PropertyDevelopment

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[edit] exhibit B: Property Development

as tito virgilio proposed, we should try to fullfil the wishes of lolo and lola, which is to develop the properties for future generations. the funds can only come from selling a property. everyone agrees that we should not sell pelaez because of sentimental value and it's the only property earning income. unfortunately we can't afford to pick and choose because the amnesty deadline is june 14, and if we turn down a buyer that could have paid for or estate tax, we don't know when we can get another buyer. pelaez being the only income earning property is also a moot argument because after pelaez is sold it would be much easier to sell other properties because the estate taxes are already paid the the titles retrieved from Ang. it would also be easier to sell mambaling because we would have money to petition for the annotation of the right of way.

from a purely financial perspective, pelaez is the best candidate to sell so we have the funds to develop other properties. the secret to investing is find assets that are undervalued (good news not yet baked in the price because no one else knows about the good news), and sell your assets that are already fairly valued (good news already baked in). right now pelaez is the only property with all the good news baked in the price. that's why we are trying very hard and spending lots of money getting the right of way of mambaling annotated on the title so that the good news is baked in before we sell it.

the question now is, which property is undervalued? mactan has no right of way so the market is giving it a low value. the best offer we got was P13.5m. but the market doesn't know that our mactan property can actually be a SUPER CASH COW because of it's very strategic location perfect for bed spacing. even with no right of way, bed spacers don't have cars, only motorcycles, and motorcycles can easily pass through the current right of way.

i consulted tiyo dodong torrevillas who said it's not a problem constructing a 3 story building even if it's 75 meters from the road. of course it will cost us a bit more but not that much.

workers in mepza, city hall, gaisano malls, hotels and resorts will be clamoring to rent our units if we only offer P4k/month per room (note munoz's m5 si P6k/month per room). they can have a roommate so they only need to pay P2k/month. note most bedspacers are usually jam packed with at least 4 people per room and at least 8 people sharing a bathroom. with ours, each room have a bathroom (similar to m5). so imagine the full occupancy and even the long waiting list of bedspacers clamoring to live in our C1 C2 and C3.

now let's compute the potential earnings. note i am being very conservative here. i'm even assuming P4k/month per room instead of the realistic P6k/month. m5 has 52 units on a 444 sqm property. that already includes parking space. that means we can easily have 3 m5's on our 1,655 sqm with 323sqm left to spare (in case there are easement requirements). so 52 X 3 = 156 units. let's assume worse case scenario where we only have 75% average occupancy because of an architectural flaw where there is a water leak problem similar to munoz's m5 (note munoz is currently having financial propblems and even mortgaged P8m from the bank using m5 as collateral). note that munoz's is always fully occupied even with the leaks and bad smells, it's just that the turnover rate is high. that means 75% for us would be a very very very conservative estimate especially we now know how to avoid the leaks and problems with foul smell. so 156(75%) = 117 X P4k = P468k per month earnings or P5.616m/year. let's assume a PE of 20 which is very low considering the PE of S&P500 right now is 31. using a PE of 20, the value of mactan lot is a whopping P112 million. and that's using assumptions that insanely and intentionally undervalues the property. so it's value to our family if we use it is P112 million minus cost of construction. note the PE of our valle verde condo is 27 (P10m/P360k). and i'm giving our mactan property only a PE of 20. it actually makes sense because munoz is currently trying to sell m5 at P20m because of the architectural problems of the building. the land value is P20k/sqm X 444 = P8.9m. that means the cost of the building is around P12m. so P12m X 3 = P36m. let's deduct it from P112m so the land value of mactan to our family is around P76m, using insanely conservative assumptions. so next time a buyer of mactan offers P13.2m or even P20m, give them the finger. i'm kidding actually if we haven't sold any property yet and haven't paid the estate taxes we should take the P20m offer.

the bedspacing idea does not really require expertise. we don't have to reinvent the wheel we can follow m5 design and call ours c1, c2 and c3. even hire the same architect or contractor. except of course we need them to explain to us the architectural flaw of m5 that is causing the leaking problems so we can verify if they fixed the design. i feel sorry for munoz we just made him our guinea pig.

it's very easy to collaborate nowadays using online collaboration tools and accounting systems that provide transparency where everyone can see the revenues and expense down to the last cent. christian can help with the IT area. i can also help with setting up a system and documentation for all kinds of operations such as maintenance schedules. we just need to document all responsibilities and duties to make it flexible for any member of the clan to join and leave the business. there are so many members in our clan each with our own skill set so we will never run out of manpower.

i'm not saying we will pursue this idea. we should still try to sell mactan at P20m. i'm just saying if nobody buys our mactan lot 5 years from now because of the right of way issue, then we should be happy because that means we have the opportunity to provide stable cash flow for all the heirs and their family.

i interviewed one of the tenants of munoz C5. here are more details on the problems of the building. the drain pipes are leaking and it wets their bed cushions. they know it's the drain pipes and not water supply pipes because it really smells. there's no spacing or kesame between the floors. the pipes, are embedded inside the cement so the problem is very hard to fix. what's worse is that the sinks, shower drain and toilet share the same drain lines. so when one unit flushes their toilet, the tenants in other units taking a shower will smell the tae. he said the smell is strong and terrible. there is no exhaust or hungaw. the lesson we should learn here is never share the shower and sink drain lines with the toilet drain. they have to be separate lines. there should also be exhaust (hungaw). another important lesson is something i always thought about since i started working with houses - route all pipes (drain, water, electrical) outside the walls, not inside. it always made me angry why electrical conduits, water pipes and drains have to be embedded inside walls and under the ground. and it turns out nowadays, it's standard construction design to put all these pipes outside - they just cover it with something that's easy to remove for aesthestics so that it will look nice. so another lesson here is that when my views and opinions goes against common convention, most likely my unorthodox views will turn out to be correct.

another major problem is that the walls and ceilings have cracks. even if you live in the second floor, rain water will seep through the cracks and drip in your room. only engineers or architects can solve this.

i thought each floor has a common kitchen. turns out there is just 1 dirty kitchen on the roof top where only 4 people at a time can cook.

keep in mind despite all these problems, the building is always fully occupied, but the turnover is very fast.

note M5 means it's the 5th building of munoz. so another important lesson to learn here is that that even with all his past experience, mistakes and problems still happen. it's not a sure thing which means if we get into this business we really need to devote all our time and effort.

where in the world can we get P36m for the buildings? the beauty of this idea is that we can start with just 1 building so we only need P12m. this is actually small relative to the sale of any toledo property. or we can do a judicial partitioning into 3 parts, each partition having 551 sqm. we can also group the 9 heirs into 3 groups, according to amount of free time or how busy we are. right now it's me, tita doris family and tito bertie's family that has the most free time to dedicate to the development operations. we will be the guniea pigs. if we succeed and profits start flowing in, all the other groups have to do is follow everything we did. i will document everything we did so other groups can easily follow, including the obstacles and problems we faced and how we tackled them. if we fail and lose tons of money, the other groups can just laugh at us and know not to follow in our footsteps. we will be the sacrificial lambs. the second group would be tita georgia, magz and christian. they are all busy right now, but maybe 5 years from now if tito jojo has a term limit break, and christian and magz goes on a sabatical they can work on it. the 3rd group would be the retirees and those in the states - tito virgilio, tita jane and tito mike. the beauty with the groupings is each group has someone who has the street smarts to navigate the treacherous bureaucratic landscape - me, tito jojo, and tito virgilio. this is just brainstorming don't put too much weight over it.

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