife to the wide open plains of Bulacan.

Why, you might ask?  Well some of my reasons are already common knowledge … lower cost of living, fascination with travel and all things Asian, living with a larger extended family … oh, did I mention No Frickln’ Winter (it’s 0930 on the 3rd of October and my feet are cold waiting for the damn furnace to come on … I think it’s run 30 hours or more already and this is “Indian summer” *sigh*)

Aside from the reasons above, I’m bored.  We have our life here in Colorado arranged so that as long as we penny pinch a bit I never have to work another day in my life.  But I want to see more and do more.  Some things we undertake will be a roaring success others will undoubtedly fall flat … but we’ll do them rather than sit around like so many of my age group who wait eagerly every month for their despicable AARP news letter (ask me sometime show much I despise the AARP) and wander from one senior’s early bird special to the next.

Stay tuned and I’ll document some of our trials, tribulations and successes.

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