Problem: While browsing Hacker News, I came across an interesting question: “Where can I live off $1k USD a month?” While housing, food, and entertainment is expensive, this restriction reframed in my head the ways that we conceptualize expenses and housing system structures.
Subscribe here to get access to the first 500 ideas from our blog. For just one coffee a month, you can have access to more than $500 billion dollars of ideas. What's not to love?
Solution: This business would replicate other cheap systems at scale through a business that could significantly reduce costs of living. The best formulation was described by Leftium, who commented on hackernews:
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.
This was a phenomenal and fascinating idea. Leftium continued describing the system by saying the following:
I believe the system started when there were double digit interest rates (in the 80's?).
Now interest rates are much lower, but Koreans got used to paying $0 rent and anything above that feels like they are being ripped off.
One reason landlords like the system is because they can daisy-chain the purchase of multiple properties. They take the first cheonsae deposit and use it to purchase another property, then use the cheonsae deposit from the 2nd property to purchase a 3rd property, and so on...
Even if landlords don't receive monthly rent, they expect to earn money on the increased value of the property. Cheonsae contracts are normally 2 years, then they can ask for more deposit or sell the property for a profit.
More info: https://en.wikipedia.org/wiki/Jeonse
The bolded statement (using past cheonsae deposits to purchase other properties) is where this business could thrive through a globalized Cheonsae. As described by PR Newswire, “The global real estate rental market is expected to grow from $1727.23 billion in 2020 to $1765.5 billion in 2021 at a compound annual growth rate (CAGR) of 2.2%.”
Monetization: Revenue from investing the “float” received from Cheonsae
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)