My experience is only in Sg….
Tag: t_risk@prop
when unfamiliar,prefer tiny investment #200k home
One of our Fundamental motivation is diversification. (Risk reduction is just one of the benefits of diversification.) I guess those who put all the eggs in one basket (such as a 2nd property) could hit higher return than I do, but it’s not without risk. I think the risk in property investment is less understood than public securities, and underestimated.
With multiple small investments, I could sell one of them. I think this flexibility would be appreciated when the time comes.
My first buy of anything is often an experiment, which gives me insight. I am sure to gain huge insights about what specific things are important to me as opposed to what are popular on the market. After that, I would make bigger commitments on the back of /conviction/.
A practical factor — bank loan restrictions. You may have difficulty getting mortgage on a 2nd home. You may need to pay off the first mortgage, which is harder if the first price tag is big.
- — other important reasons:
- See also u.s.home buy: don’t rush; beware
- financial burden — see $$: affordability @700k home
- difficulty of rent-out grows linearly with price tag — see $$: affordability @700k home If you fail to rent out, the bigger price tag also comes with bigger tax!
- flexibility if circumstances require adjustments. Nimble, lighter “load”. Not Tied-down (Jack’s point). With a smaller commitment I could more easily move home. An academic school district could be unsuitable for my kids
- less commitment, lower exposure — eg: Jill’s
- lower risk of regret or nasty surprises — eg: unit trusts
tenant delinquency: tips
The consequence and cost is non-negligible, though low-probability. I need some kind of protective measures, like helmet! I feel this is like random risk of falling off bike. It happens to a number of people. We can reduce the chance but not eliminate.
- Those tenants with small children are more protected by the law. I guess landlord is seen as more powerful and privileged? Greilyn de los Santos (BLVD realtor) said no the NJ court is strict on non-payment by any tenant and will issue eviction order within 3 weeks if tenant doesn’t pay on Tuesday where due date is Monday. Court will also send the sheriff to enforce eviction, according to her.
- If you as landlord has done anything slightly incorrect, it’s harder to get the court on your side.
- For example, Queens landlords dare not rent out their basement, because it’s not legal and makes it harder to evict the tenants.
- Some owners have to pay the tenants a year’s rental to expel them.
- Other owners have to pay more as lawyer fee to get tenants out.
- Still other owners somehow can’t get the tenants out
- probability is low, but the loss is to the tune of 10k or 20k
How about the non-financial cost?
- time
- emotional stress? I feel if we are polite but firm, both sides suffer less.
- I feel it’s better to understand that the law was designed to protect the poor tenants who are unable to pay. It helps reduce the psychological pain.
— SG vs U.S… Singapore is probably much better. I believe landlord can file a police report. With sufficient evidence including lease agreement, the landlord should be able to vacate the unit and change the lock.
—-suggestions
- Must run credit check
- Keep renter’s SSN and driver license
- Agreed late payment penalty (beyond grace period) must be enforced.
- Once the tenant has one breach of contract, immediate filing to NJ court. Seize the upper hand (掌握主动权). Even if she pays up, we have authority to kick her out.
- Prefer long term lease even if at a discount
- join the landlord meet-up group or on-line forums to learn from others
- check background, including job history and current pay check
- Discriminate? I hated prejudice but to protect myself, I may need to discriminate against certain races, and favor students, immigrants (Mithun), white collar professionals etc
- Sign an official NJ rental contract (free download). I feel it’s better to formalize (and sign) the rental agreement and run it through a lawyer. See if the rental agreement is enforcible.
- include a grace period of 14 days.
- perhaps pay a lawyer to use her letterhead
- pre-arrange with lawyer to speed up the eviction process. Ray of 100 Hillside Ave said it took only 2M for the court to give owner the permission to remove the belongings and change lock.
- It may help to engage agents, provided they work hard to reduce my risk.
- collect 3M (1.5M is normal) deposits if you feel the tenant is questionable. After probation, return some when the tenant proves to be reliable.
wish2move(likely)after buy`: RentOut with risk
Rental income is a valuable “insurance” for the “scenario” that we want to move out. I said “want” not “need”.
Q: What’s the probability that we need to move after buying a home? This is like scenario planning. You may feel it’s unlikely, but statistically, many families do want to move.
I have a commitment-phobia. I feel many factors could prompt me to move home —
- school
- commute
- street cleanliness
- Chinese community
- walkable
- biggest risk — if I am out of U.S. then pTax needs rental income as offset!
I would feel very much relieved if my purchased home has good RD and lower tax.
Beware the risks of delinquent tenants!
owner-occupy^lease-spread #Jack.He #lease3spread
https://tanbinvest.dreamhosters.com/2017/03/08/sell-a-unit-to-finance-u-s-home-purchase/ is the opposite suggestion.
My friend Jack He gave an unconventional tip about lease spread: “Buy your 1st property as investment, and don’t need to think so much about how suitable it is as a family home. Better rent a family home.” I replied “Yes, when we live in the city for a while, and figure out what we want, we can then buy a long-term home.” Jack pointed out that if you rent, you can move very easily. When your kids go to high school, you can simply pack up and move with them. However, look at the various risks in ##U.S.home buy:don’t rush #sticky. In the scenario of disappointing rental income, it would be much better if my family can use the home. Therefore, to play safe I can’t follow Jack’s unconventional tip.
In reality my wife is unlikely to choose that. The practical benefits of staying in our own home are overwhelming:
- can renovate the way we want __but__ DIY is painful
- can buy nice furniture
- tax rebate. Assuming 25% marginal tax rate, a $1k mortgage interest (not the full installment) you pay could save $250 on tax.
- Some pTax amounts are also deductible from your income tax? See https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Claiming-Property-Taxes-on-Your-Tax-Return/INF29463.html
- some sense of ownership and security __but__ my (4+) overseas properties already provides it.
- — Jersey City realtor Zak wrote 8 reasons to give up renting. Here are some of his pointers —
- lower cost-variability than renting over longer horizon, assuming you take a fixed-rate mortgage. no worry about rent increase, lease termination etc __but__ the stability also ties you down
Many non-Chinese families really prefer renting indefinitely, with benefits:
- can minimize commute
- no tie-down, as Jack He said
- no maintenance burden
- no DIY home improvement dilemma
- sublease, if your property is too big
- less worry about bad neighbors
- no worry about damage to the property
- no risk of unexpected poor liquidity… hard to sell
- easy move when you find out the neighborhood is dirty, has drugs …
- easy move when you find out the daily commute is too long
- when your kids graduate to a higher-level school ..
- If you don’t like the school ..
- If mom or dad gets a new job ..
Sugg #1: As a first milestone, buy a rental property for rental income, and stay rented with family indefinitely (perhaps with a sublease tenant[3]). Jack He felt this is a good idea. To maximize rental yield, consider 43 Rockledge hotel model
Sugg #2 : buy a smaller home for the family, and stay alone rented near office half the days for a few months, just like John, Shanyou, Alok and Deepak did at RTS
[3] lease3spread .. involves 3 rental _payments_
| rental prop | family | sub-tenant | ||
| 2FH | ||||
| typical | $2000 | -$3000 | $1000 | |
| payer | – | me | – | |
| receiver | me | – | me | |
| owner | me | – | – | |
## reverse thinking: BridgeRetail risk scenarios
Update — In a “normal” economy (Africa, Brazil…), properties tend to appreciate. However, Exceptions define the norm and are worth investigating. I’m yet to focus on those exceptions.
My past experience tell me to suspect just about every info about an investment, unless guaranteed in writing:
- 🙂 Jill Lim’s returns are written into contract, though the payment date is less certain.
- 🙁 AIA __projected__ return turned out to be over optimistic. I guess TokyoMarine might be similar
“Reverse thinking” primarily means bearish, pessimistic, risk-averse, more than cautious. However, we can also challenge the traditional risk-averse views and think optimistically! Be paranoid and suspicious but not irrational. It’s inevitable that some important risk will be missed or underestimated.
- Country risk including political/economic risk
- reverse of foreign investment, esp. from Chinese companies and the hot money
- Cambodia may not have more upward potential than BGC has. In 50 years it may not catch up with BGC.
- less Chinese-like — so Cambodia may not take off and surpass even 25% of Beijing’s psf valuations
- mall success — The mall may not become popular. Location is less developed less mature than BGC. Insulated for 10Y but capital appreciation and credit risk are still affected.
- liquidity — When I need the cash I may have to sell at a very unfavorable price.
- restriction on foreign investors — Right now Cambodia has no restriction on foreign investors like other countries do, but may impose them.
- fund repatriation — Need to fly over. Better than Philippines but still not easy to use the money. Less accessible.
- Credit risk?
- precious? — There will be other shops set up competing for tenants.
- concentration risk — too much into properties
- capital appreciation — may be limited because my purchase price is possibly inflated by the rental guarantee.
- USD may weaken
- 70% return over 10Y? but time value of money?
- water point — may not have higher valuation than other units
After 10Y I may not need to sell.