$500,000 stuck in a bad commercial space investment! (UPDATED)

UPDATED:
It is an increasingly common sight these days in the heartlands: 

Spanking new mixed-use developments with rows and rows of empty shop spaces plastered with posters and banners screaming “For Rent” or “For Sale”. 

From Kensington Square along Upper Paya Lebar Road and Novena Regency to The Midtown @ Hougang and MacPherson Mall, to name a few...
Source: TODAY




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READER:

Hello AK, 

I have a question regarding real estate that I would like to ask you. 

I am a responsible investor and does my own homework before making any investment, so I will not make you responsible for any decisions I make. 

I have it down here in writing so you can have a peace of mind when you reply to my email. 

I am a stock investor which means I am not familiar with real estate in Singapore. 

I know that you have invested in real estate before, therefore, I would like to seek you help for an issue. 

My father made some money speculating on real estates in the past. 

So as most speculators who have made money speculating on real estate, my father made the mistake of not doing enough homework, not filtering out market noise (mostly the real estate agents), thinking that property prices will go up forever and not position sizing. 

My father laid out about (half a million dollars) on a shop unit, confident that the price of the shop will appreciate greatly in the future. 

He bought it in 2010 or 2011, before the building was constructed. 

Ever since, he has not been able to rent his shop out for rental. 70% to 80% of the shops in the building is vacant since day 1. 

My father has been paying the monthly management fee (about $700/month), annual property tax (no idea how much) and not to mentioned the initial stamp duties and other fees associated with purchasing a property in Singapore. 

Obviously, my father has not been able to find a buyer, not even if he sells it at a loss. 

The size of the shop is about 3m in length and 5m deep. 

My father laid out about half of his cash in this property and another half in another property (this has rental income, so it's fine. 

However, if you add the fees and taxes of both properties, my father hardly makes any money.). 

So my father has been very cash strapped (Situation getting more dire with every month, to be honest). 

Unfortunately, my father made the purchases before I knew anything about investments (not like he will listen to me though).

- Nobody wants to buy/rent the shop

- Monthly management fee ($700+/ month) (Management 很好赚，no AEI or anything, but collects $700+ a month)

- Annual property taxes

- High entry price (my father estimated the market prices of his shop has decreased about 20%)

So my question is, do you have any recommendations as on what can be our next step? 

Any ways to get rid of the property or anything that we can do cut/reduce the losses?

It is quite a sticky situation but thanks in advance. 

Taken from a website 
promoting the mall to investors.

AK says:
Remember what you say here hor. 

Indemnity form signed. ;)

OK, fact is nobody knows for sure what the future might bring. 

What we know for sure is the now and the present. 

The only people who seem to know (the future) for sure are the property agents especially when they want to sell us something. ;p






If we had bought into a piece of property thinking or hoping that the price will go up in future, we are more speculators than investors. 

Remember my blog post on the two questions we should ask if we are speculating in properties?

It is not only whether the property offers value for money. 

We should also ask if we have deep pockets. (See related post #2.)





It seems to me that your dad does not have deep pockets and he is suffering from a double whammy because the property wasn't value for money.

I have a friend in a similar situation and it is causing a serious strain on his family's finances. 

I found out recently when I (being kaypoh) asked him why he seemed so cash strapped when his job pays reasonably well. 






He bought a property and it is not generating cash flow. 

Instead of an asset, he got a liability.

I told him he would be better off disposing it.

"What if the price goes up in future?"

Alamak. 

I told him I don't know what is going to happen in future but I see what the situation is doing to him now. 





Fortunately, his wife agreed that it would be best to dispose of the "asset" even at a loss.

Don't bite off more than we can chew. 

If we bit off more than we can chew, we would do well to spit it out or else we might choke. 

Of course, some handle choking better than others. 

Quite a few could choke to death.

Best wishes,
AK





P.S. The property which the reader's dad bought is not in Alexandra Mall. 

It is in another part of Singapore. 

Not revealing the location of the property in question, I am just using Alexandra Mall as an example. 

Yes, there are quite a few of these "promising" malls which were marketed to retail investors in Singapore in recent years.





Related posts:
1. Nobody cares more about our money...
2. Two questions we should ask...
3. Disastrous investments in property...

Wife becomes "tai tai" because husband has high income.

Tai tai (太太) is a Chinese colloquial term for a wealthy married woman who does not work. (Source: Wikipedia.)

I don't know if it is surprising to you but I have seen so many such cases over the years. 





There are childless couples who decide to stay childless because they want to concentrate on their careers and have double income. 

DINK. Double income no kids.

The ones I am blogging about now are those who decide to stay childless too but with only one person bringing home the bacon. 

What does the other person do? 

Anything but being gainfully employed.

I have a good friend, several years younger than me, who is a doctor. 

His other half decided to stop working many years ago and when I remarked that it wasn't a wise decision, instead of agreeing, he said, "I make enough money to support both of us."

OK, end of conversation.

I know that my friend is not from a wealthy family and he also had a hefty study loan which he had to repay. 

He had a mortgage on a condo and he also bought a luxury car. 

While my friend has his job, he will have no problem paying for everything. I am sure. 

While he has his job.

His income is earned. 

It is not passive. 

If he had to stop working for any reason, he would very likely be unable to keep up his lifestyle. 

Oops. Sorry, it should be their lifestyle.

The prudent thing to do is for both of them to have earned income. 

They should build wealth and invest in income producing assets. 

Only when they are able to depend on their passive income alone to have the lifestyle they want should the wife stop working. 

This is the wise thing to do.

To love is a fine thing but letting love blind us could be destructive and not just in terms of wealth.




I hope my friend does not regret in future.

"Your husband makes a lot of money. He doesn't have a lot of money. Wake up!" - AK

Related posts:

1. Pertinent questions in wealth building.

2. Financial freedom over home ownership.
"Your choices and your relationships are key indicators whether you are going to succeed financially." Dave Ramsey.