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I live in Korea. Some months my total expenses are as low as $400 while living comfortably. If I spent $1000 in a month, I spent a lot of money. I'd say my aver
by Leftium 5y ago
I live in Korea. Some months my total expenses are as low as $400 while living comfortably. If I spent $1000 in a month, I spent a lot of money. I'd say my average monthly living expenses are $600-$800. My main expenses are food/entertainment, and I eat out a lot (50% of meals).
Housing is probably the biggest living expense. I take advantage of Korea's interesting rental system called Cheonsae:
Basically, if you put down a huge deposit (like $90,000: 50% to 90% of the value of the property), you don't pay any monthly rent and get the entire deposit back when you move out. My place has a $50 monthly management fee, but that includes high-speed internet. (So I joke that I get free housing with my internet.)
Of course, there is an opportunity cost because that deposit could have generated interest, but I figure the break-even point is 12% APY. (It is possible to lower the deposit by increasing monthly rent.) So it's advantageous to take out a bank loan at 2-4% interest to pay for the deposit.
There is a small risk you won't be able to get your deposit back if the owner mismanages their finances. I believe the Korean government actually guarantees housing deposits up to $50,0000 or so. In Korea, the tenants actually do background checks on the landlords! The minimum deposit is usually $10,000, so landlords usually don't scrutinize tenants.
- 41209 5y agoThat seems like a very very good idea. I wouldn't do it unless I had a partner who is already a citizen , but I'll definitely keep this in mind. How much is rent if I didn't want to deposit that much ?
- Leftium 5y agoThe general formula to convert from housing deposit to monthly rent is $10,000 deposit equals $50 monthly rent. (Until recently it was $100 rent). It's possible to find lower, but $10,000 is usually the minimum deposit. Housing costs will vary greatly depending on location. $90,000 is in Gimpo, just outside of Seoul. Busan is probably half the cost of Seoul, and outside any major metro areas it's probably even lower. Also even within the same real estate market prices vary greatly depending on the neighborhood, type, and size of unit. Another major factor is distance to nearest public transportation (subway). Another thing to note is since monthly rent is usually more profitable for landowners, there is a movement away from the cheonsae system. However, I was still able to find plenty of options exactly one year ago.
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- csomar 5y ago12% is pretty high yield for the modern/western world. South Korea central rate is %0.75 according to Google. Where does the 11.25% come from?
- Leftium 5y agoThat is exactly my point. There is an opportunity cost in keeping a large deposit (lost interest/investment opportunities). However that opportunity earn a certain APY in order to be a better "investment" than the housing deposit (a penny saved is a penny earned): - $10,000 additional deposit reduces monthly rent by $50. - 50 * 12 = 600 - 600/10,000 = 6% The monthly rent reduction used to be $100 per $10,000. So it used to be 12%. I guess the break-even point is 6%, now... Concrete example: I could reduce the deposit from $90,000 to $10,000. But then my rent would go from $0/month to $400/month. So by keeping a large deposit, I save $4800/year in rent.
- gowld 5y ago11.25% is the imputed value of $0 rent after down payment.
- caiomassan 5y agoin crypto 12% is quite low.
- UncleOxidant 5y ago> Basically, if you put down a huge deposit (like $90,000: 50% to 90% of the value of the property), you don't pay any monthly rent and get the entire deposit back when you move out. That's kind of a strange system. Any idea how it evolved there? Basically sounds like the landlord has to invest the money in such a way as to get a return that would be equivalent to rent but also safe enough so that they can return the deposit. I don't think I'd want to be a landlord there.
- yongjik 5y agoI believe the system was adopted in the old days with very high interest rates (~10% was common) - landlords could easily expect to make enough return. It's actually greatly favorable to landlords. Just think about what happens when one side is out of money. Under the monthly rent system, landlords can't get any more money until they evict the renter (which is a lot of hassle, anywhere in the world). Under the "jeonse" system, if the landlord becomes bankrupt, the renter is suddenly out of a large portion of their total wealth, and will be evicted by the new owner - without any money to find the next place. (There are insurances to protect renters but the risk is still there.)
- chrischen 5y agoWould the new landlord inherit the liabilities of the house?
- yongjik 5y agoNot an expert, but I think there's a good chance the renter will lose money. When this happens, the landlord usually has more debt than the house is worth, so the renter has to compete with other lenders. (There's some legal protection, but I don't think it's bulletproof.)
- KptMarchewa 5y agoThe nice option world be to guarantee in law that renter gets the property as debt.
- 5y ago
- glitchc 5y agoIf 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?
- pie_flavor 5y agoYou 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.
- willcipriano 5y agoWho is responsible for repairs?
- Leftium 5y agoNot 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.
- throwawayswede 5y agoThat sounds strange, what's in it for the landlord?
- danr4 5y ago0 interest loan I guess
- jayadeeptp 5y agoOpportunity 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.
- ai_ia 5y agoKorea is something I have on my mind for so long. I would love a detailed blog post regarding your experience living in Korea as an expat with breakdown of cost and how you ended up there. Seems like an interesting journey to know about.
- Leftium 5y agoIt's been quite an interesting journey! The original plan was to study Korean language for just a year, then I kept extending the trip... I haven't blogged in a long time, but here are the Korea-related blog posts: http://blog.leftium.com/2007/06/my-life-prologue.html http://blog.leftium.com/2007/06/my-life-prologue.html http://blog.leftium.com/2007/06/past-month-in-review.html http://blog.leftium.com/2007/06/past-month-in-review.html http://blog.leftium.com/2007/06/my-life-chapter-i.html http://blog.leftium.com/2007/06/my-life-chapter-i.html http://blog.leftium.com/2010/08/dragon-flies-and-praying-mantises.html http://blog.leftium.com/2010/08/dragon-flies-and-praying-man... http://blog.leftium.com/2010/09/how-to-eat-korean-food.html http://blog.leftium.com/2010/09/how-to-eat-korean-food.html http://blog.leftium.com/2010/10/october-update-whats-good-in-korea.html http://blog.leftium.com/2010/10/october-update-whats-good-in...
- ai_ia 5y agoThank you. Reading it right now.
- kadomony 5y agoHow do you stay there? Just in an education visa?
- Leftium 5y agoOh, that's one thing that might make it harder for the OP. Forgot about that. Before COVID, people used to do "visa runs" to nearby countries so they could stay more than 90 days (tourist visa). I have an F4 visa that allows me to stay in Korea for up to 3 years, and it's simple to extend without leaving Korea. Technically I have almost all the rights as a Korean citizen except for the right to vote for president. (In practice it's more limited. For example it's nearly impossible for me to get a loan.) With the F4 visa, I can work or not work. The F4 visa is granted to people who have relatives who are Korean citizens.
- wodenokoto 5y agoI’m guessing this is outside of Seoul. It’s been a decade since I visited Seoul and while I remember it being surprisingly affordable, I don’t remember it being that affordable in Seoul. I can easily imagine somewhere outside Seoul/Jeju/Busan being surprisingly affordable
- Leftium 5y agoCorrect: I'm in Gimpo, but it's not far from Seoul. Kind of like the Seoul metro area or a suburb. I can get to Seoul by public transportation (subway/bus) within an hour. And the fare is only $2-3. And I was a little fast and loose with the KRW-USD conversion. I opted for the simple 1USD == 1000KRW, so the actual numbers are a little higher.
- FabHK 5y agoJust for the record, I don't think that South Korea is particularly cheap. As OP demonstrates, one can live there for USD 1000/month, but that really holds for most countries. While the US is in the top 5% in terms of nominal GDP per capita, South Korea is in the top 15%. For cheap, yet comfortable and safe, I'd aim around the median, eg Indonesia or Georgia. ETA: Nomadlist suggests €1,925/mo for Seoul, €1,530/mo for Jeju Island, South Korea; €1,047/mo for Tbilisi, Georgia; €627/mo for Bandung, Indonesia. ETA: Nomadlist has a list of places below USD 1000/mo: https://nomadlist.com/places-on-a-budget https://nomadlist.com/places-on-a-budget
- postsantum 5y agoNomadlist is often way off on their estimates. I'd suggest using it for inspiration only and then see prices on Numbeo
- anm89 5y agoNo one number can quantify a city. You can probably live for $1000 a month in Mnahattan if you are willing to live in a total dump. But still the numbers are useful and mostly accurate within a range
- et2o 5y agoOff in one direction or just randomly?
- yorwba 5y agoIn my experience of living in Shanghai, Nomadlist and Numbeo estimates are way too high. That's not to say that rich expats aren't actually paying those prices (someone must've entered them, right?) but if you're willing to shop around and learn the local language so you don't get ripped off like an ignorant foreigner, you should be able to get things much cheaper.
- turtlebits 5y agoI’m sure the numbers are skewed highly by expats who’s employers pay for them to live there. I still remember my parent’s rent when they lived in HK- 13k USD/mo.
- rwmj 5y agoThe maths behind this is similar to UK leasehold. With a leasehold (which is a truly terrible system) you pay as if you're buying the flat, but actually you only have a lease usually with a very small annual payment and some management charges. The catch is the lease only lasts usually 99 years and for various legal reasons you have to renew it before it drops below 80 years, and that costs a bunch of money. Leaseholders are called "homeowners" but they don't really own the home in the normal sense and are closer to long term renters in their rights.
- jokethrowaway 5y agoI disagree. The crucial difference is that you don't get your money back with a UK leasehold. It's basically renting with extra steps. A freeholder is basically renting out a house for 99 years and the leaseholder has to pay all the rent upfront (+ renewal). On the upside, if the freeholder wants to sell the house he's required to offer it to the leaseholder first.
- mattbee 5y agoUsually 99 years? I bought a new leasehold in 2004 with a 999 year term, and I don't think that's unusual now. The government announced plans in January that leaseholders will have the right to renew leases for a standard term of 990 years, as well as capping ground rent. So I hope the worst abuses of UK leasehold are on their way out.
- agent008t 5y agoA 999 year term sounds like a long time, but time flies; before you know it, 980 years would have passed, and you would be wondering why you didn't buy a freehold instead...
- e12e 5y agoThank you! Now I understand rent fraud (as seen in "Stranger" https://m.imdb.com/title/tt6461346/ https://m.imdb.com/title/tt6461346/ ). I couldn't understand how rent fraud could end up costing someone all their life savings - but now I see.
- gremloni 5y agoInteresting. So it’s like buying a place with a guaranteed buyer on the other side but no upside n the value of the house increasing. I don’t think I would want to live in that situation. It’s not like houses are that hard to sell.
- azth 5y ago> Basically, if you put down a huge deposit (like $90,000: 50% to 90% of the value of the property), you don't pay any monthly rent and get the entire deposit back when you move out. So you're giving them a usurious loan basically.
- resoluteteeth 5y agoHow is a zero interest loan usurious?
- azth 5y agoInterest doesn't have to be money, it's any benefit received for giving a loan. In this case, the benefit received is staying in the apartment unit in exchange for the loan.
- chemmail 5y agoGood luck with any cheonsae, you are dealing with Koreans, and there is a chance that deposit won't be there waiting for you or that company just disappearing.
- anm89 5y agoI thought most landlords won't even take those deposit based deals from foreigners? If I was going to live in a Major city anywhere,Seoul would be in the top 2 along with Tokyo
- Leftium 5y agoYeah, it may be harder if you're a foreigner. I'm a foreigner and I managed to do it, though. If you have the cash I don't think landlords would care. For me, the biggest hurdle was saving up the deposit. Koreans have easy access to cheonsae loans at 2-4% interest rates. It's very difficult for foreigners to get a loan in Korea.
- koilke 5y agoIf property returns around 5% per year, lending $90k for a stay would be around $4.5k per year and represent perhaps a $375 monthly apartment. Given that you are not even paying fully for the apartment, this makes it possibly even more valuable. This can be considered quite decent given that there is more or less no risk involved. An index fund may generate higher returns maybe even 7% but given the low risk the system may be generous. As an institution it may of course beg other questions if the money is well invested, if it creates a bubble etc. Housing returns:https://www.nber.org/system/files/working_papers/w24112/w24112.pdf https://www.nber.org/system/files/working_papers/w24112/w241... S&P : https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average...
- Leftium 5y agoAlso as someone pointed out: money "earned" by not paying rent is untaxed.
- IkmoIkmo 5y agoI always found that system super interesting! What would the equivalent rent have been for the place you live in for free (with 90k deposit)? In nominal terms the S&P500 would do 10% a year or so on average. Over the past decade it's been 14.7%, so that $90k would've returned 13k a year on average. In general I feel South Korea has been a great value for money location, if you bring external capital. If I compare it to neighbouring Japan for example, prices seem so much more affordable. Of course the working culture is not easy, but for OP it'd be a great choice.
- Leftium 5y ago80,000/10,000*50 = $400 rent + $10,000 deposit. The general rule is $50/rent per $10,000 deposit, however it's up to the landlord. I think my place was actually more like $80,000 deposit + $100 rent (vs. $50). I recall the different options with rent fit the formula, but there was a big drop in rent if it was all deposit and no monthly rent. Maybe the owner preferred avoiding the hassle of collecting monthly rent (still have to collect monthly management fee, though...) When calculating the real estate commission, the formula is used to arrive at a total value for the transaction. So the real estate broker's cut is the same whether the rent is big or small. And I think the commission is the same whether it's a rental or purchase.
- Leftium 5y agoedit: the break-even point is 6% APY $10,000 deposit used to be converted to $100 rent (to get 12%). It's now only $50 rent. (Although in my case I think it still was $100/12%).
- ammmir 5y agoI also live in Korea, but the only places I could imagine being able to survive for $600/mo would be outside major cities and eating kimbap and ramyeon for your takeout meals and living in a goshitel... no offense! Of course, if you're putting down a large deposit, then your rent could even be free. Personally, I wouldn't bother with jeonsae unless somebody else is paying for it (parents, employer, bank), keep your money in your favorite speculative investment instead.