Real estate investment inquiry

[Farfetched]

I currently own a house with a mortgage. Otherwise debt free. 3 years out of training and on track to true FIRE (hopefully) in about 10 years. Practice most of the disciplines here. Max out retirement accounts annually. Contribute to taxable accounts monthly before spending blah blah. Live frugally.

I came across info on a tiny property being built (studio apartment in a luxury high rise) in a foreign city which I dream of one day retire in or maybe spend a few months there every now and then. To keep the math simple, it would probably be a 1m purchase. Requires 20% down (200k). Annual interest rate of 1.6% for mortgage. The builder has a program in which they will furnish/rent/maintain the unit with a contract for a minimum of 2 years, providing the owner with a 3% return of the property transaction price, in this case 30k a year.

I have never invested in RE but I always hoped one day I would (beside REIT funds). Yet I do not want to deal with tenants directly. I am highly intrigued by this deal because it allows me to possibly one day have a place to stay in this city, have a positive cash flow during the investment phase, not deal with tenants, and diversify/reallocate the earnings from the bull market. But part of me thinks I am crazy.

Without judging whether this is a scam or not because that's likely what comes to everyones mind first, is this something I can understake without destroying my FIRE plan? Does the math work? Is this even an appropriate question here?

[soundsystem]

The 1.6% interest is a great deal, very hard to find such a low interest rate. Other than that, based on a 30k/year rental, and what you'd be paying for the mortgage (assuming 30 years at 1.6%), it seems you'd be on negative cash flow, and that is without taking into account HOA fees and taxes.

[Kamban]

Unless you have people in that country to take care of the property I would not consider it. Even then I would not. Long distance landlord is a pain. Remember you are on the hook for $1M. Who knows what you reality will be when you want to retire.

Unless you are rolling in dough, I would not do it. YMMV.

[Farfetched]

soundsystem wrote:

The 1.6% interest is a great deal, very hard to find such a low interest rate. Other than that, based on a 30k/year rental, and what you’d be paying for the mortgage (assuming 30 years at 1.6%), it seems you’d be on negative cash flow, and that is without taking into account HOA fees and taxes.

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I missed some info. So apparently the mortgage can be 20, 30, 40 year loan OR interest only payment loan (not exactly sure how many years it could be interest only since the concept is still quite foreign to me).

in other words for an interest only loan or whatever they call it... it would be about 800k mortgage x 0.016 = 12800 mortgage payment a year, but obviously not touching the principle at all. So The cash flow should be positive?

HOA is waived in the program as long as they are renting the apt for me. Tax is about 1k a year.

[Farfetched]

Kamban wrote:

Unless you have people in that country to take care of the property I would not consider it. Even then I would not. Long distance landlord is a pain. Remember you are on the hook for $1M. Who knows what you reality will be when you want to retire.

Unless you are rolling in dough, I would not do it. YMMV.

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Thanks for the feedback. The property including repair n renovations would be taken care of by the builder in the program, and the 3% return is supposedly guaranteed regardless if the unit is rented. (Pretty much with their research they could rent out the place for much much more than the 3%, at least according to them). I am more worried whether the market value will keep appreciating, or is it in a ridiculous bubble right now. I appreciate the voice of reason.

[westcoastdoc]

I would be very hesitant on a deal like this.  Managing real estate investments out of state (especially for someone without significant real estate investing experience) is risky.  Investing in real estate overseas must amplify those risks considerably.

What you really should calculate is your ROI (return on investment).  Real estate investments are often great it they cash flow and have added benefits of principal pay down, potential appreciation, and tax write offs.  There is a lot of uncertainty in this deal.  Your ROI may be pretty poor after 2 years time when the builders are no longer managing the rental.  A 1 million dollar condo would likely have steep HOA fees and capital expenditures - all of which will eat into your profit margins.  Investing at this point seems like a pure gamble that you would see positive cash flow in several years ...

[G]

I had a buddy in a similar situation. Bought into a luxury condo that he would use 1-2 mo each year. Several years later, the place still wasn't "done" and fees kept climbing. Plus his little family grew, plus after awhile his standards continued to rise.

The numbers don't seem to make sense financially, although it could be a fun gamble. You could get a pretty sweet airbnb for the cost of buy-in and let someone else deal with the hassle. If you don't buy now, what is the worse case in 10 years? No units available? You can't afford it?

Good luck whichever way you go and keep us posted!

[ChristopherMD20]

Do you speak the primary language of that country?

[Farfetched]

westcoastdoc wrote:

I would be very hesitant on a deal like this.  Managing real estate investments out of state (especially for someone without significant real estate investing experience) is risky.  Investing in real estate overseas must amplify those risks considerably.

What you really should calculate is your ROI (return on investment).  Real estate investments are often great it they cash flow and have added benefits of principal pay down, potential appreciation, and tax write offs.  There is a lot of uncertainty in this deal.  Your ROI may be pretty poor after 2 years time when the builders are no longer managing the rental.  A 1 million dollar condo would likely have steep HOA fees and capital expenditures – all of which will eat into your profit margins.  Investing at this point seems like a pure gamble that you would see positive cash flow in several years …

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Agreed. The risk is just too much for my tolerance so it wont be happening... though I have a hunch I would regret in 10 years. The HOA is 100 USD a month, considered expensive in the region lol

 

[Farfetched]

G wrote:

I had a buddy in a similar situation. Bought into a luxury condo that he would use 1-2 mo each year. Several years later, the place still wasn’t “done” and fees kept climbing. Plus his little family grew, plus after awhile his standards continued to rise.

The numbers don’t seem to make sense financially, although it could be a fun gamble. You could get a pretty sweet airbnb for the cost of buy-in and let someone else deal with the hassle. If you don’t buy now, what is the worse case in 10 years? No units available? You can’t afford it?

Good luck whichever way you go and keep us posted!

Click to expand...

Ya if they don't finish the high rise as scheduled and drag on that would be a huge problem. Though I was informed it's a reputable builder with its own stock blan blah.  Worst case in 10 years is that i wont be able to afford it. The area is similar to or worse than Manhattan real estate... Price sky rocketed in the past couple decades. But who knows, maybe it is a bubble, or it may continue to go up.

i like the guaranteed annual 3% return off the sale price without me having to worry about the unit. I like the ridiculous 1.6 interest rate, the low HOA (in US standards), the low property tax (again in US standards). But just too scary to take the plunge after sleeping on it

I appreciate the feedback.

[Farfetched]

ChristopherMD20 wrote:

Do you speak the primary language of that country?

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Yes it's my first language.

[G]

The suspense is killing me! Singapore? KL? Sydney? Abu Dhabi?

[mobilehomegurl]

Unless you have a strong network in the country and are familiar with the laws, it's probably a risk. Investing out of state is hard enough. In a foreign country, you may run into a whole new set of problems.

[JC]

I think you need to provide more information to give a better answer to whether it is a risky proposition or not. Like, what is your net worth?, cash flow? yearly income?. For a interventional cardiologist making more than 1 M a year would not be risky but it will definitely be a risky proposition for a pediatrician making 200K. The same goes for what is the inflation in that country? RE appreciation rate? Besides all of the other risks involved mentioned in the other answers. I am from a country in South America, 2 yrs out of fellowship. I have though about buying RE in my country for vacation, renting it, investing, etc. However, just with the currency alone and the amount of inflation that is there I think it is risky and I have not pulled the trigger. My point is that the scenarios are completely different and to make an informed decision more details are needed.

Moreover, 3% minus 1.6% mortgage will give you a real return of 1.4% a year. I think that even with the most conservative asset allocation 50/50 you could do better than that. I would not take it.