Wednesday, July 14, 2010

New Tires on My Car



It has been awhile since I wrote a thing or two in my Blog. Well, today, I have some news.

A little more than a week ago, it has been decided we needed to change the front tires of the car. The rear tires are still very good but the front, the tires are a mess. My car has front-wheel drive ( a KIA Picanto) and the tires were really beaten up for the last 3.5 years, since it was new.

The dealer had new tires put on, since the original tires from the assembly factory in South Korea were smaller breeds and so, to look more attractive, the dealer put on a little better tire before they sell the car.

All good, nice looking tires, but after 3.5 years, we found out that the wheels were way off alignment, even though, I did not have problems driving on a straight line when highway or city driving.

The Toe alignment was way off when we went to have our old tires exhanged with the new tires.

But before we start talking about the set of tires we bought, there's a little story first on how we bought the tires. Since the plan was only to buy two tires for the front, with the same tread, we went to the tire store and asked if they first have the type of tires we had before, in stock. They only had one in stock that day, but had to order another one. Since we were there on a Saturday, the order could only be placed on Monday, the following week.

The following week came, and Monday they phoned us saying the tire in question was already in. We already bought the first tire from them that Saturday, so we put it in the storage at home. The tires that were supposed to be are Hankook K406 tires and we bought one, the one that was in stock. On Monday, when we went back to the tire store, it was a Hankook K715 tire, with a different tread. So, much for waiting (not that long, was very fast service). I thought, this is not so bad. So, they installed the Hankook K406 and K715 as front tires. They also aligned the tires. I wondered how much this would cost and they said P775 (C$18) for the car. In Canada, alignment work cost close to $100, so the labor here in the Philippines is still less than in those western countries.

Tires however are about the same price anywhere. One of these small tires (165/60 R14) cost per piece here C$80 (P3,500). We got 15% off somehow. By the way, when we bought the car, the same tires are made in Chine, while these we have now are made in South Korea. I don't know if the quality might be different, but it rings a bell that everything that is made in South Korea a bit better is than what is made in China.

Now we drove away with the car with the new front tires which had different treads. So, in all, I was driving a car with three different treads. The new left front tire, the new right front tire and the two rear old tires (which by now have worn-out treads), so it was fun driving the car in a straight line.

I thought, they screwed up the alignment work, but when I sat down and checked the Internet on alignments of your tires, I found out that the veering of the car to the right when driving could come from driving on tires with different treads.

Soooo, we went back to the tire store and we decided that it would be a "very" good idea to change all tires (4 pieces) with all the same treads. At the end, we bought 5 tires at the tire store. The Hankook K715 (4 pieces) and we end up with also a new K406, and this one we keep for a spare tire. We have a factory spare tire, but this tire is very small. You would not want to drive with this tire on the highway, we thought, the new spare could be very useful when we travel long distances, like going to the province where my wife's family lives. There, we must drive on the highways.
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According to the Internet, YOUR TIRES ARE THE MOST IMPORTANT PART OF YOUR CAR. POOR TIRES ON YOUR CAR WILL FAIL EVERYTHING, LIKE BRAKES, SUSPENSIONS, AND EVEN ENGINE.
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I still remember the TV ad from Michelin a long time ago: " There's so much riding on your tires." They showed a baby sitting inside the tire.

(Picture above: One of the new front tires of our car)

Wednesday, February 3, 2010

How to Estimate the Value of Real Estate Properties in the Philippines

Knowing how to appraise the value of real estate properties here in the Philippines is very important. Many foreigners are used to have known the value of a "house" by the average value that exists in a particular neighbourhood or subdivision. That is usually NOT so in the Philippines. So, foreign buyers, BE AWARE!

It's a whole other ball game here as to determine the value of a house. They break the "property" into two: "the Lot and House".

Most people in North America or Europe just buy the property as a whole and the real estate agent don't mention too much about the lot. We just buy it as a package.

Here in the Philippines, they are very precise on what they buy, so there goes the paperwork again.

There are three different approaches for determining the value:

1. The Cost approach
2. Sales Comparison approach
3. Income Capitalization approach

In Cost apprach, the value of a property can be estimated by summing the land (lot) value and the depreciated value of improvement (house) The land value is usually based on the prevailing market value in the area distinct from the zonal value set by the government.

For house and lot properties, it is best to separate the land from the building/improvement and add them together after knowing its individual values.

For example, you want to know the value of a house and lot in a subdivision in Las Pinas, a 3 bedroom house, 5 years old, with a floor area of 80 sq/m and a lot area of 120 sq/m. First, you will have to estimate the prevailing selling price of the middle end subdivision in the area. Assuming the average is P6,000 sq/m, the value of the land would be 120 x 6,000 = P720,000. Then, estimate the value of the house. The acceptable prices ranges are as follows:

Low Cost housing: P16,000 to P25,000 sq/m
Middle End housing: P26,000 to P35,000 sq/m
High End housing: P36,000 to P45,000 sq/m

So, for the house area of 80 sq/m x P30,500 average price per sq/m = P2,440,000
Then add the value of the lot = P720,000
Selling price = 3,160,000 (excluding VAT which is 12%).

Since the example above states that the property is already 5 years old, depreciation value shall then deducted as follows:

Depreciation = P3,160,000 (house & lot) / 50 years = P63,200 cost of depreciation per year.
Depreciation cost for 5 years = P63,200 x 5 = P316,000

Therefore the appraised value of the property in this example shall be P3,160,000 less P316,000 depreciation = PP2,884,000.

The Sales Comparison approach recognizes that a typical buyer will always compare by asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost possible. The actual selling prices happening in the same local area can be obtained from public records, buyers, sellers, real estate brokers and/or agents, appraisers, and others. Important details of each comparable sale are described in the appraised report by licenced real estate appraisers.

Since comparable sales are not always identical to the subject property, adjustments are sometimes made for date of sale, location, style, bathrooms, square foot, site size, etc... The main idea is to simulate the price that would have been paid if each comparable sale were identical to the subject property. If adjustment to the comparable is superior to the subject, a downward adjustment is necessary. Likewise, if the adjustment to the comparable is inferior to the subject, an upward adjustment is necessary.

For example, the subject property in comparison has a bigger lot area, then compute the difference and deduct from the price to make an upward adjustment. If the subject property has a smaller floor area, then compute the difference from the price to make a downward adjustment. You will also have to compare the basic facilities, amenties, and other features of the property that make it more valuable than the other properties. A careful balancing of all the variables is important in arriving at the good appraisal value based on sales comparison approach.

The Income Capitalization approach is used to value commercial and investment properties. Because it is intended to directly reflect or model the expectations and behaviors of typical market participants, this approach is generally considered the most applicable valuation technique for income-producing properties, where sufficient market data exists to supply the necessary inputs and parameters for this approach.

In a commercial income-producing property this approach capitalizes an income stream into a value indication. This can be done using revenue mulitpliers or capitalization rates applied to the first-year Net Operating Income. The Net Operation Income is gross potential income, less vacancy and collection loss (=Effective Gross Income) less operating expenses (but excluding debt service, income taxes, and/or depreciation charges applied by accountants).