Buying Vs Renting

[Gary A]

I bought my condo when the exchange rate was 41 baht to a dollar. Hind sight is 20/20. I now wish I had bought another condo in Thailand rather than having money in the stock market. I took a severe beating in the stock market. My condo is leased out and I enjoy a pretty good return. I have been offered a VERY good profit if I were to sell the condo, but as previously mentioned, I didn't buy it to sell OR for an investment. It is my security blanket. If my renter moves out, I will leave it empty and use it when I want a Jomtien Beach holiday. To each his own.

[CaptHaddock]

Greetings gang.

I know this has been done to death but over

the last 12 months or so, the financial climate

has changed a fair bit.

Eighteen months ago I could get 10% interest

and now lucky to get 5% so this has got me

thinking.

Been in Chiang Mai for nearly a year now.

Rent is 20 000 Baht per month in a reasonably

new building. Condo is a bit small (only 2 of us)

at 65 SQM. Same as everywhere, can move out

a bit and get something bigger and cheaper although

the buildings are pretty run down.

A couple of condo's have become available now at

what I consider to be good prices at approx 3.4 million

Baht.

I wouldn't be buying for capital gain. I just would like

to be able to call something my own.

Like I said, with the falling of interest rates, and the

increase of the aussie dollar, now seems pretty

good time to buy.

How about some advice/opinions?

Regards

Will

Will,

It may have been done to death, but rent vs buying is seldom calculated competently. The first mistake people make is to ignore the opportunity cost of the down payment, like the poster above who believes that an owner is living "free" after paying for the condo. Prospective owners also typically underestimate maintenance and insurance costs.

Below is the link to the best buy vs. rent calculator I have seen, from the New York Times. (It expects dollars but works fine with baht, except for the capital gains exclusion limit.) Taking the example that you posted at face value (can the landlord really get 20,000 baht per month on a condo worth 3.4 million baht for a 7% cap rate--seems quite high) I made some assumptions about the following expecting that as an Australian you have access to investments comparable to those in the US:

inflation (1% long term)

down payment (50%)

interest on ten-year mortgage (5.5%)

maintance & renovation costs (1%)

appreciation (0%)

rent increases (0%)

property taxes (0%)

bond interest (3.48% using the current US 10-year Treasury rate, which you could earn safely on the down payment by buying a 10 year US bond)

Under this scenario, buying pays off after 19 years. That is to say, your net worth would be higher at every point in the next 19 years if you rented. Now the crux of the matter are the assumptions. The assumptions above are generous to the home owner camp, in my opinion. For example, I expect appreciation to be negative and rents to decrease for the coming period, possibly for as long as 18 years as it has in Japan. Ditto for inflation. On the other hand the real rate of return on safe US Treasuries is currently very high and will probably not persist. Aussie bank rates have been pretty high, if I remember correctly. If you make different assumptions then buying may beat renting, but by playing with a range of assumptions you can see how sensitive ownership is to each variable.

14 years or 19 years is a very long time for a break even as an investment. Note that this does not mean that you are ahead the entire value of the condo at that point. It means that your net worth (liquid and illiquid) is one baht more then as an owner than as a renter. It also does not mean that you got the value of living in the apartment free during that period because the fact that you did not pay rent is already reflected.

Of course, the calculator does not attempt to incorporate non-financial risk factors already mentioned by others such as: risk of depreciation due to inadequate building maintenance, risk of loss of privilege of residing in Thailand, risk of unfavorable changes in property taxation, illiquidity, or risk of changes in environment due to inconsiderate neighbors or building management. Nor does it factor in exchange rate risk which could go either in your favor or against you.

So, under these (admittedly, disputable) assumptions, you can say that in exchange for bearing all these risks you get paid one baht more after 19 years. If all goes well. And assuming that you can then sell the condo if you want. Does that sound like an attractive investment to you?

NY TIMES rent vs buy calculator:

http://www.nytimes.com/2007/04/10/business...ref=patrick.net

[trogers]

Below is the link to the best buy vs. rent calculator I have seen, from the New York Times. (It expects dollars but works fine with baht, except for the capital gains exclusion limit.) Taking the example that you posted at face value (can the landlord really get 20,000 baht per month on a condo worth 3.4 million baht for a 7% cap rate--seems quite high) I made some assumptions about the following expecting that as an Australian you have access to investments comparable to those in the US:

inflation (1% long term)

down payment (50%)

interest on ten-year mortgage (5.5%)

maintance & renovation costs (1%)

appreciation (0%)

rent increases (0%)

property taxes (0%)

bond interest (3.48% using the current US 10-year Treasury rate, which you could earn safely on the down payment by buying a 10 year US bond)

Under this scenario, buying pays off after 19 years. That is to say, your net worth would be higher at every point in the next 19 years if you rented. Now the crux of the matter are the assumptions. The assumptions above are generous to the home owner camp, in my opinion. For example, I expect appreciation to be negative and rents to decrease for the coming period, possibly for as long as 18 years as it has in Japan. Ditto for inflation. On the other hand the real rate of return on safe US Treasuries is currently very high and will probably not persist. Aussie bank rates have been pretty high, if I remember correctly. If you make different assumptions then buying may beat renting, but by playing with a range of assumptions you can see how sensitive ownership is to each variable.

WOW...this shows how in depth a doctorate in financial studies can be.

MY next door neighbour high school kid gave me this simple calculation:

You have cash Bt4m

Put in bank get 1% interest (before tax) - Bt40,000 a year

Pay rent Bt20,000 x 12 month - Bt240,000

Better put money in bank and use interest for pay the rent. This is advice from expert doctor.