Why Only A Sucker Would Buy A Condo In Bkk As An Investment

[YoungAndRice]

1. You have to pay cash. Mortgages are not available to farang and even if they are, the rates listed on the banking sites are all in the 8%+ range which is one step away from loan sharking.

Most condos rent for 1/150 to 1/200 of their worth per month. That means you will net around 6-8% of the properties value annually in rents, not yet accounting for vacancy, maintance, managing, insurance and fees paid to leasing/real estate agents.

Why would you want to go through all of that when you can invest in a range of index funds which will easily return 7-10% annually on average and will require the slightest effort from you? Also note that long term capital gains taxes (for Americans) is 15% whereas rental income is taxed as earned income (your tax rate).

2. Thailand is not politically stable. I cannot go into many details due to the Thai laws which restrict freedom of speech, but Thailand will face big changes in the near future which could drive away many farangs (your potential tenants).

3. The resale market is lousy. Second hand properties do not sell as well here as they do in the West and the longer you hold onto your property, the more the building depreciates, the harder it will be to sell your property.

4. Thai Legal system is lousy. If a situation arises where you need to take someone to court, whether it is the plumbers, your neighbor, your tenant, you will probably end up getting screwed and have a gigantic head ache before it is finished.

Edited January 14, 2008 by YoungAndRice

[Naam]

and try to avoid lying down. it is very dangerous. most people die when lying down. Thailand is no exception!

[fletchsmile]

1. You have to pay cash. Mortgages are not available to farang and even if they are, the rates listed on the banking sites are all in the 8%+ range which is one step away from loan sharking.

Most condos rent for 1/150 to 1/200 of their worth per month. That means you will net around 6-8% of the properties value annually in rents, not yet accounting for vacancy, maintance, managing, insurance and fees paid to leasing/real estate agents.

Why would you want to go through all of that when you can invest in a range of index funds which will easily return 7-10% annually on average and will require the slightest effort from you? Also note that long term capital gains taxes (for Americans) is 15% whereas rental income is taxed as earned income (your tax rate).

2. Thailand is not politically stable. I cannot go into many details due to the Thai laws which restrict freedom of speech, but Thailand will face big changes in the near future which could drive away many farangs (your potential tenants).

3. The resale market is lousy. Second hand properties do not sell as well here as they do in the West and the longer you hold onto your property, the more the building depreciates, the harder it will be to sell your property.

4. Thai Legal system is lousy. If a situation arises where you need to take someone to court, whether it is the plumbers, your neighbor, your tenant, you will probably end up getting screwed and have a gigantic head ache before it is finished.

I actually happen to think there are better pure investments in Thailand than property, but on the other hand you overlook a few points:

1. If you're married to a Thai and view yourself as a couple, there are some nice mortgage deals. We have a mortgaged with a 3 year guaranteed rate of 4.79%. That saves us using our cash, and we can invest elsewhere to earn above 4.79%. We are also now no longer paying rent, and it compares favourably to renting at the 6-8% yields you mention. Also once a large part of equity is paid off, I would consider re-mortaging to borrow and leverage off to either invest or for other purposes.

2. I'd say it seems slightly more negative to foreigners than 10 years ago. The so called political stability doesn't deter me from investing modestly.

3. No experience personally of selling. I do know that most properties above say 5mio I've looked at over the last 10 years have risen in value. The same areas are still desireable to foreigners. So you see condos in the same buildings coming up over time/ advertised at generally higher prices compared to 10 years ago.

4. Yes it's a slow buy. Once you're thru it, and have bought, most of the hassle is done.

While not necessarily something that makes sense for the single guy, looking to make a quick buck, and purely out to make money, there are other things going for it. eg:

Owning your own home, and having some roots for a more stable family life. Protecting from rising rent costs. Hedging against exchange rate movements. Fixing part of your outgoings for good. Low borrowing rates if you can get them, to leverage off using elsewhere. Just being on the property ladder, etc

Plus there's also diversification in your investments as well as currencies. I prefer investing in equities to investing in property, but there's no harm in a little diversification, to reduce overall risk.

Edited January 14, 2008 by fletchsmile

[buddhafly]

#3 is the one that i fear.

will be curious/eager to see some opposing viewpoints on that one.

[quiksilva]

budhafly.

"Location, location, location" is an over used phrase for a very good reason. It's accurate.

If you get that right, the rest will follow.

[YoungAndRice]

"If you're married to a Thai and view yourself as a couple, there are some nice mortgage deals. We have a mortgaged with a 3 year guaranteed rate of 4.79%."

What is the interest rate after the first three years?

[rgs2001uk]

"If you're married to a Thai and view yourself as a couple, there are some nice mortgage deals. We have a mortgaged with a 3 year guaranteed rate of 4.79%."

What is the interest rate after the first three years?

excellent question, you are obviously astute enough to know there is no such thing as a free lunch.

i would imagine its backend loaded, are the same market forces that created a credit crunch, driven by greed and the desire to make a quick buck in america, now rearing their ugly head in los

[fletchsmile]

"If you're married to a Thai and view yourself as a couple, there are some nice mortgage deals. We have a mortgaged with a 3 year guaranteed rate of 4.79%."

What is the interest rate after the first three years?

excellent question, you are obviously astute enough to know there is no such thing as a free lunch.

i would imagine its backend loaded, are the same market forces that created a credit crunch, driven by greed and the desire to make a quick buck in america, now rearing their ugly head in los

It switches to a variable rate linked to a reference rate. If rates remain as they are today, it would work out at 6.5% if I recall. Still OK.

As for interest rate risk: I think BoT will reduce interest rates this year, so at end of 2008 the variable rate should be lower than currently. Where rates will be at the end of 2010 when the variable rate kicks in, is more important, and I'm less sure of that. My expectation for 2010 is similar to today's levels or slightly lower.

After 3 years I'll review, and then look at either fixing again, depending what the fixed rate deals are, going with the variable rate, or simply paying it off if rates have risen too high. I think there's a 1% redemption fee of the outstanding mortgage balance if I pay off early. So if I did so after 3 years that would add an extra 0.3%ish to the annual rate - worst case would have paid around 5.1% p.a. if redeem after 3 years. The opposite if rates have fallen significantly could be remortgaging, and using the funds elsewhere.

Edited January 14, 2008 by fletchsmile

[Jingthing]

Well, as long as you are talking US tax laws, it is my understanding if you buy a Thai condo and live in it as your primary personal residence, you enjoy the very same tax free status if you can sell at a profit. Can anyone confirm? If true, that is a very good reason to buy.

[fletchsmile]

Well, as long as you are talking US tax laws, it is my understanding if you buy a Thai condo and live in it as your primary personal residence, you enjoy the very same tax free status if you can sell at a profit. Can anyone confirm? If true, that is a very good reason to buy.

Can't say on US tax laws. US generally taxes on worldwide assets which I think sucks, so if the exemption is valid that's a good reason as you say.

In the UK, you're often not taxed on capital gains overseas if they're not remitted to UK. For some UK investors there could therefore be tax advantages to buying their second property overseas rather than UK.

[Gary A]

and try to avoid lying down. it is very dangerous. most people die when lying down. Thailand is no exception!

Depends of the person. I have a good friend who is a retired cop and he tells me that most obese people die while sitting on the toilet. He told me the firemen use a chain saw to widen the doorways to get the huge stiff body out of the bathroom.

[wpcoe]

Well, as long as you are talking US tax laws, it is my understanding if you buy a Thai condo and live in it as your primary personal residence, you enjoy the very same tax free status if you can sell at a profit. Can anyone confirm? If true, that is a very good reason to buy.

Unless you are over a certain age (50? 55?) where you get a once-in-a-lifetime opportunity to avoid capital gains tax on sale of your primary residence, all other capital gains tax on sale of your primary residence are "deferred," meaning you need to roll them over to the purchase of another primary residence within 24 months (48 months if your tax domicile remains overseas) to avoid payment of the tax in the year of the sale.

I got bitten when I sold my primary residence in Hawaii: State tax rules there require that the capital gains be rolled over into the new purchase of a primary residence in the State of Hawaii. Federal (IRS) tax rules permit the primary residence to be anyplace.

[Jingthing]

Well, as long as you are talking US tax laws, it is my understanding if you buy a Thai condo and live in it as your primary personal residence, you enjoy the very same tax free status if you can sell at a profit. Can anyone confirm? If true, that is a very good reason to buy.

Unless you are over a certain age (50? 55?) where you get a once-in-a-lifetime opportunity to avoid capital gains tax on sale of your primary residence, all other capital gains tax on sale of your primary residence are "deferred," meaning you need to roll them over to the purchase of another primary residence within 24 months (48 months if your tax domicile remains overseas) to avoid payment of the tax in the year of the sale.

I got bitten when I sold my primary residence in Hawaii: State tax rules there require that the capital gains be rolled over into the new purchase of a primary residence in the State of Hawaii. Federal (IRS) tax rules permit the primary residence to be anyplace.

Old news. This tax deal is now good every two years. No age limit. No limit on how many times you can do it. No need to rollover. Ever. There is a dollar limit on the non-taxable profit, 250K USD I think, and 500K USD for couples. At those levels, hardly a common issue for Thailand condo owners!

But the OP did say investment. So if buying as primary residence, not the same thing as buying as an investment to rent it out. As a resident owner, you also get "free rent" which is a very good non-taxable return on your money if you buy for cash. Oh, and its a great Thai baht currency hedge.

Don't believe? Here you go:

http://www.fool.com/school/taxes/1998/taxes980212.htm

Edited January 14, 2008 by Jingthing

[wpcoe]

Old news. This tax deal is now good every two years. No age limit. No limit on how many times you can do it. No need to rollover. Ever. There is a dollar limit on the non-taxable profit, 250K USD I think, and 500K USD for couples. At those levels, hardly a common issue for Thailand condo owners!

Not actually "old" news, more like "ancient" news! I had no idea the tax laws regarding capital gains on primary residence changed... in 1998! You do need to have owned and occupied the place two out of the last five years, but if it is a primary residence, that shouldn't be too hard to do.

Thanks for that info. It is very relevant to my current planning.

[wpcoe]

Well, as long as you are talking US tax laws, it is my understanding if you buy a Thai condo and live in it as your primary personal residence, you enjoy the very same tax free status if you can sell at a profit. Can anyone confirm? If true, that is a very good reason to buy.

I just downloaded and read the 2007 versions of IRS Publication 54 (Tax Guide for U.S. Citizens and Resident Aliens Abroad) and Publication 523 (Selling Your Home), and don't see anything that would indicate that the exclusion of capital gains tax on the sale of a "main home" is not applicable to U.S. citizens selling their "main home" overseas.

But like you, I'd be grateful if someone could actually confirm that's true.

http://www.irs.gov/pub/irs-pdf/p523.pdf

http://www.irs.gov/pub/irs-pdf/p54.pdf

[PadThaiGuy]

If you find a building you like, in a good location and plan to stay 5 - 10 years, then buying a condo is probably a good way to go.

[quiksilva]

"If you're married to a Thai and view yourself as a couple, there are some nice mortgage deals. We have a mortgaged with a 3 year guaranteed rate of 4.79%."

What is the interest rate after the first three years?

Mine is MLR -1 so currently about 6.5%

[dave111223]

If i sold my condo right now i would stand to make a profit (in USD anyways).

Bought the condo year and a half ago for 1.65Mil Baht at the time this was about 43,400 USD (at 38THB/USD)

The place was just a beat up empty shell and put a lot DIY into it to refurbishing it.

Place would sell probably minimum 2mil now. And most knowledgeable Thai people i've spoken to say i could probably get around 2.5mil.

But even if i sold it for 2mil right now i'd be going back to the US with 60,000 USD (at the current 33THB/USD rate)

Now how is that a bad investment?

But i guess I'm a "Sucker" as the OP said.

[backflip]

Add me to the sucker list. I bought a condo 4 years ago for $155K USD, and it's worth about $300K. The building is about 10 years old and, in the past month, 2 Thai buyers bought units. I guess no one told them that Thais don't buy used condos.

[OlRedEyes]

If i sold my condo right now i would stand to make a profit (in USD anyways).

Bought the condo year and a half ago for 1.65Mil Baht at the time this was about 43,400 USD (at 38THB/USD)

The place was just a beat up empty shell and put a lot DIY into it to refurbishing it.

Place would sell probably minimum 2mil now. And most knowledgeable Thai people i've spoken to say i could probably get around 2.5mil.

But even if i sold it for 2mil right now i'd be going back to the US with 60,000 USD (at the current 33THB/USD rate)

Now how is that a bad investment?

But i guess I'm a "Sucker" as the OP said.

If it doesn't sell, any theoretical price is pie in the sky. What you are told you will get when inquiring casually, and the offers, if any in the current circumstances, are two totally different things. The question is simply where is Thailand heading, and the outlook isn't rosy.

Rents are relatively low, and look like they'll be heading lower. There are so many other much more attractive countries to invest in.

[dave111223]

If i sold my condo right now i would stand to make a profit (in USD anyways).

Bought the condo year and a half ago for 1.65Mil Baht at the time this was about 43,400 USD (at 38THB/USD)

The place was just a beat up empty shell and put a lot DIY into it to refurbishing it.

Place would sell probably minimum 2mil now. And most knowledgeable Thai people i've spoken to say i could probably get around 2.5mil.

But even if i sold it for 2mil right now i'd be going back to the US with 60,000 USD (at the current 33THB/USD rate)

Now how is that a bad investment?

But i guess I'm a "Sucker" as the OP said.

If it doesn't sell, any theoretical price is pie in the sky. What you are told you will get when inquiring casually, and the offers, if any in the current circumstances, are two totally different things. The question is simply where is Thailand heading, and the outlook isn't rosy.

Rents are relatively low, and look like they'll be heading lower. There are so many other much more attractive countries to invest in.

Even if i sold the condo for a loss at 1.5mil (extremely unlikely*) i'd still leave with 45,500 USD.

I say extremely unlikely seeing as the smaller unit above us sold for 1.5mil and had the ceiling/wall falling out, birds nests and water pouring through the ceiling when it rained (you get the picture, pretty nasty).

Edited January 15, 2008 by dave111223

[steveromagnino]

"If you're married to a Thai and view yourself as a couple, there are some nice mortgage deals. We have a mortgaged with a 3 year guaranteed rate of 4.79%."

What is the interest rate after the first three years?

excellent question, you are obviously astute enough to know there is no such thing as a free lunch.

i would imagine its backend loaded, are the same market forces that created a credit crunch, driven by greed and the desire to make a quick buck in america, now rearing their ugly head in los

er...not quite. Can just jump banks and get another great promotional deal provided banks want your business - I know people who have never paid more than about 5% in interest for years and years by doing this.

For myself, I only have 5 years, so 2 years on a higher rate doesn't bother me at all; after the first 3 most of the property will have been paid off anyhow.

[fletchsmile]

"If you're married to a Thai and view yourself as a couple, there are some nice mortgage deals. We have a mortgaged with a 3 year guaranteed rate of 4.79%."

What is the interest rate after the first three years?

excellent question, you are obviously astute enough to know there is no such thing as a free lunch.

i would imagine its backend loaded, are the same market forces that created a credit crunch, driven by greed and the desire to make a quick buck in america, now rearing their ugly head in los

er...not quite. Can just jump banks and get another great promotional deal provided banks want your business - I know people who have never paid more than about 5% in interest for years and years by doing this.

For myself, I only have 5 years, so 2 years on a higher rate doesn't bother me at all; after the first 3 most of the property will have been paid off anyhow.

Yep, changing promotions with the same bank, or even changing banks are usually options once the fixed rate periods expire. Further I'd add that this year will see a more competitie landscape for mortgages. Several banks have declared interests in wanting to increase the size of their mortgage books.

Edited January 15, 2008 by fletchsmile