About 10 months ago, I wrote about the potential bargains in the property sector after the end of loan moratorium in September 2020. I don’t have the data (too lazy to compile) to justify whether my prediction was right but I personally did pounce on an attractive bargain which I’m going to share a little bit. I got the timing a bit off because it happened before the end of loan moratorium, but who cares?

In June 2020, I stumbled upon a terrace factory for sale in an established industrial area asking for 10% below the market price. When I realised the owner was also trying to sell the next door unit owned by him, I smelled blood and immediately aimed for the kill. When someone was holding two properties for sale at the height of the crisis, it stank so badly that you could feel the flies rushing in. After much haggling, I offered to take both of his units and we settled for a price 25% below market value.

Then came the challenging part because I absolutely couldn’t afford the second unit and I had 3 weeks to look for a buyer otherwise my earnest deposit would be forfeited. After some frantic hustling, I was introduced to a businessman who agreed to take over my second unit and pay me a profit equivalent to 9% of the purchase price. That effectively pushed down my own acquisition cost to 33% below market value. Not a bad return for a few weeks of running around.

The loan was not difficult to obtain due to the attractive discount and the rental market at that location is quite strong. To my benefit, the Central Bank had aggressively cut interest rate to ease the economic crisis and my borrowing cost effectively reduced to 3.4% while I managed to lease out the property at 4.8% yield. To my surprise, there were 3 parties looking to rent my property within the first week of closing the whole transaction.

A few lessons learned along the way:

1. There are opportunities even when times are bad, if you keep your eyes and mind open. I did not specifically scout for properties to buy at that time and there wasn’t any banner indicating those two factories were for sale. I discovered it through a casual conversation with a property agent when I tried to find out what happened to the industrial property market during the lockdown.
2. Don’t be afraid of the risk if you can understand and manage it. Back then, the biggest risk in this deal was losing my earnest deposit if I failed to flip the second unit to someone else. Even if that happened, I reckoned that the earnest deposit forfeited would be well compensated by the additional discount I obtained from buying two units in one go. This is a classic example of head I win, tail I don’t lose.
3. Things are not as bad as they look like and vice-versa. During the lockdown period, everyday I came across news report showing business failures due to the Covid-19 crisis and almost all experts were anticipating a doomsday scenario. I just held the opinion that most commercial properties would get the first hit due to the worsening tourism and retail sectors. Meanwhile, most other industries such as manufacturing, trading, logistics, healthcare, agriculture etc were still performing and they were the primary users of industrial properties. For a tiny factory lot like mine, there should be big enough pool of potential tenants to fish for. As for my loan, it was approved in 2 weeks (though 3 other banks refused to lend me at the margin I wanted) even though most people said banks have frozen their lending. If I blindly listened to those pundits, I wouldn’t have done anything at all.
4. Make new friends when you are making deals. I made an effort to build a strong relationship with the property agent involved in the deal and I paid him decently and promptly. In return, he helped me secure a tenant within one week and took care of the whole leasing process professionally. While flipping my second unit, I made good rapport with the businessman who became my partner as the owner of the second factory unit. I still see him often by patronising his restaurant and he could well be my co-investor in my future deals.

This is my first investment in non-residential property and I hope a good beginning will lead to greater heights. A lot more to learn.