Buying To Rent Out?

[donx]

i had the same problem in the uk years ago, the first question i was asked by an estate agent was what did you pay for your house, i told them in was none of their business, i wanted to sell the house for x, they told me i couldnt, as it would drag down the resale value of similair type properties in the street.

Interesting. In the US I can find out on the Internet exactly what anyone that currently owns a house in my state paid for it. Isn't this information public knowledge in the UK? Even if it was years ago, that information was always publicly available by going to the proper government agency.

Or just look the US home up on Zillow.com and it will show you the sales history of the home.

Well I just entered my address into Zillow.com and I couldn't see the sales history of my home. All I saw was a ZESTIMATE of my property which isn't anywhere near the price I paid for this property. All it is is Zillow's estimated value.

I use a state government website to get the actual sales history of properties.

[xbusman]

Our calculations on investment property anywhere in the world is pretty simple. Have to rent for 1/100 purchase price. That assumes reasonable property management fees and taxes. A 4.9M condo would have to rent pretty much continuously at 49,000 baht before we would even crunch the numbers. Considering how many properties are vacant, Thailand would be much closer to the 1/84 rule outlined above.

[rgs2001uk]

Our calculations on investment property anywhere in the world is pretty simple. Have to rent for 1/100 purchase price.

xbusman,

i assume you are talking about people with mortages, what about people who actually own their properties outright?

thats why i asked the question how can you tell the value of a property based on its rental value.

my properties were bought as a long term investment with the gamble of them appreciating in value,and any rent would be a bonus.

yes i could use formulae, but i believe the market will dictate, what happens when interest rates rise, the purchase price stays the same, but the repayments have increased, not much good to you if you have a long term contract with x as the monthly/yearly payments, and you have to fork out the difference youself, if you can afford it.

i know i am probably selling myself short, i rent out at 75% of the current market rental prices, but as i said before i consider this not to be 25% lost, but 75% gained.

also if i used you calculations i would actually have to drop the rent i charge.

i have never been to business school, but i agree with what johnnyks friend said, and as i also said before i agree with thinktoomuchs observations, its amazing how people with different backgrounds, qualifications and experince reach the same conclusion.

i approach all my descions as a gamble, people can dress up investing anyway they want, the bottom line is its a gamble, thats why i stick to a spread of investments within a well balanced portfolio. i never let emotions get in the way of an investment, it has to be looked at in the cold light of day, make sure the numbers stack up then you takes your pick and backs your fancy.

it always amazes me the ones with no time in asia or apprecation of the asian mindset dont get it, well you aint in kansas now dorothy.

i aint no rocket scientist, but if it was so easy to do it, why isnt everyone doing it, theres no such thing as a free lunch, and as usual it will always those who can least afford it who get their fingers burnt.

i personaly think america will present better opportunities next year, only of course you aint using dollars and are a cash buyer, cash is king, its amazing how many times i have seen people who wouldnt budge on their asking price change their mind when a bundle of cash was put on the table in front of them.

anyway sorry for geting off the beaten track.

good luck to all the speculators, hope you dont have too many sleepless nights, been there done that that it aint no fun.

[Kf6vci]

In the real world, buying and owning property is expensive. It starts with escrow fees and there will be insurances, property taxes, loan fees and more to pay. Forget the late night infomercials, even 10% down won't cut it unless you have great credit.

That 7 years the rent formula worked before the recent boom in California (the only market I know well).

Even though I would take a different path to get there, I am seconding your conclusion. But wwhen you build your on home and have a trusted wife who can own land, more opportunities open up.

Renting a 1 BR place in the BKK Don Muan area required about THB 5,000 to move in. THB 2,500 is the rent. A new building, spartanic, no furniture... Try making money as a landlord! And I know those homes owned by some farang who are absent. For rent at crazy prices, vacant for years. When my gf called, they said they would not rent to Thais. => A lot of value is being destroyed and I appreciate the reference to the all important land values.

[xbusman]

No, that calculation is either using our cash or our bank. That is not a complete formula, thats a starting point. We look at what rentals bring per square foot or square meter, and if a property is listed at around 110% of that rental then its worth it to crunch the numbers. All sorts of other factors come into play, current interest rates, opportunity costs, taxes, and on and on. Have to look at all the costs. BUT, and the big but, if it does not start at about 100 month rental, we dont even start the spreadsheet.

Thats just a general rule of thumb and not meant to be an investment guide.

[BalthazarBeefheart]

A friend of mine who has lived in SEA for a few years now was very successful in real estate in the US both as a salesman and an investor.

His calculation on whether or not a property's price made sense was this:

Monthly rent X 12 X 7 years amortization.

He rented a condo for 23K a month (X12 = 276000baht/year X7 yrs = 1.932 million baht).

That was the absolute max price he would have offered had he wanted to buy it.

The asking price was 4.5 million.

His conclusion as a professional was that from an investor's point of view the rental returns made no sense.

I have heard of people making money on condos in LoS but they were guys who bought tired undervalued places, gutted them, re-furbished and sold at a profit. Not a busines for the faint-hearted though, particularly in Thailand.

I am sorry but I really dont understand these figures where does the 7 years amortization come from - I mean why 7 years ?

What about calculating rental yield surely that should be a factor.

Cheers BB

[johnnyk]

A friend of mine who has lived in SEA for a few years now was very successful in real estate in the US both as a salesman and an investor.

His calculation on whether or not a property's price made sense was this:

Monthly rent X 12 X 7 years amortization.

He rented a condo for 23K a month (X12 = 276000baht/year X7 yrs = 1.932 million baht).

That was the absolute max price he would have offered had he wanted to buy it.

The asking price was 4.5 million.

His conclusion as a professional was that from an investor's point of view the rental returns made no sense.

I have heard of people making money on condos in LoS but they were guys who bought tired undervalued places, gutted them, re-furbished and sold at a profit. Not a busines for the faint-hearted though, particularly in Thailand.

I am sorry but I really dont understand these figures where does the 7 years amortization come from - I mean why 7 years ?

What about calculating rental yield surely that should be a factor.

Cheers BB

Perhaps I shouldn't have used the word 'amortization' as we often think of it in regard to mortgages.

My friend was speaking as a real estate investor.

His view was that he did not want to buy a property where the gross rent over 7 years was not within a few % of the purchase price.

After 7 years he wanted at minimum to avoid loss if he had to sell.

Seven years was simply his criterion for assuring himself no loss or a profit.

I didn't ask him the details of it but he may have been thinking that 7 years allows for a cycle of reasonable appreciation in a normal market.

He wasn't looking at making a big quick hit in 1 or 2 years like many speculators. He bought low to mid-price condos that, as a real estate pro, he felt were either underpriced (divorces, foreclosures whatever) or fairly priced with good potential, in good locations and very rentable.

All I can add is that he was successful enough in southern Calif. to be able to walk out independently wealthy in his late 30s and live full-time in SEA.

[Forkinhades]

I bought a house to rent out 3 years ago for 1.8 m. bt, I estimate that it is probably worth about 2.5 m bt. now (Next door neighbour has his for sale at 3 mil exact same house). It rents for 20,000 bt a month, and has been rented for 2.5 years, so I estimate that I am receiving a yield of over 9%.

There are a lot houses for rent/sale in 'my' estate, many owned by thais, but they have been empty for a long time, just because the thais will not drop their prices. If my yield dropped below 5%, then I would have to consider to sell, but I am not in it for the short term. If the house is rented 7 years, I have my money back.

Edited October 28, 2007 by Forkinhades

[quiksilva]

Our calculations on investment property anywhere in the world is pretty simple. Have to rent for 1/100 purchase price.

xbusman,

i assume you are talking about people with mortages, what about people who actually own their properties outright?

thats why i asked the question how can you tell the value of a property based on its rental value.

Its called the capitalised income based approach for valuation and it is a common, internationally accepted valuation standard used in markets throughout the world.

A rule of thumb is this: divide total net annual income by your targetted rate of return and you will be able to determine what that property's freehold value is worth to you, based on your own investment requirements.

That does not mean to say that this is the open market value though, because others may accept a lower rate of return.

[rgs2001uk]

xbusman and quicksilva,

thanks for the replies, always nice to see hear other opinions and options, especially from the professionals.

wow, all i can say is ruthless, mind you, its about making a profit not a loss.

quicksilva you hit the nail on the head with the following, based on your own investment requirements, and also, because others may accept a lower rate of return.

just goes to show there will always be crumbs left on the table after the big boys have had their fill.

at the end of the day i suppose its depends on what you are happy with, i dont have to answer to shareholders, or meet targets, only my own agenda, again thanks for taking the time to reply, and from what you have said my opinion hasnt changed about getting rich quick in thailand.

[think_too_mut]

buying property in Thailand as an investment(you dont plan to live there) seems like an all around bad idea.

It generally is - wrong. What might pay is a low end property that is always rented out.

Someone I know, built a 10 rooms (36sqm with bathroom and balcony each, Pattaya, the other side of the Sukhumvit) building for 4 mil baht. Rents them out at 2000B per month. Minimal maintenance (no pool, no security), always full. One farang rents 1 room as his storage.

Still, it's 20K baht per month income on 4 mil baht investment. It's not 5% as he has some expenses about the property.

That same money in an Oz bank would bring more in interest per month and no hassles. Free to pack up and go.

I found the pic. The guy built something like this but cheaper and far away.

This building with 10 rooms is similar concept but good location - just behind the BNH in Pattaya. The pic was taken from BPH.

[Phrakhanong]

My understanding is rent in Bangkok is generally quite low (may be exceptions for farangs with an open checkbook or where an MNC is footing the bill). From a previous thread, I thought it had been determined that the rent to property value was actually 200:1 (ie you need 200 months rent to recover the purchase price), while in many Western countries it is more like 100:1.

Therefore, for the 4.9 million property, to be recovering over 40k per month is a very good result, and either the property was sold under value, or the tenant is paying over market rent.

[quiksilva]

IMHO These 100 and 200 months rules are not very accurate yardsticks. To benchmark asset performance across asset classes, and in the local or even global market place, you are best off sticking with net annual yields calculated using internationally accepted standards as described above.

[pkrv]

Land in HK is owned by the state and leased out.

Dam I forgot - It appears that HK leases are 999 years so effectivly freehold - Information provided by 'teejay'

[think_too_mut]

Land in HK is owned by the state and leased out.

Dam I forgot - It appears that HK leases are 999 years so effectivly freehold - Information provided by 'teejay'

There was one big lease that ended in 1997.

[pkrv]

Land in HK is owned by the state and leased out.

Dam I forgot - It appears that HK leases are 999 years so effectivly freehold - Information provided by 'teejay'

There was one big lease that ended in 1997.

new trritories - Plover Cove (splelling poor) for water, but not the point.