Bankruptcies and property auctions rising. Rule of 15 ten years later. Are those who ignored the rule paying the price?

"Bankruptcy petitions are on the rise amid interest rate hikes, growing inflationary pressures and the expiry of pandemic support measures for borrowers, notes real estate consultancy Knight Frank."

Source: 

The Business Times, 31 Jan 2023.

I first blogged about the Rule of 15 in 2013.

That was 10 years ago.

Scary how quickly time flies.

It was something that generated plenty of discussion.

Most readers were curious.

Many agreed while some, mostly property agents trying to sell properties including those trying to sell properties in Iskandar Johor, disagreed.

Some who disagreed were even pretty belligerent and said I was spouting nonsense, which, to be fair, I do from time to time.

Sadness.

From that blog, a few more were published.

Since it has been so many years, readers new and old might ask what is the Rule of 15?

Basically, the "Rule of 15" says that if we could buy a home at a price that is 15 times (or less) the annual rent a similar property would fetch in the area, it makes more sense to buy than to rent.

I felt that the simple "rule" could be used as a guide to help in decision making not just in buying and renting properties but also in selling if we happen to own properties.

I still feel the same today.

Anyway, if you are new to my blog or if you need to refresh your memory, this is the link to the blog which has examples too:

To rent or to buy: Rule of 15.

You could also tune in to a video AK produced on the Rule of 15 if you prefer to listen than to read:

At the time, I said that the low interest rate environment which, of course, persisted more or less till early last year, made the very much lower rental yields acceptable to investors.

Now that interest rates have risen or normalized, if we have purchased a property with the help of a bank loan, we would have a heavier debt burden and would have to demand a higher rental yield from the property.

Property value could, however, reduce if the property we own is unable to command a higher asking rent which is highly possible in a weaker economy.

Doctor Evil getting a haircut in Iskandar, Johor?

Paying more every month to service the loan and seeing the value of the property reducing which might or might not lead to lenders knocking on our door?

Double whammy?

So stressful.

It would be even more stressful if we took on huge loans or many loans and leveraged to the hilt.

Interest rates rising seems to have led to the tide receding and we could begin to see who are the people who were swimming naked.

So embarrassing.

Very cham like that.

Remember this blog in which I said we could grow richer if we didn't think of three things?

Don't think and grow rich.

I also shared a story about what happened to someone I knew:

From rich to broke.

Of course, as usual, AK is just talking to himself.

Is my blog for entertainment or education?

I blur.

You decide.

Related posts:
1. Rule of 15 revisited (2017.)
2. Cash flow is more important.
3. Buying property in Iskandar Johor?