Doing Math From Monthly Rent To Property Value

[YoungFarang13]

i visited a building built in the 1980s and the room is 20,000/month rent.. If I were to make an offer to buy it, what do you think would be a fair price? i think i read on here rent is usually 1/175th the value of the property?

[rak sa_ngop]

Recommend that you go to the condo management office and talk to them. They should be able to give you an idea of what units have been changing hands for recently. Also you may find that there are other units already on the market.

In my condo (10 years old) your ratio is about right, but the range is quite broad.

[quiksilva]

A fair price would be in the region of 8-10% ROI (but this really depends on the location etc the better it is the lower the ROI (and hence higher the price).

So to compute the value work out the annual rent (600K) then deduct common area maintenance fees, taxes, and make an allowances for repairs etc.

Once you have a net figure multiply that by 10-12 (to reflect the target ROI).

The easy way though is find out what other units in the building have been selling for recently, and match that on a Baht per sqm basis.

[xbusman]

Quicksilva, the annual gross rental receipts would be 240,000 Baht according to your formula, with a projected net of somewhere around 200,000 based on occupancy and fees (estimated) times ten would give you around 2 million baht. Right?

I always start at 100 times rent and work from there. Either way, looks like we agree 2 million is somewhere around the middle of the target range.

I would recommend you find the vacancy rate for rooms at 20,000 baht. They might have fifty rented at 10,000 and fifty empty at 20,000. Might be hard to get a good feel for what average rents and occupancy really are without some serious homework.

[alive555]

where is it ?

whats the access like

what floor is it on?

whats the view ?

can the view be obstructed

what are the management fees per month?

whats the occupancy like approx ?

check with the building management if the building has any sinking fund . i doubt it

who manages the building

are you getting a mortgage if so how much

how many m2 is it ?

1 bedroom ?

what condition is the building and your unit in

put a sign on the noticeboard downstairs in the lobby saying you want to buy a unit. see how many offers you get. if nothing else its a good way to leverage your positon with your landlord if you get into a negotiation.

once you have that info ur at a starting point.

[YoungFarang13]

hi, its 2 bedroom 160m2 about 250 meters from bts ekamai on the 7th floor, the view is decent but not spectacular. i will not have a mortgage. the building is for rental only but the owner said he would consider selling a unit and i do not know if he has sold any in the past and for how much.

i actually think the monthly rent is pretty cheap for what i am getting.

[alive555]

hi, its 2 bedroom 160m2 about 250 meters from bts ekamai on the 7th floor, the view is decent but not spectacular. i will not have a mortgage. the building is for rental only but the owner said he would consider selling a unit and i do not know if he has sold any in the past and for how much.

i actually think the monthly rent is pretty cheap for what i am getting.

160 baht per m2 for the rent = v cheap. sounds like a good deal. I doubt the owner can sell you a unit cause it sounds to me from what u say that its not a condo building but an apartment. which means that he wouldnt be able to sell you an individual unit amnuway.

If i were you id either continue to rent or alternatively buy a new building when its completed and you can see what you are getting but that would likely cost you 12 Mb ! So id suggest rent better than buy.

if u get paid in baht look at inv in mutual fund or bonds cause i think you can get tax credit which is basically free money.

[thaigene2]

Personally I think 150 is a fair ratio for Western countries, but 100 may be better for places like Thailand, China Vietnam, etc.

So let's stick to Thailand. I know of several 30-35 metre place (studios) with a kitchen nook renting (next to skytrain stations in the Aree to Saphan Kwai area) for around 9,000 Baht per month. So 100 sm should be around 27,000 baht per month.

So that means they should be around 2.7 million to buy - yet 100 sm in the same areas seem to be closer to 6.5-7.5 million (of course that's new) still that's around 260 times!! So WAY OVER PRICED..even at 150 times it should be no more than 4 million!

Now then, having said that, in LA - where xbusman's company did the divesting in property - I'll reckon 100 metre condo in central areas (e.g. not 'south-central') was renting for 3,000 dollars per month. So then, does that mean that the price was 300,000 dollars? Probably more like 1 million - but I don't know. Is that right? And if so - it's the same as here isn't it? (or I guess that's your main point SELL, SELL! WHILE YOU CAN)??

Edited April 2, 2008 by thaigene2

[cclub75]

Personally I think 150 is a fair ratio for Western countries, but 100 may be better for places like Thailand, China Vietnam, etc.

So let's stick to Thailand. I know of several 30-35 metre place (studios) with a kitchen nook renting (next to skytrain stations in the Aree to Saphan Kwai area) for around 9,000 Baht per month. So 100 sm should be around 27,000 baht per month.

So that means they should be around 2.7 million to buy - yet 100 sm in the same areas seem to be closer to 6.5-7.5 million (of course that's new) still that's around 260 times!! So WAY OVER PRICED..even at 150 times it should be no more than 4 million!

Indeed, something is strange in Bangkok.

TC has a funny article about the issue of ROI for ads with "to rent or to sale".

[Moonfruit]

hi, its 2 bedroom 160m2 about 250 meters from bts ekamai on the 7th floor, the view is decent but not spectacular. i will not have a mortgage. the building is for rental only but the owner said he would consider selling a unit and i do not know if he has sold any in the past and for how much.

i actually think the monthly rent is pretty cheap for what i am getting.

160sqm near to ANY BTS station is dam_n cheap, no matter what the building is like. I would say rent all the way, but i would be very interested to know what the asking buy price would be.

[donx]

160 baht per m2 for the rent = v cheap. sounds like a good deal. I doubt the owner can sell you a unit cause it sounds to me from what u say that its not a condo building but an apartment. which means that he wouldnt be able to sell you an individual unit amnuway.

I think you have your calculation wrong. At 20,000 baht/month for a 160 m2 unit, the rent would be 20,000/160 = 125 baht per m2 per month.

I do, however, agree with you that the owner probably can't sell YoungFarang13 a unit because it wouldn't be considered a condo unless the building is registered at the land office as a condominium complex. If the building isn't registered as a condominium, then a farang can't buy a unit in that building.

[donx]

hi, its 2 bedroom 160m2 about 250 meters from bts ekamai on the 7th floor, the view is decent but not spectacular. i will not have a mortgage. the building is for rental only but the owner said he would consider selling a unit and i do not know if he has sold any in the past and for how much.

i actually think the monthly rent is pretty cheap for what i am getting.

160sqm near to ANY BTS station is dam_n cheap, no matter what the building is like. I would say rent all the way, but i would be very interested to know what the asking buy price would be.

The asking price would be for the entire apartment building since it sounds like it isn't a condomimium where individual units are available for sale. The owner could potentially convert it into a condominium but as it stands now, I don't think this is currently the situation.

[YoungFarang13]

ok, i guess it is an apartment and thus unbuyable. i agree that the rent/sale ratio in thailand is strange. shouldn't the rental value of the property determine its sale value? either rents are too cheap or sales are to high or is there another solution?

[donx]

ok, i guess it is an apartment and thus unbuyable. i agree that the rent/sale ratio in thailand is strange. shouldn't the rental value of the property determine its sale value? either rents are too cheap or sales are to high or is there another solution?

IMHO it is both. Rents are cheap AND asking prices are too high.

[quiksilva]

Quicksilva, the annual gross rental receipts would be 240,000 Baht according to your formula, with a projected net of somewhere around 200,000 based on occupancy and fees (estimated) times ten would give you around 2 million baht. Right?

I always start at 100 times rent and work from there. Either way, looks like we agree 2 million is somewhere around the middle of the target range.

I would recommend you find the vacancy rate for rooms at 20,000 baht. They might have fifty rented at 10,000 and fifty empty at 20,000. Might be hard to get a good feel for what average rents and occupancy really are without some serious homework.

Yes good point, you must allow for void periods, and all costs, basically any item that affects the bottom line must be accounted for.

[RAZZELL]

Quicksilva, the annual gross rental receipts would be 240,000 Baht according to your formula, with a projected net of somewhere around 200,000 based on occupancy and fees (estimated) times ten would give you around 2 million baht. Right?

I always start at 100 times rent and work from there. Either way, looks like we agree 2 million is somewhere around the middle of the target range.

I would recommend you find the vacancy rate for rooms at 20,000 baht. They might have fifty rented at 10,000 and fifty empty at 20,000. Might be hard to get a good feel for what average rents and occupancy really are without some serious homework.

Yes good point, you must allow for void periods, and all costs, basically any item that affects the bottom line must be accounted for.

In the UK, the rent to buy ratio is probably more like 200 or maybe more. Although there are always exception's to the rules.

RAZZ

[thaigene2]

Quicksilva, the annual gross rental receipts would be 240,000 Baht according to your formula, with a projected net of somewhere around 200,000 based on occupancy and fees (estimated) times ten would give you around 2 million baht. Right?

I always start at 100 times rent and work from there. Either way, looks like we agree 2 million is somewhere around the middle of the target range.

I would recommend you find the vacancy rate for rooms at 20,000 baht. They might have fifty rented at 10,000 and fifty empty at 20,000. Might be hard to get a good feel for what average rents and occupancy really are without some serious homework.

Yes good point, you must allow for void periods, and all costs, basically any item that affects the bottom line must be accounted for.

In the UK, the rent to buy ratio is probably more like 200 or maybe more. Although there are always exception's to the rules.

RAZZ

Yes - but that was a scarcity of land issue - controlled by the establishment to ensure that every Victorian house in London was deemed 'historic' to prevent rippinng them down and building high rise modern condos and diluting the scarcity - I mean it's pretty obvious - shitty housing stock - that the land-owners can keep at high value. How many cities like that still exist - and spare me the lovers of Victorian property until you've lived in one - with the noisy neighbours, etc. (really non-victorian inhabitants - NOUT).

Edited April 6, 2008 by thaigene2

[dotcom]

In USA we would use 100 times monthly rent (8 years). In Thailand it is a lot more.

Take where I live for example. I rent for 17,000 per month. 80 m2. I offered the owner 2.3 million. They came back wanting 3 million.

So if I divide 3 mil. by 17,000 I get 176 months. Divided by 12 I get 14.7 years. I'll keep on renting. To take care of my Mia Noi I went to Bangkok Bank & bought a 1 mil insurance policy with her as benefifiary.

What can we conclude from this? That selling prices are high & rents are pretty affordable.

If a correction comes I would expect selling prices to come down but rents to remain pretty stable.

Edited April 10, 2008 by dotcom

[thaigene2]

To take care of my Mia Noi I went to Bangkok Bank & bought a 1 mil insurance policy with her as benefifiary.

What can we conclude from this? That selling prices are high & rents are pretty affordable.

If a correction comes I would expect selling prices to come down but rents to remain pretty stable.

Edited April 12, 2008 by thaigene2

[lingnoi34]

First you need to differentiate between rental property and owner occupied properties.

Rental property is bought at 12-15 times the annual net rent (up to 180 times monthly rent) while owner occupied properties will sell at 20 times annual (240 times monthly) or even more depending on location and other factors.

L

[johnnyk]

To take care of my Mia Noi I went to Bangkok Bank & bought a 1 mil insurance policy with her as benefifiary.

What can we conclude from this? That selling prices are high & rents are pretty affordable.

If a correction comes I would expect selling prices to come down but rents to remain pretty stable.

I concluded his life is worth 1 million baht.

[thaigene2]

To take care of my Mia Noi I went to Bangkok Bank & bought a 1 mil insurance policy with her as benefifiary.

What can we conclude from this? That selling prices are high & rents are pretty affordable.

If a correction comes I would expect selling prices to come down but rents to remain pretty stable.

I concluded his life is worth 1 million baht.

True but to look at the funny side of it, if he also just 'rented' his Mia Noi for 30 years (with the possibility of extension) instead of Leasing via the Insurance policy that can be 'cashed' at her 'discretion'.. and if he paid her the million in thirty 1-year installments he'd have a pretty good deal right? Then again there is depreciation, mileage, etc..and of course like all property deals -- "upkeep".

[ongcuunon]

where is it ?

whats the access like

what floor is it on?

whats the view ?

can the view be obstructed

what are the management fees per month?

whats the occupancy like approx ?

check with the building management if the building has any sinking fund . i doubt it

who manages the building

are you getting a mortgage if so how much

how many m2 is it ?

1 bedroom ?

what condition is the building and your unit in

put a sign on the noticeboard downstairs in the lobby saying you want to buy a unit. see how many offers you get. if nothing else its a good way to leverage your positon with your landlord if you get into a negotiation.

once you have that info ur at a starting point.

Concur 100%, this information merely puts you at a starting point. I'd also add:

Is the land leasehold or freehold?

Does it include a parking space? Designated or open?

Are you comfortable being in a condo owners situation where, except for your unit, all of the other units are owned by one person, which means that you'll get out-voted in any disagreement or decision for special assessments on all owners (which would be you two) such as elevator repair (which is an example from my bldg at this time)?

Why might there be a special deal for you? Beware when things appear a little too good to be true.

[richm7]

Something smells here. You say it is a rental building, which means its status is a rental, not a condo. It can be changed to condo status, which it will achieve when all units are sold, but there is a process that has to be gone through by the owners to do this. It sounds to me as if this guy just wants to take your money. If you are truly thinking about buying GET A LAWYER and not one he recommends. Also, for 160 sq.m this rent is incredibly low, so I can only conclude there is some sort of scam going on or the building is a dump, in which case it will never achieve condo status anyway. I'd put a minimum price of ฿50,000 a square meter on any half decent condo that close to downtown, and that's only half decent. That would make it an ฿8M buy. Mind you, I'm at an age where I value quality and comfort far more than I did at 25!

Agree that rents in BKK run about 0.5% of the property value, which is not great, but not that unusual; I reckon my house in Texas would only rent for about 0.6% of its value and when I lived in California at best you might hit 0.7%. I sold my house in Silicon Valley for over $700k but I know the best I could have rented for was $3500-$4000. U.K. is probably similar, a million quid property in London might go for five to seven grand a month. BTW, a million quid property in London ain't much these days.

Quick comment on "asking prices". Asking prices bear no relationship to market value. I wish people could get that into their heads. It does not matter what you are selling, it's value is only as much as someone is prepared to pay for it. That is the market value. There are idiots out there, of course, who are stupid enough to pay way over market value; if you want to know who they are, go on ebay, which is not really an auction site, it's an idiot filter! But, generally speaking, when it comes to property, you'll get market value and no more. I see comments like "the property market in (insert town or country) is way overpriced." No it isn't - it is driven by the market. Pay market price if you are buying and expect market price if you are selling. As a seller, if you have property that sits and sits then the reason is IT IS PRICED TOO HIGH for what it is. Simple as that.

Sorry, wandered off subject a little there.

[LivinLOS]

A fair price would be in the region of 8-10% ROI (but this really depends on the location etc the better it is the lower the ROI (and hence higher the price).

So to compute the value work out the annual rent (600K) then deduct common area maintenance fees, taxes, and make an allowances for repairs etc.

Once you have a net figure multiply that by 10-12 (to reflect the target ROI).

The easy way though is find out what other units in the building have been selling for recently, and match that on a Baht per sqm basis.

While that may reflect bangkok condos it in no way reflects the market as a whole..

Previous villa 70k per month.. Pool / gardens and a awful lot of work to maintain it.. 5 - 10k per month !!.. Lets say the place produced 700k so it should be priced at 7 - 8m ?? Try 25 !! Similar numbers can be done on my current home.. And those are for the full occupancy numbers.

Even in BKK in these pockets of 'close to the BTS' zones I see prices totally out of whack.. My buddy paid north of 6m for a condo and in the lobby the same units (on a very slightly lower floor I admit) are renting for 20k.. I cant fathom why someone would buy at 6m something you can get for near 3% of that per annum !! Especially as now a year later hes sick of BKK and looking at moving back to the islands.

[LivinLOS]

Quicksilva, the annual gross rental receipts would be 240,000 Baht according to your formula, with a projected net of somewhere around 200,000 based on occupancy and fees (estimated) times ten would give you around 2 million baht. Right?

I always start at 100 times rent and work from there. Either way, looks like we agree 2 million is somewhere around the middle of the target range.

I would recommend you find the vacancy rate for rooms at 20,000 baht. They might have fifty rented at 10,000 and fifty empty at 20,000. Might be hard to get a good feel for what average rents and occupancy really are without some serious homework.

Yes good point, you must allow for void periods, and all costs, basically any item that affects the bottom line must be accounted for.

Income tax.. Show me anyone on these forums that takes this into account when giving ROI despite it being the law and also very difficult to legally get money sent back outside the country to actually get a real internationally measured return.

[Gary A]

I think it depends on the owner's strategy. Some owners insist on maximum rent while others offer low rents in an attempt to keep their renters long term. I prefer the second strategy. Vacancies are expensive and will quickly eat up the maximum rate rent gain.

When I lived near Bangkok, I paid 3,500 baht a month for a new two bedroom house. The owner was asking 3.5 million for the property. Obviously it made absolutely no sense to want to buy that house with such cheap rent.

Condos normally bring a much better return on investment than houses.

[quiksilva]

Income tax be it corporate or personal, is not usually discussed when talking about ROI, in any market.

LivinLOS, I hear you. The fact is that different properties produce different yields. In the OP's case he was discussing a 28 year old property that was bringing in an income of 240,000 Baht a year, so the yield should reflect its age and condition, hence the relatively higher numbers than what you experienced in your luxury villa.

The higher you go up the ladder, the better the covenant of tenant you can expect (usually), better locations, better design, improved build quality and higher specifications all lead to a lower risk profile, and thus a lower rate of return, although market forces will also skew these numbers one way or the other.

The truth is a lot of matters have to be considered when estimating value, which is why RICS qualified valuers in reputable firms go through 3 years of specialised degrees, 2 years of structured training and professional assessment (that lasts throughout their career) before even being let loose on small assignments under the close supervision of qualified mentors.

Edited July 30, 2008 by quiksilva

[alive555]

typically the better the quality of asset the lower the yeild - and the lower the quality of asset the higher the yield ; and that yield could range from 3-15% depending on many factors.