Tag: t_risk@prop

infatuated rEstate investor #leveraged

Posted on by tiger40490

 

  1. I have invested most of wife’s usd 70k
  2. I have invested about sgd 40k + usd 16k of grandpa’s money
  3. luckily I have not invested any fund from grandma

I probably need more buffer and more contingency reserve now that my reserve is almost depleted. See Need to rebuild OPM reserve#NOT another shop

Many people seem to invest with over-sized optimism, and possibly over-zealousness and over-commitment:

  • Many Bridge/Peak investors choose to buy $X when they only have half that amount on that day, planning to tap into future income… Me too if buying a 4th shop unit.
  • Most property investors take loans, including Youwei. I know a few buyers who avoided loans and I admire them — Yinghui, XiaRong
  • Raymond bought 2 units, more than he could afford
  • Genn took such a huge loan
  • Genn tends to borrow from me
  • some invest the year-end bonus, even in advance

The Overzealous behavior is largely driven by hot money herd instinct, fear of getting left behind, irrational and emotional, very likely to /crash and burn/ (i.e. burn your finger).

— decisive .. rEstate investing involves checklists, and lots of boring, painstaking homework to do, but many buyers have no time for due diligence. They feel they need to be decisive when buying a hot unit. They are pressured by sales pitch like “last 2 units” or “price rising soon”.

— case: MIH .. I resisted the pressure of “last unit at this price level“. I visited showroom on-site and took a few days. I think I returned to Singapore to send the deposit check. Even though I missed a smaller unit, my decision-making was prudent.

khm shop units=excellent outlier@@ No!

Posted on by tiger40490

Now I think the 3 shop units together appears to be an outlier if “plotted” along return vs risk

  • ==== returns
  • guaranteed rental without vacant period.
  • potential windfall
  • — cost that erodes returns
  • 0 legwork — huge cost in the U.S. context and Singapore too
  • 0 taxes
  • 0 repairs
  • low currency exchange cost
  • ==== risks are mostly listed on REIT/dividend stock^shop unit but I will pick a few
  • uncertainty of dividend? perfect track record so far
  • perceived risk to principal? no sign of trouble but this is the biggest question mark over the outlier status.

Conclusion — too early to call it an outlier. Need to see some units changing hand at reasonable prices.

Because this data point appears to be so much ahead of the pack, I tend to develop emotional attachments.

I tend to feel too proud of them.

rental properties: SEAsia can beat U.S.

Posted on by tiger40490
As I wrote in 2017.. Here’s another Attractive proposition — Suppose there’s a U$200k overseas property with high appreciation potential + 8% NGRY, much higher than mortgage rate. Would you invest that amount and delay your U.S. home purchase? You would remain a tenant in U.S. and rent out the overseas property – rent/rent-out, earning a positive “lease spread”.
Hi Susan,
I haven been thinking about buying a rental property in the U.S. Then it struck me that it’s harder to remotely manage a U.S. property than a SEA property. The U.S. rental market is more complicated with the law protecting the tenants. I will only consider it when I’m local.
There are other advantages investing in SEA rental properties:
  • 🙂 quantum — If I have some modest amount of spare cash, I can more easily afford a rental property in SEA (except Singapore) … a fraction of a U.S. home price
  • 🙂 exposure — is smaller in a pessimistic scenario
  • 🙂 repairs — U.S. repair labor cost is a few times higher than Singapore … Let alone other SEA markets
  • 🙂 wood — U.S. homes are usually wood structure .. higher maintenance.
  • 🙂 appreciation — Most U.S. locations don’t have real appreciation, but the SEA prime locations appear to be emerging, with upside potential. I can’t afford any prime location in the U.S.
  • 🙂 agent cost — I can rely on SEA (including Singapore) local agents to manage for me at a lower cost.
On the other hand, I am aware of the drawbacks in SEA:
  • Not feasible to get 10 rooms to rent out in a good location.
  • 🙁 currency risk
  • 🙁 less developed, less proven, less known
  • 🙁 political and legal risks. I think many Singaporeans burnt fingers in Malaysia.
  • The BridgeRetail experience is by far my most successful property investment, so I’m probably over-optimistic due to that experience.

Beware romanticizing over 10Y guarantee

Posted on by tiger40490

I’m not detached, objective about the 10Y guarantee.

  • beware credit risk. In contrast insurance payout is much more guaranteed than the GRR
  • beware capital depreciation risk
  • my Cambodia and BGC real life experiences tend to create a false sense of “in-depth experience”. Actually not in-depth, because the sample size is way too small to be statistically significant.
  • It’s not over yet. I have not received USD sales proceeds.
  • Phnom Penh is NOT another Singapore or Hongkong
  • The big brands (Shangrila or CapitalLand) are off the hook. These brands suffer no reputation damage if the 10Y guarantee is broken. This is similar to a celebrity endorsing a company that could go bankrupt soon.
  • it’s 10Y only, not lifetime

Top 3 “risk-factors” NOT covered by the 10Y guarantee

  1. location — could be inferior, so the developer has to offer the 10Y guarantee.
  2. developer credibility — cash flow,,,
  3. overpriced

[15] BGC(+BridgeRetail)risks

Posted on by tiger40490

IFF we ignore currency risk, then market risk is somewhat lower than Singapore(?) given BGC is an up-and-coming location with growing population and rising demand.

When we feel demand is strong, ask yourself “who have seen a realized profit?” Can I easily emulate him/her? Until we get realized profit all the  good things are PAPER profits. The clouds are still over our head.

[t=related to trust and professional ethics]
— risks

  • Risk – legal rights.
    ** by right, should (get an attorney to) review the contract before handing over money
    ** [t] Q: Do I own it? Can I sell it freely? Yes
    ***Looks like the title deed isn’t useful. The developer must be credible. Gov can’t do much.
    ** [t] Q: Can I take the money out of the country? yes, use bank remittance
    ** Rumor about RM$1m regulation
    ***no such regulation now
  • Risk – heavy reliance on a local rental agent
    ** experience with our #4-116 unit? Not too bad
    ** Q: take up rate in this location and at this price? No such stat
    ** [t] Q: what if agent says vacant but …
    ** Q: indemnity against illegal activity by tenants? Yes
  • Q: tax rate on rent and capital gain? See http://www.globalpropertyguide.com/Asia/Philippines/Taxes-and-Costs
  • Risk – oversupply driving down rent and resale valuation
  • Risk – no tenant? Well, most locations across Manila would face higher risk of vacancy. This location is among the most convenient, so if we lower the price we should get taken up
  • Risk – price already rather high (hype). Can locals afford it??
  • Risk – currency … could wipe out all gains.
  • Risk – maintenance cost. Without upkeep the unit would deteriorate.
  • Risk – delay in completion
  • Risk – political / economic stability…not as good as the developed countries, where property prices are much higher. Philippines is clearly an emerging market, with high uncertainty.
  • Risk – street safety. Will foreigners want to rent and live there? But it’s easy to stereotype and dismiss many locations:
    ** SFO earthquake
    ** Beijing air pollution
  • Risk – 2008-style GFC could hit foreign investors’ hot money
  • Risk – S$200k is still a big amount. As a commitment phobic, I always prefer smaller amount and shorter timeframe. I sleep better when the amount invested is small.

— good parts

  • timeframe
  • studio available… I always prefer small but superior locations
  • rental yield (offset by running costs)
  • Not a well-known residential market like HK, Shanghai, Sydney, so have potential for appreciation
  • PH is at least a known competitive and pro-business location (better than many emerging economies)
  • up and coming location. Price could double over 5-20 years. Endorsed by the government, big banks, embassies, international schools, hotels in-demand. Doesn’t mean good, but at least this is better than a place without demand

— comparable market prices
Crescent park serviced apartment 1BR p4000/night; F1 hotel Deluxe p6300/night… However, these numbers have proven largely irrelevant.

BGC=diversify from Cambodia

Posted on by tiger40490

Q: do you regret the BGC investment and rather buy a 4th shop in Cambodia?

A dangerous thought. Such an idea ignores tail risk. In a bad scenario, over-concentration hurts, and diversification has a chance to save the day.

Before buying a property, many prudent investors envision all the negative scenarios, as part of due diligence, but we change once we become an owner. As a human nature, owners tend to focus on the happy scenario – the rental guarantee, stable currency.. Don’t fall into that trap. Always allocate enough energy and focus to scenario planning.

There are

  • macro risks,
  • credit risk of Oxley
  • market risks,
  • rental risks

##1st U.S.property: don’t rush

Posted on by tiger40490

You may feel some of these items look so familiar and well-understood, but 10 years later, one of these risks turns out to be the biggest underestimated risk and a big concern if not a loss-maker. How much you have thought over or consulted friends is not a guarantee that you have really understood it.

  • risk: overconfident about rental demand
  • risk: underestimate of running cost
  • risk: risk@delinquent tenant
  • risk: overpaid, and devaluation. Ask Jack He.
  • risk: unexpected poor liquidity… hard to sell
  • risk: forced to move home due to school
  • risk: you find out later the neighborhood is dirty, has drugs …
  • risk: you find out later the daily commute is too long
  • risk: …. yet unknown

My sister once said “Our salary can only increase as we grow in our career.” Right there I saw the risk of over-optimism.

If done properly, property investment can yield substantial financial gains. So far, my property investments have appeared to be lucky. Those personal experiences have bolstered my self-confidence and faith in the property markets globally.

(Actually, the SEA investments have yet to prove themselves, and the BGC Uptown has suffered currency devaluation….)

However, as in my sister’s case, I’m over-optimistic and neglecting the risk of a drop.

It is prudent to rent in the target area for a while.

It’s imprudent to buy the propaganda about a town’s investments, momentum, special location …

It’s prudent to fully analyze our non-investment needs for a house. A property that we can use for our family life is a much safer investment than a pure investment property. For example if the school and commute profile is good, but the value drops, I’m less worried than a pure investment property.

It’s prudent to buy a small price tag. See prefer small investments,esp.property #sticky

+!wife’s due diligence, buy only tiny unit+ve cashflow

Posted on by tiger40490

Wife can spot red flags.

Therefore, she is a critical approver and judge. If I were to buy without her input, it’s prudent to focus only on tiny units. See when unfamiliar,prefer tiny investments,like$200k property#sticky. That favors condos.

However, to reduce the risk of cash flow, I need to minimize running cost. That favors houses and esp. multi-family.