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How to Buy a Farm in the Philippines
By Francisco Colayco Jr
Many OFW’s want to retire and live off the earnings of a small farm in their province. They say that they want to eventually plant some crop or raise some animals and earn passive income from the sale of those crops and animals. They want to know if it is advisable to invest in a small farm. Before even considering the option of buying a farm, ask yourself the following:
How interested and knowledgeable are you in small-scale farming?
Will you actually get involved in setting up and running the farm yourself?
Do you understand the economic aspects of the crops you intend to produce?
Does the proposed location have ready access to buyers?
When you know the answers to the foregoing, you can then prepare your simple financial study.There are some key factors that you must pay more attention to:
Cash flows are most important. You should know how much money you have to invest initially and how much they must add every month to maintain the farm until the crops or animals are ready to be sold for cash.
Include the costs of purchasing the property.
How to Buy a Farm in the Philippines
I cannot over-emphasize the need to investigate with the Registrar of Deeds that the Transfer Certificate of Title (TCT) is clean and that it really corresponds to the property that was shown to you. Generally, for agricultural lands, TCTs still need to be secured as most these types of properties are covered by just tax declarations issued by the local government units. This process could take years with no guarantee. You may end up shelling out money for nothing.
Understand the cost of maintaining the property itself. Do not only think of growing the crops/animals. There are real estate taxes, municipal taxes, just to name a few.
If there is need to borrow just to buy the property, this must be considered and included in the cost of the property.
If they want to consider what you will receive if you are able to sell the property, you must remember that there are fees and taxes to be paid, such as: fees for the transfer of the TCT (about 2% of selling price) and capital gains tax of 6%, as well as any new taxes that be imposed by the Bureau of Internal Revenue (BIR).
If you already own the property but there is need to borrow for the operations of the farm, you must be very careful that you are not over-extending yourself. Usually, the property will be mortgaged to acquire the loan. There are so many sad experiences of properties being foreclosed because of inability to pay amortization.
Compute the returns on their investment. My advice is that the returns on your investment should, at the very least, be higher than the average inflation rate per annum, which is 5% over a long-term period. This is only to make sure that your money does not deteriorate over time.
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FRANCISCO COLAYCO
Francisco Colayco is an entrepreneur, venture developer and financial adviser who has written many books that advocate Filipinos to financially prosper. He is Illustrado’s resident money columnist and personal finance guru.
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