# SRRV - Options of investment: Market ETF & Hands off property



## t1dbkk (Aug 28, 2018)

Hi All,

I'm in the process of getting my SRRV and am considering what to do with the funds (I'm in the younger bracket 50k USD deposit), I could also increase this investment up to ~100k if that helps w the below.

Can anyone help me with:

a) Can I use the funds to invest in the stock market? I would likely purchase the FMETF. Which is basically the index 

b) Any condo investment opportunity that is a hands off type? I wouldnt mind some yield and being exposed to the real estate market, but want to avoid the hassle of owning a condo. Something like a non-listed fund? 

c) If both the aboves are no's, what would you suggest for someone who doesnt want to just do a bank deposit (low rates)? I dont know PH real estate market well to pick a condo w confidence.

Thank you,


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## t1dbkk (Aug 28, 2018)

I also realized I left out a questions about the interest rate on these deposits. What could I get if I left long term? (over 2-3 years)


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## Gary D (Oct 28, 2013)

The deposit has to be put into one of the government specified banks and the interest rates are very very low. Most expat do their best to keep their money outside of the Phiippines as there is next to no protection in Philippine banks, something like 500K pesos, yes that $10,000 plus a very long wait. I'm not up on the SRRV but I get the impression any investment other than banking the deposit has to be something tangable that can't be moved out of the country for the duration of the visa. Any investments you do make need to be micro managed 24/7 otherwise it will grow legs.


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## Manitoba (Jun 25, 2014)

Pretty well what Gary D said. Options are cash in a registered bank deposit that pays low interest or purchase a condo, long term lease of a property or a golf/country club membership.

The only investment I'd try would be to buy a condo then get a trusted foreigner to take a lease on it. I doubt if they could get their deposit on a long term lease of a property owned by another foreigner that already had a PRA caveat on the title but you could try, it just might work. For a nice place I might consider a 5 year lease, semi annual or annual payments, without being able to use my deposit against it as part payment.

I'm in the 20k deposit club and am just considering the loss of interest on my deposit as part of the cost of doing business. When I took it out last September I was offered 0.5% on a 6 month term or 1% on a year term. Will be renewing in a couple of weeks, not sure what I'll get. Deposit is at BPO.


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## lawyer128 (Aug 14, 2018)

t1dbkk said:


> Hi All,
> 
> I'm in the process of getting my SRRV and am considering what to do with the funds (I'm in the younger bracket 50k USD deposit), I could also increase this investment up to ~100k if that helps w the below.
> 
> ...


You can use it to buy a condo or shares in a country club. Most of my clients use their deposit to buy a condo and lease it out to airbnb thru a reputable property manager to avoid the hassle. They earn a decent ROI from it.


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## Tiz (Jan 23, 2016)

Better than the 1% offered by the banks, but I couldn't imagine the ROI would be very high for that either.

Then there's the problem you'll have if you ever decide the the Philippines is not for you.


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## Gary D (Oct 28, 2013)

One problem could be that many condo assossiations won't allow you to let out until fully paid


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## Tiz (Jan 23, 2016)

My condo association sure is cracking down, adding additional fees to the AirB&B units and also forced minimum bookings to 3 night.


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## Manitoba (Jun 25, 2014)

Tiz said:


> My condo association sure is cracking down, adding additional fees to the AirB&B units and also forced minimum bookings to 3 night.


Before going this route, I'd take a look at the calendars on a few Airbnb listings. You will see that a lot of these places are not rented out all that often, track a handful similar to what you are looking at and you will see not much action on them at all in many cases.

I was 6 months next door to an Airbnb rental (I actually saw the listing and it was clearly my next door unit. I talked to one renter and confirmed it.) I followed that calendar for a couple of months, the unit was only rented out a total of 6 days in two months. One renter was a teenage party that I had to call security to quiet down at 1 AM, not sure if any damage was done, just loud music and yelling. I don't think they made condo fees, utilities and other costs while I was watching it.

I also noticed that a lot of the units across the courtyard never had lights on at night. I never tracked specific units but there were a lot of places dark every night so unoccupied.

I suspect that the local Airbnb market if over supplied because the locals see it as a get rich quick scheme and have flocked to it.


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## hogrider (May 25, 2010)

Another aspect to consider if using condos for lease through airbnb is income tax. I'm in the process of buying a 2 bed apt and toying with the idea of letting it through airbnb, just for some additional pocket money, not as a serious means of investment. Most of the time we will be using the place ourselves for weekend getaways etc. So what is the thinking about paying income tax on the rent earned? I have heard differing ideas, from definitely yes to probably no, if the rent is paid direct into an account outside of the country, which of course airbnb will happily do.


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## Manitoba (Jun 25, 2014)

hogrider said:


> .... So what is the thinking about paying income tax on the rent earned? I have heard differing ideas, from definitely yes to probably no, if the rent is paid direct into an account outside of the country, which of course airbnb will happily do.


My understanding is that if you are resident here you will have top pay income tax on the net proceeds.

Not sure how they would know how much you received if it was paid to a foreign bank account.On one of my rental stays there was a form for the condo association that stated the rent I was paying, perhaps they report it to they government? (That was my only stay in excess of one month.)


I would be careful on following all laws here especially those dealing with government revenue, they can and will deport people and when deported you do not have a lot of free time to put your affairs in order.


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## Tiz (Jan 23, 2016)

Manitoba said:


> I was 6 months next door to an Airbnb rental (I actually saw the listing and it was clearly my next door unit. I talked to one renter and confirmed it.)


My next door neighbour is also available on AirB&B.

I'd say it only gets rented out for 3 or 4 days per month at the most.

I also walk around at night here in BGC and notice that heaps of condos never have their lights on.

I think the AirB&B is just a desperate bid for some income from investors that can't find long term tenants.


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## Manitoba (Jun 25, 2014)

Tiz said:


> ....
> 
> I think the AirB&B is just a desperate bid for some income from investors that can't find long term tenants.


Even longer term rentals are not really good investments.

I am in an SM complex. I pay 18k a month for a one bedroom and that includes condo fees of around 2k a month. The rental agent took one month's rent as their fee.

So for a year the owner is netting 158k. For a 25 year term at say 4% that means the apartment is present valued at around 2.5 million. That means that I'd have to buy this apartment for the minimum PRA fee to be able to LONG TERM rent it out to cover my costs. 

At 1% the amount of the term deposit the place has a present value of 3.5 million. I get the impression that places here sell for north of 4 million. That means with the present deal that my landlord is getting, he is not receiving 1% on his money. 

That assumes that the place is rented out full time as well, it was empty for several months before I moved in. That would reduce his average income and the present value of that income stream. I have also ignored the in and out costs, the agent and legal fees to buy and sell the property. I have no idea what they are here but in Canada the agent takes 7% as a standard fee to list and sell a property and the legal fee is usually 1 to 1.5% both in and out. There also may or may not be transfer taxes and miscellaneous disbursements that can quickly add up. Does anyone here understand all the legal requirement to be a landlord here? What are your obligations and rights? What permits and other documentation do you need to become a landlord? 

The only way to make money on this place as a rental would be to sell at a capital gain eventually. I for one don't want to take that risk or have that long term an investment timeline in the Philippines. Do you really trust the Philippine economy to grow massively and just about continually over the long term with all the problems facing it today? What will happen with infaltion and the exchange rates over the long term as well?

The only way I would consider buying to rent out is if I found my dream place at a good price but could not actually move into it for a period of time and wanted it occupied to keep squatters out.

If I found my dream place at a good deal, I'd move into it myself tomorrow.

I for one am just considering the loss of income on my deposit compaired to the return that I could get on that money at home as part of the cost of having an SRRV.


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## hogrider (May 25, 2010)

Manitoba said:


> Even longer term rentals are not really good investments.
> 
> I am in an SM complex. I pay 18k a month for a one bedroom and that includes condo fees of around 2k a month. The rental agent took one month's rent as their fee.
> 
> ...


Long term lease will always be cheaper than a weekly or monthly holiday let through airbnb. I have used a Airbnb twice here in Davao, whilst on short visits while our house was being built. In both cases the rental was approx P1K per night. As I remember when we searched for the unit. there were a lot of blacked out periods. So either the owner was keeping it for themselves, or more likely, they were indeed being kept at a pretty high level of occupancy. I think a significant factor is where the units are located as far as supply and demand is concerned. If they were receiving 1k per night and had 75% occupancy and the condo cost them 2.5m, then they are on a pre tax ROI of over 10%. I'd say that was pretty good, plus there would be capital appreciation as well. Their expenses are minimal, usually they look after things themselves, or have a family member taking care of it.


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## Manitoba (Jun 25, 2014)

hogrider said:


> Long term lease will always be cheaper than a weekly or monthly holiday let through airbnb. I have used a Airbnb twice here in Davao, whilst on short visits while our house was being built. In both cases the rental was approx P1K per night. As I remember when we searched for the unit. there were a lot of blacked out periods. So either the owner was keeping it for themselves, or more likely, they were indeed being kept at a pretty high level of occupancy. I think a significant factor is where the units are located as far as supply and demand is concerned. If they were receiving 1k per night and had 75% occupancy and the condo cost them 2.5m, then they are on a pre tax ROI of over 10%. I'd say that was pretty good, plus there would be capital appreciation as well. Their expenses are minimal, usually they look after things themselves, or have a family member taking care of it.


That was in Davao, I was looking at units in Manila. 

How long ago was this? Airbnb is a recent startup, there are other vacation rental boards but it looks like Airbnb is taking over that market segment. 


I am on another expat board and there there is also discussion on Airbnb only getting a few rentals a month, not 75% occupancy rates. If you can get more than 50% rental occupancy then they could be a good investment.

2.5 million will not buy you much of a condo in Manila, perhaps outlying areas but not Makati. From what I have seen, they start around 4 m and quickly go up from there. Don't forget furnishing and condo fees in the calculation.

It's not an investment I'd want to make, just too many uncertainties and factors beyond my control or ability to predict for me to be comfortable.

It does look like that is just about the only way you can get your SRRV deposit out of a cash deposit and into something that has a chance of making more than the 1% bank interest rate. (Don't forget that there is 15% tax on that interest so your real rate is 0.85%, my 2k$USD made a whole $170 net profit last year for me.)


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## hogrider (May 25, 2010)

Manitoba said:


> That was in Davao, I was looking at units in Manila.
> 
> How long ago was this? Airbnb is a recent startup, there are other vacation rental boards but it looks like Airbnb is taking over that market segment.
> 
> ...


Agreed, the cost of purchasing the condo is a large factor in the equation. In fact property prices in Davao are also very much on the rise, so i don't think you'll find one now for less than P3.5m.


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## Tiz (Jan 23, 2016)

Manitoba said:


> From what I have seen, they start around 4 m and quickly go up from there.


4 million pesos will only buy a shoe box sized condo in either Makati or BGC.


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