Real Estate Gap Investment Strategy Explained

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Let us assume the house I want to buy costs 100 million KRW.

I currently have 20 million KRW in cash.

I borrow 80 million KRW using my current home as collateral.

Now that I have 100 million KRW, I buy the apartment I want and rent it out.

A tenant moves in, and we sign a comprehensive transfer agreement with a rental deposit of 80 million KRW.

(What is a comprehensive transfer agreement? It is a system where the tenant pays the landlord when they move out.)

With this, I first repay the 80 million KRW borrowed from the bank.

In this state, I am effectively only using 20 million KRW of my own money.

Then, the property value rises to 110 million KRW.

At this point, I decide to sell the house through a real estate office, and someone wants to buy it.

Since I have a comprehensive transfer agreement with the tenant, I only receive 30 million KRW (excluding the 80 million KRW deposit).

(It feels like the new buyer inherits the same gap investment I was doing.)

(If the tenant says they are moving out, the new owner also has to return the 80 million KRW, so the new buyer is not safe from the debt trap either.)

Looking at this, you can see that every 1 million KRW increase in property value directly becomes my profit.

This up to this point is typically called "rental gap and sale".

And when you do this with multiple properties, it is called "gap investment".

However, due to the December 16, 2019 real estate policy, housing loan extensions are no longer possible for those owning 2 or more homes, so gap investment is now effectively over.