ASKING SEAN #275 | THIS GOTTA BE THE WORST PROPERTY DEAL SO FAR

what's up guys sh and welcome back to the ehim podcast and today this episode is brought to you by the makeover guys like my property and the rest of my investment properties including my family ones as well are all furnished by them what I like the most is this hessle free they G them everything kind of thing and the quotations are very very clear everything itemized out so easy for property newbies and if you're interested do check out their brand new experience Center in mhab kot Damansara even if if you don't want to use them

it's a great experience great learning curve a great starting point to discuss about the renovation for your brand new property link down below and today we will answer a email from Mr Kaa hi eh I've been watching your channel for a while and I'm impressed with how you not only advise on the financial impact of the issues but also taking the consideration of the feelings of the writer as well I hope this is not a border but I finally decided to come to you with my property issue as well me and my sister jointly purchased

a service department in banga as an investment opportunity quite some time back and we've been pretty plaed with problems with it ever since firstly the completion of the property was over 4 years late and a developer did not wish to pay the LED we have resolved this by suing the developer and winning however so this is no longer an issue but just wanted you to understand the story secondly the property came with a grr o as it was meant to to operate as a hotel during the time we lease back to the hotel operator which

we believe is a subsidiary of the developer due to the same office directors and Etc we were not paid a single scent we then suit both the developer and the hotel operator but the Court ruled that the developer couldn't be suit since they were not party to the leasing agreement we have tried to argue that they were one and the same and therefore lost to the developer to which we had to pay costs we won against the hotel operator however but they have not paid the Judgment sum this has been about 3 years ago however

we are not sure if this is worth the cause to enforce the Judgment as this was a $2 company and we had no idea of what assets they process if any since they shared the same office stuff and other things as the developer thirdly until now the developer has not stratified the building so we are unable to get our sh title fourthly the developer has not held a single AGM despite our many question on when they would hold one and when the jmbb would be formed for the third and fourth issues we have actually contacted

the coob to make a complaint but they were very slow unhelpful and basically said that this was not their problem fifth we got a letter from three unknown companies but whose switch address and emails addresses is from the developer who requested bankd payments of utility bills airon bills and maintenance fees we have hired a lawyer to correspond on our behalf to find out who these companies are in relation to the condom management as well as do a discovery search of our legal rights in this situation according to them if they have never officially written to

us that these companies are appointed by the condom management or developer then we are not obligated to pay the fees or bills since then we have not paid them but every time they send us a bill we will respond with a drafted email provided to us from our lawyers this has been more than a year and we have yet to face any repercussion for non payment but the fear is always there that they can just decide one day to cut our electricity water and air conditioning and we would have to go to court to dispute

it finally the market price of our property has dropped quite a lot from the price we purchased it for we attempted to sell the property at 210,000 lost to us just because we didn't want to have a headache with it anymore but we couldn't find any taker according to the Rea we engage with our price is still considered too high and if you want a better chance to sell it we would need to go down lower which at the current price we are willing to let go right now is quite detrimental to us sorry it's

long winded but hope you can give us some advice thank you best regards Mr gu pH wow this is bad this is such a reminder to everybody who is thinking about investing uh grr uh Hotel operated buildings just put in money hasslefree kind of development right ta basically I couldn't even plan this content in any better way okay so Mr K thank you for sharing such a realistic yet sad story of yours so I really appreciate it why I am able to empathize with the feelings of the writers all the time is because this is

speaking from experience I'm no expert investors with a great Guru or a great seafu to back me up it's all bums left right center right I made a lot of mistakes along the way and I'm just grateful to have overcome them but I must say those mistakes are not like yours so this is a bit serious so I know this is a little bit too late to kind of give advice to already right but just for the audiences who have yet to buy any Properties or who are considering similar type of property investment which is

that grr leasing Airbnb Focus just put in money hasslefree kind of development right these are some red flags to look out for so number one right Mr Kaa and the sister bought the service apartment in banga so last time mbnb is not that big of a deal yet so it's more common to list them as uh somewhat Hotel operating kind of business questions why would developer want to lease out a building as a hotel operated scheme instead of just getting a franchise of a branded Hotel operator like maybe Courtyard or maybe Sheridan 4 point all

those kind of Brands right why don't they do that most of the time it's because of The Upfront cash required like if we know developers buy land and they develop right most of the time developers don't really have a lot of capital so what they will do is they will usually depend on the sale up front in order to finance the Entre higher construction so it means when I launch the initial 10% that I collected from the sale it's going to be the first capital to actually start the construction of course they will need to

have certain level of capital already but this is just a backup of things basically this gets the ball rolling and the construction will be payed in accordance to the schedule hit where the collection of payments is in accordance to the construction progress that is also why you see a lot of developers right they need to sell out a portion of the shop locks up front if it's a mixed development or they develop face by face so it's to ease out the cash flow is to not go for too much risk in this particular case I

kind of know which one already to getting a hotel would be the right move to go but for a small developer it's very risky for hotelier Brands to kind of work with them too so what they do they will Design out the rooms in somewhat like a hotel kind of operation and they sell individually so the mistake here is number one you share with your sister like why so now not one person got burned two person got burned but at least if it's a big purchase for both of you this is somewhat diluting the risk

a little bit but I still don't agree that we should ever join in with someone else just to buy a property unless it's a business format where you form a company and to buy a factory or 500 acre piece of land right so in that format then you need TOA but in a individual kind of format not really then the second thing why would anybody want a hotel operated service apartment okay most of the time for firsttime home buyers their main concern right is always what if I cannot get tenant that's their biggest concern and

the hotel operation format resolves that because they take full accountability of the exit plan and they do that via this scheme called the grr the guarantee rental return scheme so they promise you upfront within the first 5 years I'll give you 6% return and things like that right like now it has proven that the hotelier gave them zero zero so that is the second ref flag really okay yes there's a agreement signed between the hotelier and the building so what right like now after checking suing and going to court only to find out it's a

two ring company wow but this is based of the initial buyer decision for maybe the address of the concern of not being able to rent out and the greed the GRE in sense where maybe they will be higher returns but at least there will be consistent returns all the time and until now technically uh within 2 years time right the rule says that the building must form a jmbb which is a joint management body okay so when you hand over a brand new building the first year developer will manage right developer will appoint all the

building managers and things like that to kind of get the build building running within a second year or upon 50% of Resident reside within the building a jmbb must be formed jmbb means join management body 50% developer 50% owners then a year later or two years later it depends right this one rule says about a year then the developer must hand over the whole building to the group of owners and they will take over from there so from then on it's no longer the developers responsibilities already that should be the way but for this particular

building in accordance to Mr qua you don't have a jmbb and not only that the developer did initiate the process of issuing strata title so I guess this is even before the strata management act issuance so in terms of process wise when a building is ready the developer will somewhat initiate the entire strata Insurance process and this is when owners will need to get ready on your mot payment now so in the olden days because of the different processes right a lot of buildings don't have shot titles but can you do transaction yes via the

power of attorney you can still perform sales transaction provided the developer is not bankrupt so you can still go about it but after a brand new legislation uh technically the goal the goal for all brand new buildings is right after you receed the keys strata title must be ready so now the issuance of strata title is getting faster and faster already so last night it was 3 years then 2 years then now within a year I have heard owners getting their strata title already so that's a good job from the developer as well as the

government body but anything that is designed administrated by the previous act yeah and the good thing here is the owners all come together which is a great thing because all lose money really so no choice and they brought this to co which is the commissioner of building so like if you have any dispute between developer and the management body you can always go to cob and they will be the administrator they will be the medle guy to kind of Judge like which in this situation which right and which wrong they have tried that they fil

that apparently they complain that c is too slow not helpful and this is not their problem then when you have a not so reputable developer a lot of hanky Banky kind of thing and this I think if not mistaken it's also their first time doing this hotel operation scheme where suddenly now you have a company that manages utilities airon and the maintenance fees so it's a separate Energy company kind of thing like a collection fee kind of thing because if it's a conventional service department everyone would have your own meter but because this is designed

as a hotel the airon must be centralized for all the common areas and most likely this is designed within a mixed development setting where you have a conventional service apartment a somewhat Hotel then office then you come out have retails in the bottom it's only very recent where all management all come together and complain about the improper metering strategy which means that when tnb come and issue an electricity bill right how many meters must they go to so like let's say electricity bill for your building is about 400,000 400,000 how do you then split between

four different components if there's no actual metering so inexperienced or older developers right what they do is they just form a separate company allog together on behalf to represent one of the buildings instead of using the strata title to demaret out properly so for example if you have a retail component within your apartment they should have a clear boundary of which area to the very line and this needs to be very precise on Whose Bill the area is covered for example this Corridor that connects from the retail over to the car park of the residents

after the door the electrical consumption will belong to the management of the residence anything before the door it needs to be under the retail but with poor design all this can be very very blur and it becomes a massive problem so now they keep getting bills from this particular company which is obviously by the developer but without official announcement of who is going to manage your unit or who you are supposed to pay for it's not stated anyway in the agreement it's invalid but if you don't pay also cannot well if you don't pay they

can just don't don't run the utilities for and this gets really really tricky okay and now as a result for all like all owners when you invest in such a property in the first place it's supposed to be hasslefree peace of mind just just wait for the check to bang in every single month kind of format right I bet that was the sales speech but now even selling at 210,000 loss nobody wants to buy it so just to First conclude this part right on the red flx when number one is buying together with your sister

so that's not so good it only means two things so if you both have a lot of portfolio and you want to help out a new buyer who is a sister then it's a different setting but if this means a lot to both sides right most of the time people join him is because it's beyond the affordability on one person so personally I don't really like such format but if the relationship bond is very very strong in cases like this it will also be affected because you ask me to buy one M you see now

it's like [ __ ] now how uh yeah also every Chinese you see each other so a bit so the family bond is still strong then I hope so the second thing you you go for a grr scheme and it has been proven again and again and again and again that it does not work grr also means where the developer will just upfront put up all the dividends within the selling price and I will just pay you back 6 years after so for example this is a 500,000 property but I will just sell to you

at 650 most likely you get a massive discount and we'll promise you grr or 6% for the next 5 years after hand over from a buyer point of view is oh I don't have to pay anything and I just sign in 6 years time I will get 6% out of 650 not too bad Ma if everything roll out in accordance to plan that is very very good no doubt right the marketing strategy works so in this kind of setting it's not that the scheme doesn't work it's not that the marketing strategy doesn't work it's just

that the valuable kind of screwed up and it's also obvious because they were late for 4 years and they refused to pay LED they rather you bring them to court however this is a tough part like how do you decide whether this developer can really trust or not or can believe or not can they pull off such a thing a lot of people are kind of blinded when they hear the scheme the zero upfront payment and 6% % guaranteed return on your sbaa for the next 5 years to come W right everybody W and that's

the third part like everybody's greed and desire to just sit there do nothing collect money and Shake leg right this kind of format it's a very bad sign the that's the main reason why a lot of people are still very attracted to grr scheme I can just sit there do nothing the hotel operator will run it for me then I will just collect check by the end of the day if it's so good if it's so good why don't they just run it themselves why must share with you why they could easily just join Ventures

with another development company to just ease the cash flow and share between abang why must they share with 400 or 500 different owners all together so M fun the answer is it's easier to get money from people who desire such lazy format of investment and just being real like if you're concerned about unit not being able to be rent out you can actually curb that with more research work if your installment when the property is competed is going to be 3,000 the current rental for projects around the area that you're going to buy is already

3,000 that it's a good go if it's less than that then don't buy put in FD better put in ASB put in whatever that you feel comfortable EPF whatever right it's going to be way more safer than to just buy and hard up for a 6% by shaking leg every every day it's not going to work again and again and although they have all the precautions like oh the developer office is there oh there's agreement sign with the hotel operator it's a $2 company soon ready you win ready so so right if it's so important

to be right and wrong yeah so for Mr qua here moving forward okay so now moving forward what can you do uh a few things to ask us so can you rent out the unit yourself but looking at it I don't think so because like if it's designed as a hotel the key cards is actually centralized and they will take the key card to respective floors and respective units and as a owner you have no say but to hand over so do you really own The Unit H so that is something you need to clarify

first can you rent out your own if cannot then we have a very very big problem with so now even you sell at 210 lesser than what you buy unfortunately you need to cut losses also but can you afford to cut losses it means like your loan amount is I think it's about 800,000 if you want to sell at$ 690 today and people still don't want to buy it means the demand for room is bad the stigma for the property is bad everybody's working in the forums and even if you can sell right I think

you can sell 210,000 less is because it's the price you paid for your sbaa not good enough after discount ready right your net net pricing may not be good enough what to do just go lower but here then you need to have affordability if you sell 600,000 you still owe the bank 90,000 are you okay can you afford and this is where a lot of newbies property newbies right don't understand not all properties make money a lot of people at least you will break even no if your project suck good luck because instead of buying

your property there's so many other property where I can buy immediately it generates positive cash flow why buying into such a property and people with money most of the time comes with analytics abilities too so this is tough so Mr it really depends on how much more you can afford like if the goal is to just exceed then die die exed on the other hand for investors right for property newbies like these are the situations where opportunities arise there will be a lot of buildings that don't know somewhat management problem or somewhat initial pricing problem

or whatever there will be desperate Sellers and these are opportunity where I know this is not the right time to say this but our will low ball his goal is to just let go my goal is to make money so at what point this development would make sense in monetary gains that's the discussion so when we look into property investment it's all boils down to pricing if not mistaken they buy at about 800 to 1,000 per square feet if I would to buy it at 400 per square feet would it Mak sense it's below replacement

cost which is a very safe thing to do and that's a risk that I will go for but then now is Mr qua and owners like that willing to sell because now it's actually painful for them yeah for for property newbies right this shows that not all properties make money to an extent where if you're selling below your spa or your loan pricing you will still need to pay the difference the second thing these are also moments where opportunity arises because if the property really make money everybody get positive cash flow and capital appreciation who

wants to sell to you and the third way is to just this one I don't really like it but uh if you can afford right I think you can like since it's shared between two people right so just take it as a fixed cost and a lesson and wait it out but what do you expect out of it so if you cannot afford to sell means that you cannot afford the differences the mere expectation is to just continue to pay maybe maybe the above send a brand new CEO that turn this whole scheme around which

I don't think is possible at all but maybe like 2% success rate and just make this a lesson or so until you fully settle the loan which is going to be for the next 25 years easily this is going to be a very very painful experience and here then uh the lesson for all of us is one bad property investment right will put you back at least 15 to 20 years if you want to shorten it the paining process is going to be way higher so now the choice to make is to sell at a

huge loss and to pay upfront 200 to just settle the outstanding or you just slowly bleed every month because like they are giving you nothing but you also paying them nothing and none of them I think the developer very obvious is don't have money really they are just playing it cool and month collect here a bit collect there a little bit you I got nothing already I got nothing I am so sorry Mr qua like for getting such a property right is the developer at for definitely right that is without question they're really trying their

luck doing their best in creating something for themselves but unfortunately timing wasn't very great I think this was affected by the lockdown affected by the covid inflation of goods and services they were wack left right Center and now they met I edicated well informed owners that you guys all coming together lawyers wack Left Right Center again there is no way out unless they get into a joint venture conversation with a bigger developer so they take over the whole thing and they reset everything then maybe got luck L but guess what this is still not the

worst case scenario worst case scenario is if they bankrupt how if they bankrupt if they just wind up call it a day that includes all the subsidiary and guess what all the stuff will also leave because the boss also CH already yeah so as much as we want to blame them as a developer uh it looks like they are still hanging on nobody will want to just make others people's life miserable and nobody wake up with that Moto en life right but I think it's really circumstances that's pushing them to this extent how can we

help I can't nobody can and when you think about it the only way out is for injection of new capital that's all and there's no no way owners can do it GMB can do it no way it's only via the Dr level they can do it if one company comes in and pump 300 million right everything's off but until that day happens unfortunately everybody either you want to wait for that day to happen don't know by the time our children also go to secondary school or finish SPM ready or you can cut losses today and

when you need to cut losses is either cut short but big one or you just slowly drain yourself out l so here the conversation is can you afford to cut loss and I guess that's all for the lesson so for property newbies right I think this is a rather scary reminder a scary story right because the thing is this whenever we buy a property the sales pitch is designed is curated to make you feel good paint the whole picture of the future for you why this will happen this will happen this will happen until [

__ ] hits the fan taada every month you need to pay the installment zero rental and the worst thing is even if you want to rent out it's not up to you because it's under the hotel operator which pays you zero in the first place then you are at the age where you worry developer Chao you worry the utility company stop operating you worry this you worry that and moving forward right within your secret you have one slot taken up and it might also affect your relationship with your family and that is not going to

be any better at all because within the financing industry everybody would know oh this one got black mark take note and the worst part is they will never believe in property investment ever again for the entire family tree to come future Generations right oh that Uncle you see that Uncle you listen to his story he buy this service department now this developer promised that didn't do anything so now everyone pay money lose money really still no hope so M and soe here soe there so for narration like this right the future generations to come right

they will never believe in property investment anymore those are the consequences from one bad investment decision I guess that's all for today thank you very much and for those who still have any real estate related questions do just email me at t n i RNG t n i RNG gmail.com or you can just DM me on Instagram i e RNG today really shows that even if you want to exit the property right it's not that easy so the only thing you can control now the considerations you need to make before getting in one see you

guys [Music]