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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