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In South Korea, there is a concept called "jeon-se", which can be roughly translated into "lump-sum housing lease" or "long-term rental deposit". It goes like this: An owner leases their real estate for a lump-sum for a year or so. When the contract is not renewed and expires, the owner must give the money back to the tenant, who is moving out.

My parents recently showed me an opportunity to buy a house using jeon-se. The house's price is 300 million KRW(South Korean Won). I can use 50 million KRW(out of 170 million of my assets), but I can pay the rest using the tenant's jeon-se deposit(250 million KRW)

My parents insist to buy it because they speculate the price will increase, and they want me to have a house in my name. While I don't want to miss this opportunity, it seems risky. What if I can't find the next tenant in time? Then I might be in huge debt to banks to return the deposit.

How can I manage this kind of risk?

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  • Every landlord who borrows money has the same risk. You must decide whether or not you want to take the risk. – RonJohn Jan 25 at 13:54
  • @RonJohn That is not true. If you own 10 properties, your risk is seriously lower than owning 1 property. Statistics being what it is, it is less likely all of the properties default at the same time. – TomTom Jan 25 at 14:24
  • @TomTom every landlord who borrows money has the same risk; the quantity of that risk varies. – RonJohn Jan 25 at 14:27
  • If you have to pay back the jeon-se eventually, but you’ve already spent it on paying down your loan, don’t you still need to find the money somehow? If so, are you merely relying on a long-term tenant so that you don’t have to pay back the jeon-se for a long time? – Lawrence Jan 25 at 17:07
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    @Lawrence Yes. The reason to buy even with that risk is the notorious ever-increasing housing price in Seoul. It is a very common practice for most South Korean landlords due to this reason. But I must admit, it is still speculation. – user2652379 Jan 26 at 1:08
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It sounds risky. Well, not overly so, but what do you do in this scenario:

  • You buy the house for 300m
  • You pay 50m and use 250m from the renter deposit. Great.

After a year the renter MOVES OUT. And you have problems finding a new one. Economy crashed, whatever. How do you handle the return of the 250m? You possibly end up in court.

It sounds like a nice way to do it - but not for one apartment, and not without a assets in reserve you can use to handle emergencies.

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  • I have another 120 million KRW actually, most of those are for my retirement and emergency. I'm trying not to sell those, but as you said, this risk might affect these assets too. – user2652379 Jan 25 at 13:07
  • Yes, you need to look at landlord-tenant law. It's often required that you safeguard the tenant's deposit in a bank. – Orange Coast- reinstate Monica Jan 27 at 5:51
  • @OrangeCoast Except in this case the OP's scheme of using that money to finance the house payment would not work at all to start with and would not have been recommended to him - so it is EXTREMELY reasonable to assume that this law does not apply in this particular country. – TomTom Jan 27 at 10:03
  • The only other people mentioned in the post are OP's parents, who are certainly capable of recommending illegal conduct, out of ignorance or greed. The same with OP's comment that "it is a very common practice." That doesn't mean it is legal. – Orange Coast- reinstate Monica Jan 28 at 4:14
  • @OrangeCoast Thanks for mentioning it. I looked into it, but there is no such law to safeguard the tenant's deposit in a bank. Instead, there is insurance to protect the tenant's jeon-se deposit, which is optional and requires consent from both the tenant and the landlord. – user2652379 Jan 28 at 5:16

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