Pre-selling vs RFO
From Phinvestopedia
Pre-selling vs RFO refers to the two primary stages at which real estate is sold in the Philippines. The timing of the purchase dictates the price, the payment terms, and the risk profile of the investment.
- Pre-selling: Buying a property while it is still in the planning or construction stage (i.e., just a blueprint or a hole in the ground).
- RFO (Ready for Occupancy): Buying a completed unit that is physically standing, certified safe, and ready for immediate move-in.
1. Pre-selling (The "Launch" Stage)
This is the most common entry point for investors and young professionals because of the "stretched" payment terms.
Pros
- Lower Introductory Price: Developers offer the lowest absolute price at launch (the "presong-kaibigan"). Prices typically increase by 5-10% annually as construction milestones are met.
- Flexible Payment Terms: The Down Payment (Equity) can often be split into small monthly installments over the construction period (30 to 60 months) with 0% interest.
- *Example:* A ₱5M condo might require a 15% DP spread over 5 years, resulting in a monthly amortization of just ₱12,500.
- Choice of Unit: Early buyers get the "pick of the litter"—units with the best views (e.g., Manila Bay sunset), best orientation (Morning Sun), or closest to the elevator.
Cons
- The Waiting Game: You cannot use the property for 3 to 5 years. You are paying monthly for "air."
- Project Delay Risk: While reputable developers usually deliver, delays of 6-12 months are common. In worst-case scenarios with small developers, projects can be abandoned.
- Expectation vs. Reality: The actual unit may not look exactly like the lavish "Model Unit" in the showroom.
2. Ready for Occupancy (RFO)
This is the choice for end-users who need a home immediately or investors who want immediate rental income.
Pros
- Immediate Utility: You can move in as soon as the paperwork and Spot Down Payment are cleared (usually 1-3 months). This stops your rental expenses elsewhere.
- "What You See Is What You Get": You can inspect the actual plumbing, the view, the noise level, and the finishing quality before paying. No surprises.
- Immediate Income: If bought for investment, you can rent it out immediately to cover the bank amortization.
Cons
- Higher Price: You are buying at the "current market value," which includes all the price appreciation that happened during construction.
- Heavy Cash Out: RFO units typically require a "Spot Down Payment". You might need to pay 5% to 10% of the price (e.g., ₱500,000) in one lump sum to move in.
- Limited Choices: You are buying the "leftovers"—units near the garbage room, facing the afternoon sun, or on the 4th floor.
Decision Guide: Which one is for you?
| Profile | Recommended | Why? |
|---|---|---|
| The Speculative Investor | Pre-selling | You want to buy low and sell high (flip) upon turnover. You benefit from capital appreciation without paying full price yet. |
| The Young Employee | Pre-selling | You don't have ₱500k cash for a spot down payment, but you can afford ₱15k/month from your salary. |
| The OFW Returnee | RFO | You are coming home next month and need a place to live. You cannot wait 4 years for a condo to be built. |
| The Passive Income Seeker | RFO / Pasalo | You want to start Airbnb/Rental operations immediately to generate cash flow. |
Pitfalls and "Gotchas"
- The "Rent-to-Own" Trap (RFO)
- Marketing agents often scream "Rent to Own!" to sell RFO units.
- * The Reality: It is rarely a true rent-to-own. It is usually a Lease with Option to Purchase. You pay rent for 2 years, but if you fail to get approved for a Bank Loan at the end of year 2, you are evicted and you lose the "rent" credits.
- The "Turnover Fees" Shock (Both)
- Many buyers save for the Down Payment but forget the "Closing Fees" (Transfer Tax, Meralco Deposit, Association Dues advance, Admin Fees).
- * The Cost: This can amount to 6% to 10% of the property price, payable in cash upon turnover.
- The Maceda Law (Refunds)
- If you buy a pre-selling unit and lose your job after paying for 3 years, can you get a refund?
- * The Law: Under the Maceda Law (RA 6552), if you have paid at least 2 years of installments, you are entitled to a 50% refund of the total payments made (cash surrender value). If less than 2 years, you usually get nothing (grace period only).
