Freehold Condo investment at 7-10% x 10-15 years, is it real?

[Boris79]

Hi everyone, 

 

In these days I'm taking a look of few condo for investment in Phuket. The agents promised to get back from 7 to 10 % at year for 10 to 15 years, depending on the Condo, after that the construction company can also rebuy the apartment for the same price.. 

 

Is it possible? Sounds a bit strange to me.. 

[scubascuba3]

Is that Boris Johnson? Yes the returns sound ridiculous

[Gulfsailor]

Such promised returns are generally not offered by the developer, but by an agent or separate entity. These are tiny llc companies with a minimum registered capital. So, when it can't live up to its end of the contract, they just let it go bust. 

[JAZZDOG]

You be the judge. After expenses to yield those returns you would need to rent the condo for 50K/month , 100% occupancy, 5M condo. Most of these claims were based on weekly rentals which are no longer legal. 

Quote

 

 

[Oxx]

The only way that sort of return could be guaranteed is if the condo is ridiculously over priced in the first place.

[Henryford]

3 hours ago, Oxx said:

The only way that sort of return could be guaranteed is if the condo is ridiculously over priced in the first place.

That's my thoughts. They might offer 7% return for say 3 years but just add 20% to the price of the condo.

[moontang]

well exposed scam, and if it does happen, you paid a huge premium up front to make it happen.  Look at apartment REITs in the US....you can get 6% or so....IRT...

[Peterw42]

At the lower end of the market (under 2 mil) 7-10% returns are often possible, as price goes up the return gets lower.  There are rental  guarantees, rental possibilities, and rental promises. If its a guarantee and the developer is signing a contract ensuring the return then its probably built into the price. If its a rental possibility, some research could show if its realistic. A "promise" by a seller or agent means nothing. 

Its not hard to do your own research as to current (achievable) rents, occupancy rates etc and work out as a percentage of purchase price. Any return will go up over time as the purchase price remains fixed but rents go up over time.

Edited July 6, 2018 by Peterw42

[JAZZDOG]

13 minutes ago, Henryford said:

That's my thoughts. They might offer 7% return for say 3 years but just add 20% to the price of the condo.

You can put lipstick on a pig but at the end of the day it's still a pig. Condos in LOS are terrible investments. Over supply, shrinking demand, pipeline of new units, cheap rents. If you have investments elsewhere yielding 6-8% you can rent the same condo for half of what you are making each month. Buying a condo here is as good an idea as buying a horse or pig with red lips.

[JAZZDOG]

2 minutes ago, Peterw42 said:

At the lower end of the market (under 2 mil) 7-10% returns are often possible, as price goes up the return gets lower.  There are rental  guarantees, rental possibilities, and rental promises. If its a guarantee and the developer is signing a contract ensuring the return then its probably built into the price. If its a rental possibility, some research could show if its realistic. A "promise" by a seller or agent means nothing. 

I am not buying into that, show me some examples with numbers how you make 7-10% returns on a condo under 2 mil. I've ask this question many times on here and I have failed to get even one answer. One would need to get 15000/month, 100% occupancy on a 1.5M condo investment. We both know that is not happening. More likely to receive 8000/month and maybe 60-70% occupancy if you are lucky. For 15000/month there are thousands of 4M+ condos available.

[Boris79]

10 hours ago, scubascuba3 said:

Is that Boris Johnson? Yes the returns sound ridiculous

No, I'm not. 

[Lacessit]

I would say 7-10% embodies quite a few assumptions, e.g. no agent fees, full occupancy, low condo maintenance fees, no breakdowns etc.

My landlord would be making about 8% net out of me. However, he bought the condo 10 years ago when the price was half what it is now. On today's prices, he would only be making 4%. In Chiang Mai, rentals have not gone up for years - if anything, down because there is a glut of condos here.

[impulse]

12 minutes ago, Peterw42 said:

At the lower end of the market (under 2 mil) 7-10% returns are often possible, as price goes up the return gets lower.  There are rental  guarantees, rental possibilities, and rental promises. If its a guarantee and the developer is signing a contract ensuring the return then its probably built into the price. If its a rental possibility, some research could show if its realistic. A "promise" by a seller or agent means nothing. 

 

I have no doubt that the gross ROI is higher, but that doesn't take into consideration the value of the time it takes to manage the rental.  I always love the "investors" who work 30 hours a week to make that 10% return on their $50,000 investment.  (That also goes for a lot of day traders I have known)

 

Between dealing with maintenance issues, managing tenants, and all the other joys that go along with being a landlord, you may end up with a gross return that pays $5.00 for every hour of time it requires.  In which case, you've basically bought a job, and not so much an asset.

 

Not to mention the headaches with dealing on the low end of the market where tenants may not have the financial strength to pay the rent on time every month.  So many are living one paycheck away from moving back in with Mom and Dad.

 

[Peterw42]

2 minutes ago, JAZZDOG said:

I am not buying into that, show me some examples with numbers how you make 7-10% returns on a condo under 2 mil. I've ask this question many times on here and I have failed to get even one answer. One would need to get 15000/month, 100% occupancy on a 1.5M condo investment. We both know that is not happening. More likely to receive 8000/month and maybe 60-70% occupancy if you are lucky. For 15000/month there are thousands of 4M+ condos available.

I have a condo that I bought for 1m baht and its rented for 8,000 a month, condo fees 10,000 a year. Works out to be around 7-8% net return. As I said its at the bottom end. Its not always best in the expat areas, most of the time its better returns in Thai areas.

[Boris79]

Yes, exactly my doubts.. 

 

The only way make me think is.. 

 

When I start to come here (7 years ago) I book a small hotel with no swimming pool, the price was 1500thb at night, since I need for a month they give me 1200 at night (36000), every year on, even if the price increase I get a better deal, actually I rent one room in a similar hotel and position of my first time, plus swimming pool and I pay 300thb at day (9000thb monthly). 

 

The difference is enormous, If they rent the condo to people that pay much more then the real value.. Can be possible. But... 

[xylophone]

This scheme and a couple of others are being offered by a developer in Patong and when you look at it, even if all promises are kept, it's not as good as it sounds...........

 

A lot of these are sold for 5 million baht or thereabouts and for that the buyer gets a small condo in which he has the use for one month a year only. The rest of the year it is let out to short stay visitors, mainly because this developer has a tie-up with some Chinese agents and it is registered as a "hotel" so short stay is fine.

 

So if 5 million is paid upfront and 7% return is paid per annum, at the end of 15 years the original purchaser gets his money back, so not a fantastic investment although one months holiday a year is possible.

 

In some of the contracts I know of, the developer agrees to buy the condo back at the original purchase price, so in 15 years time the original purchaser gets 5 million baht back. So in essence the purchaser spends 5 million baht and gets 5 million baht back, spread over 15 years and then if all goes well the condo is repurchased for 5 million baht.

 

Now the last paragraph could well be the "problem area" because the developer would have to be held to his original contract, that is if the developer is still around or hasn't changed the name of the company or similar, or of course something else comes into play like buying the condo back at the going rate for a 15-year-old condo??

 

In my opinion, too much to go wrong over a long period of time and quite possibly more fishhooks than I have been made aware of, this especially as Patong does not have a good reputation for developers staying the course when things look a little rocky (cue ACE condos and The Park development, amongst others).

[moontang]

I paid 700k for a river view unit on a high floor that I could rent for 5000, realistically and easily, even allowing 40% for expenses, that would get 5%+.  I wouldn't want to be a landlord, here, though. 

[IamRoach]

20 minutes ago, Lacessit said:

I would say 7-10% embodies quite a few assumptions, e.g. no agent fees, full occupancy, low condo maintenance fees, no breakdowns etc.

My landlord would be making about 8% net out of me. However, he bought the condo 10 years ago when the price was half what it is now. On today's prices, he would only be making 4%. In Chiang Mai, rentals have not gone up for years - if anything, down because there is a glut of condos here.

I'm not familiar with CM however if it's similar to BKK then even then the rental prices are too high looking at the overall market. They should be even lower looking at the sheer amount of empty units available however landlords in Thailand can afford to keep units empty rather than dropping the price as this would lower the market value of their unit.

Personally I stay in Lumpini building (10 years old) which has an about an 90% occupancy however there is a 2 bedroom unit next to mine which has been empty since I moved in two years ago. A Supalai building 400 meters down the road struggles to get a 50% occupancy as they are asking about 4,000 - 5,000 more per month than my building. Looks like a ghost town (almost no lights on at night) and looks already a bit run-down despite it not even being 4 years old. The biggest joke yet is that Supalai has already started construction on new towers on the same road not too far from this one.

The oligarch Thais will continue to manipulate the real estate market however in my opinion this is a bubble ready to burst. I have seen condo towers in Hua Hin with not a single light on from the outside (middle of the week in low season).

 

Edited July 6, 2018 by IamRoach

[Boris79]

7 minutes ago, xylophone said:

This scheme and a couple of others are being offered by a developer in Patong and when you look at it, even if all promises are kept, it's not as good as it sounds...........

 

A lot of these are sold for 5 million baht or thereabouts and for that the buyer gets a small condo in which he has the use for one month a year only. The rest of the year it is let out to short stay visitors, mainly because this developer has a tie-up with some Chinese agents and it is registered as a "hotel" so short stay is fine.

 

So if 5 million is paid upfront and 7% return is paid per annum, at the end of 15 years the original purchaser gets his money back, so not a fantastic investment although one months holiday a year is possible.

 

In some of the contracts I know of, the developer agrees to buy the condo back at the original purchase price, so in 15 years time the original purchaser gets 5 million baht back. So in essence the purchaser spends 5 million baht and gets 5 million baht back, spread over 15 years and then if all goes well the condo is repurchased for 5 million baht.

 

Now the last paragraph could well be the "problem area" because the developer would have to be held to his original contract, that is if the developer is still around or hasn't changed the name of the company or similar, or of course something else comes into play like buying the condo back at the going rate for a 15-year-old condo??

 

In my opinion, too much to go wrong over a long period of time and quite possibly more fishhooks than I have been made aware of, this especially as Patong does not have a good reputation for developers staying the course when things look a little rocky (cue ACE condos and The Park development, amongst others).

Exactly what I'm talking about. I stay in Patong. 

[Oxx]

14 minutes ago, Peterw42 said:

I have a condo that I bought for 1m baht and its rented for 8,000 a month, condo fees 10,000 a year. Works out to be around 7-8% net return.

 

That really is a nonsense calculation.  It assumes the property is occupied 100% of the time.  It ignores tax.  It ignores insurance costs.  It ignores maintenance/refurbishment costs.  It ignores the impact if somebody dies in the property.  It ignores the value of your time in managing the property.  And, perhaps most significant of all, it ignores depreciation - condos in older buildings in Thailand become almost worthless in most cases.

[JAZZDOG]

13 minutes ago, Peterw42 said:

I have a condo that I bought for 1m baht and its rented for 8,000 a month, condo fees 10,000 a year. Works out to be around 7-8% net return. As I said its at the bottom end. Its not always best in the expat areas, most of the time its better returns in Thai areas.

Ok lets look deeper. Here in Pattaya there are probably 5000 vacant 1M condos competing with you so 60% occupancy is the norm. You leave out reserves for replacement which would be high for renters at that level. You didn't mention if you paid a PM . At 80% occupancy with PM you are yielding a little over 5%, without about 6%. Deal is , like Impulse stated, your not passive. You are working and making US$ 175/month with little appreciation upside. Back out your time spent dealing with bottom rung tenants what are you making. You would need to own 20 units to make a living. Tell me you couldn't do better with that 20M. You could invest those funds and pay 65K/month renting a 15M condo and still pocket that US$2100/month you were making dealing with 20 rentals.

[Peterw42]

2 minutes ago, Oxx said:

 

That really is a nonsense calculation.  It assumes the property is occupied 100% of the time.  It ignores tax.  It ignores insurance costs.  It ignores maintenance/refurbishment costs.  It ignores the impact if somebody dies in the property.  It ignores the value of your time in managing the property.  And, perhaps most significant of all, it ignores depreciation - condos in older buildings in Thailand become almost worthless in most cases.

The property is occupied 100% of the time, the current tenant has signed a 12 month lease and I have only ever gone a couple of weeks between tenants. Tax free threshold in Thailand is 150 k a year so there is no taxation liability. Condo fees pay for insurance for the block, nothing inside the condo is worth insuring. Not sure what someone dieing is about, I would keep their deposit and look for a new tenant ? There is no time involved, tenant deposits money into my account once a month. Depreciation is not really an issue as I dont ever intend to sell it.

[scubascuba3]

The property is occupied 100% of the time, the current tenant has signed a 12 month lease and I have only ever gone a couple of weeks between tenants. Tax free threshold in Thailand is 150 k a year so there is no taxation liability. Condo fees pay for insurance for the block, nothing inside the condo is worth insuring. Not sure what someone dieing is about, I would keep their deposit and look for a new tenant ? There is no time involved, tenant deposits money into my account once a month. Depreciation is not really an issue as I dont ever intend to sell it.

In your calculations i would include all the costs incurred to come up with book cost so maybe more than 1m baht. I.e. maybe you paid 1m, then fees need to be added plus any decorating and furniture costs, maybe not necessary in your case

 

[Oxx]

12 minutes ago, Peterw42 said:

The property is occupied 100% of the time, the current tenant has signed a 12 month lease and I have only ever gone a couple of weeks between tenants. Tax free threshold in Thailand is 150 k a year so there is no taxation liability. Condo fees pay for insurance for the block, nothing inside the condo is worth insuring. Not sure what someone dieing is about, I would keep their deposit and look for a new tenant ? There is no time involved, tenant deposits money into my account once a month. Depreciation is not really an issue as I dont ever intend to sell it.

 

Sorry, but that's simply more self-delusion.

 

Just because you've only gone a couple of weeks before tenants in the past doesn't mean you won't have longer periods of unoccupancy in the future.

 

Nothing in the condo is worth insurance - but how much would it cost to replace if all were lost in, say, a fire?

 

If someone dies in a property the property immediately becomes unattractive (given Thai fears of ghosts).  You'd only be able to rent it or sell it at a discounted rate.

 

Depreciation is an issue.  You may not intend to sell it, but the block will become increasingly decrepit.  The rent it command will fall, as will the resale price - eventually to close to zero.

[Peterw42]

18 minutes ago, Oxx said:

 

Sorry, but that's simply more self-delusion.

 

Just because you've only gone a couple of weeks before tenants in the past doesn't mean you won't have longer periods of unoccupancy in the future.

 

Nothing in the condo is worth insurance - but how much would it cost to replace if all were lost in, say, a fire?

 

If someone dies in a property the property immediately becomes unattractive (given Thai fears of ghosts).  You'd only be able to rent it or sell it at a discounted rate.

 

Depreciation is an issue.  You may not intend to sell it, but the block will become increasingly decrepit.  The rent it command will fall, as will the resale price - eventually to close to zero.

 

Yes, there may be events in the future, no tenant, a fire etc and my return could be greatly diminished. Up until now none of these events have happend and maybe never will, so the "actual" current return is as stated 7-8 %,  Its not delusional, its the actual current return.

A company I hold shares in may one day have a competitor, go broke etc but for now the return is the return.

 

If my current tenant dies in a fire, I have to pay for a total refit and cant find a superstitious Thai tenant, I will adjust the yield figures accordingly, after the event. I wont be adjusting the figures down at the moment just because something may happen in the future.

 

The block is reasonably well maintained so I dont think the capital value will, as you say, eventually drop to zero. Every now and then a condo in the block changes hands for at least what I paid. So the capitail value appears to be holding in there and may even appreciate a little over time.

 

[Boris79]

1M condo? I never heard if this kind of price. How many meters square? 

 

I'm looking near Patong (Karon, Kalim, Khatu) a 60mq but already not easy find it for 2-3M..

 

How do you think should be a good deal for 60mq in a Condo? I don't care swimming pool, Seaview, etc.. 

[Lacessit]

5 hours ago, Oxx said:

  And, perhaps most significant of all, it ignores depreciation - condos in older buildings in Thailand become almost worthless in most cases.

Good condos don't depreciate in my experience. What happens is the management becomes slack or corrupt, and gets kicked out eventually. Then there is renewal of the appearance and infrastructure. The owners refurbish their apartments for varying cost, and the cycle starts again.

Of course, you are quite correct if you are referring to those condos which are built out of toad shit, duct tape and silicone. With a dash of cement thrown in.

[Oxx]

12 minutes ago, Lacessit said:

Good condos don't depreciate in my experience. What happens is the management becomes slack or corrupt, and gets kicked out eventually. Then there is renewal of the appearance and infrastructure. The owners refurbish their apartments for varying cost, and the cycle starts again.

Of course, you are quite correct if you are referring to those condos which are built out of toad shit, duct tape and silicone. With a dash of cement thrown in.

 

Just curious, but can you or anyone else name a condo building in Thailand that's 30 or 50 years old that is still attractive?

[xylophone]

1 hour ago, Boris79 said:

1M condo? I never heard if this kind of price. How many meters square? 

 

I'm looking near Patong (Karon, Kalim, Khatu) a 60mq but already not easy find it for 2-3M..

 

How do you think should be a good deal for 60mq in a Condo? I don't care swimming pool, Seaview, etc.. 

A friend just sold (after 5 years of trying) his 64 sq m apt for 4.9 mil baht and it did have the "extras" you have mentioned (sea view, pool, gym etc) and was a well kept as was the building.

 

I have seen condos for 2-3 million, but around 29-32 sq mtrs only and not in great locations.

 

I take it that you are looking at this from an investment viewpoint as the one you mention in your post is not for the owner to live in, but an investment (such as it is). So investment or to live in?

[moontang]

15 minutes ago, Oxx said:

 

Just curious, but can you or anyone else name a condo building in Thailand that's 30 or 50 years old that is still attractive?

Hillside 2,3,4 in Chiang Mai.