Valuation of Long Term Lease

[STD Warehouse]

Our property has been 

 

• valued at 3.5m by a few agents (although I suspect the true value is more like 3-3.2m), 
• it rents unfurnished for 15,000 baht per month.

 

We need to raise 1.25m in the next 6-9 months so want to sell the property and I think we may have to discount it quite a bit to get a reasonable quick sale, but long term leases are very common in our area (Koh Samui) for foreigners.

 

For a long term lease paid upfront and registered at the land office how many years do you think would equate to a lease price of 1.25m

 

10 years 15 years,… 30 years?

[tonray]

Wouldn't you just take the fair market value of rent and multiple by the number of years of the lease term. So to back into your equation: 

 

Annual rent: 180,000

 

1,250,000 / 180,000 = 6.944 (7 years)

[STD Warehouse]

2 minutes ago, tonray said:

Wouldn't you just take the fair market value of rent and multiple by the number of years of the lease term. So to back into your equation: 

 

Annual rent: 180,000

 

1,250,000 / 180,000 = 6.944 (7 years)

I just cant see someone coming along and handing us 1.25m upfront for a 7 year lease, surely theres a discount for paying such a large sum of money up front.

 

Otherwise a 30 year lease would be 5.4m which doesn't make much sense as they could just buy the house for 3.2m.

 

I just feel to find someone in the next 6 months to hand over 1.25m Im going to have to offer a pretty good discount on the monthly rent as they will be paying up front.

[bubblegum]

I think for 1.25 milj they would buy it of you.

[STD Warehouse]

1 minute ago, bubblegum said:

I think for 1.25 milj they would buy it of you.

Im sure they would! But its not for sale for 1.25m, lol

 

As rents for 15,000 baht a month unfurnished if they brought it for 1.25m they would get a 14.5% rental yield! Hence why Im not selling for 1.25m but for 3m which gives a potential buyer a more realistic but still attractive 6% rental yield.

[tonray]

21 minutes ago, STD Warehouse said:

I just cant see someone coming along and handing us 1.25m upfront for a 7 year lease, surely theres a discount for paying such a large sum of money up front.

 

Otherwise a 30 year lease would be 5.4m which doesn't make much sense as they could just buy the house for 3.2m.

 

I just feel to find someone in the next 6 months to hand over 1.25m Im going to have to offer a pretty good discount on the monthly rent as they will be paying up front.

Oh..I thought you were valueing for land office fee...I understand.  This should help:

 

http://www.tvmcalcs.com/index.php/calculators/apps/lease_payments

[ThailandRyan]

Do you have some photos and a location on Samui you could PM me.

[Will B Good]

Got to be a discount for paying upfront.......lost opportunity cost would or should be calculated, as they are not invested in the property itself, which might see capital growth that will be yours not theirs.

[STD Warehouse]

3 minutes ago, Will B Good said:

Got to be a discount for paying upfront.......lost opportunity cost would or should be calculated, as they are not invested in the property itself, which might see capital growth that will be yours not theirs.

yes I agree, but what kind of discount is given for long term leases like 10-30 year leases

[Will B Good]

1 minute ago, STD Warehouse said:

yes I agree, but what kind of discount is given for long term leases like 10-30 year leases

Sorry, can't help, or I would be guessing.

 

I imagine there is a calculation that can be made......like a reverse compound interest?

Edited September 2, 2021 by Will B Good

[bubblegum]

5 hours ago, STD Warehouse said:

Im sure they would! But its not for sale for 1.25m, lol

 

As rents for 15,000 baht a month unfurnished if they brought it for 1.25m they would get a 14.5% rental yield! Hence why Im not selling for 1.25m but for 3m which gives a potential buyer a more realistic but still attractive 6% rental yield.

But you're the one in a hurry, not them.

Pay upfront; 1.25 mil.

Lose interest on it.

Lose investment opportunities.

For a lease. Something you don't own so no capital gains.

 

Your dreaming if anybody falls for that.

 

[Yellowtail]

Why don't you ask your tenants? 

[chrisandsu]

I highly doubt anyone would sign a long term lease for a house . A year or two is normal but 6-7 years is unheard of. You might not want to hear this but at present market rates you might at best get 2.5million for a quick sell . Rental yields mean nothing while there is no tourists there . 

[Yellowtail]

9 minutes ago, chrisandsu said:

I highly doubt anyone would sign a long term lease for a house . A year or two is normal but 6-7 years is unheard of. You might not want to hear this but at present market rates you might at best get 2.5million for a quick sell . Rental yields mean nothing while there is no tourists there . 

I would sign a long term lease on a house if I liked it and the price was right, why not? 

[chrisandsu]

3 minutes ago, Yellowtail said:

I would sign a long term lease on a house if I liked it and the price was right, why not? 

6-7 years on an island all paid up ? No you wouldn’t . You rent for freedom not to be nailed down . 

[Yellowtail]

15 minutes ago, chrisandsu said:

6-7 years on an island all paid up ? No you wouldn’t . You rent for freedom not to be nailed down . 

 

If this where I say yes I would again? 

 

I said if I liked it and if the price was right. 

 

 

[chrisandsu]

7 minutes ago, Yellowtail said:

 

If this where I say yes I would again? 

 

I said if I liked it and if the price was right. 

 

 

This is what sets us apart then . I don’t even know where I want to be in 2 years but you can see 6-7 years into the future . As the OP said he wants market value on the rent ,only a goon would pay 7 years up front at market value .  I guess mobility gets harder as you age so you might want to stay put . 

Edited September 2, 2021 by chrisandsu

[gearbox]

9 hours ago, STD Warehouse said:

Im sure they would! But its not for sale for 1.25m, lol

 

As rents for 15,000 baht a month unfurnished if they brought it for 1.25m they would get a 14.5% rental yield! Hence why Im not selling for 1.25m but for 3m which gives a potential buyer a more realistic but still attractive 6% rental yield.

Is that rent pre-covid? I have an offer to move to rent another property for 10k/month, they were renting it 18k/month pre-covid, if I pay rent one year in advance. The rents are down in Samui, that's if the landlords are lucky to get renters at all.

 

I know only one guy who has long lease, but he leased the land and built a house on it. I think it is a 30 years lease, and then the landlord gets the house and the land back. However with ever changing immigration requirements I don't see many foreigners willing to commit on 10+ years leases, as if the rules change they may need to go and lose their rent.

 

From your description you probably have a townhouse, and there are tons of these on the market, my Thai gf is looking to buy property, and she has seen heaps of them in the last 2 months.

[Yellowtail]

44 minutes ago, chrisandsu said:

This is what sets us apart then . I don’t even know where I want to be in 2 years but you can see 6-7 years into the future . As the OP said he wants market value on the rent ,only a goon would pay 7 years up front at market value .  I guess mobility gets harder as you age so you might want to stay put . 

I don't even know where I want to be right now, but If I could get a great apartment in an area I love for ten-dollars a month by paying 6-7 years up-front I'd jump on it. I could always sublet it...

 

I guess I just more of a risk-taker than you....

[paddypower]

On 9/2/2021 at 11:58 AM, STD Warehouse said:

Im sure they would! But its not for sale for 1.25m, lol

 

As rents for 15,000 baht a month unfurnished if they brought it for 1.25m they would get a 14.5% rental yield! Hence why Im not selling for 1.25m but for 3m which gives a potential buyer a more realistic but still attractive 6% rental yield.

6% rental yield in Samui? Not any more, I suspect. Altho' you may not like it, I suspect a realtor may be of use to you, unless you know how present value discounting works. In the end, the price you will get is what a willing buyer and seller agree on; not just what you think. Also, you do have to consider that you have a deadline, which will become more of a motivating factor, for you,  as time passes by.

[paddypower]

On 9/2/2021 at 10:07 PM, gearbox said:

Is that rent pre-covid? I have an offer to move to rent another property for 10k/month, they were renting it 18k/month pre-covid, if I pay rent one year in advance. The rents are down in Samui, that's if the landlords are lucky to get renters at all.

 

I know only one guy who has long lease, but he leased the land and built a house on it. I think it is a 30 years lease, and then the landlord gets the house and the land back. However with ever changing immigration requirements I don't see many foreigners willing to commit on 10+ years leases, as if the rules change they may need to go and lose their rent.

 

From your description you probably have a townhouse, and there are tons of these on the market, my Thai gf is looking to buy property, and she has seen heaps of them in the last 2 months.

that's a good point: i am getting 25k right now, for a house that has a 10 year history of renting for 45-50k/month, on an annual basis. 'New Normal' .

 

[Gsxrnz]

In the real world rent is calculated as a percentage return on investment - ROI.

 

Thailand is not the real world.

[STD Warehouse]

I ended up renting it for 2 years on the condition they paid up front, of course that wasn’t all the money we were trying to get, but still meant a decent chunk of cash was transferee into our account which was nice.

[Yellowtail]

Better'n a sharp stick in the eye...

[jackdd]

3 hours ago, STD Warehouse said:

I ended up renting it for 2 years on the condition they paid up front, of course that wasn’t all the money we were trying to get, but still meant a decent chunk of cash was transferee into our account which was nice.

So how much discount did you give for getting paid 2 years upfront?

[STD Warehouse]

6 minutes ago, jackdd said:

So how much discount did you give for getting paid 2 years upfront?

rent was 30% lower than what is was before Covid, so quite happy with that as they paid upfront, and that was the first person to see it who took it, and had a whole line of viewings that i then had to cancel