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Comment by glitchc | Hacker News Reader

If I'm putting 90% of the value, why don't I just add another 10% and buy the property outright? Are there restrictions on who can buy a house/apartment in Korea?

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You perhaps missed that you get the whole deposit back. The landlord doesn't keep it. You could buy the property outright, or you could live somewhere for essentially free, as long as you don't value the interest on that cash more than you value the place you're staying.

Who is responsible for repairs?

Not quite sure what the exact laws are, but generally the landlord fixes stuff. They will even replace lightbulbs, within reason. If there is a small thing I can fix on my own, I'll just do it myself.

Usually there is a monthly management fee that ranges from $50 to $100+ dollars that covers cleaning of common areas, repairs, etc.

That sounds strange, what's in it for the landlord?

0 interest loan I guess

Opportunity cost. Landlord can use the money to invest elsewhere and make more than the minimum 12% APY. It is like 0% interest loan for the length of the tenant stay.

See my other comment: https://news.ycombinator.com/item?id=28319313

Interest income on the deposit.

No credit risk from the tenant.

Sounds like a too good to be true situation...

Still, why not pay 10% more and own the building? You could still get the money back (and hopefully more) when you sell it again.

I'd imagine transaction costs on real estate are high...maybe even approaching 10%.

Or potentially a lot less. The idea that real estate always goes up doesn't match reality.

Transaction costs, taxes, maintenance, interest opportunity cost, etc. all of the same reasons that it might be cheaper to rent in the USA than buy.

Owner might not want to sell?

Didn’t miss it, just also noted that if the landlord loses the money or goes bankrupt or just skips town, in a foreign country without strong connections and shaky command of the language, you are likely screwed.

Giving that much money to a landlord is absolutely terrifying to me given the history of landlords I’ve had. I’d much rather own the property and deal with any transaction costs associated with selling.

Basically, nobody wants to admit that their own country's long established and respected systems are ponzi schemes.

Many South Korean landlords are underwater on a bad investment and use the next renter's deposit to pay out the last. Citation not possible.

The point of the system was to spur investment in the south korean economy.

next question: how would one go about betting on Korean residential mortgage credit spreads as an American retail investor?

Thats not the good bet - based solely on this information - the landlords would be fine on their own property, they would have lost a portion or all of a prior renters deposit in some other speculate bet instead of just letting it sit in a bank account, new renters deposits are paying for the ability of the landlord to pay the prior renters

Of course that prior speculative bet could be in mortgage(s). You would need to look at other weakness in that economy to rationalize whatever bet you want.

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