26, Modest Savings, Is A Condo A Wise Move?

[OxfordWill]

I am hoping you older and/or wiser people can give me some honest advice.

I am 26, I have some savings in the bank. Enough to buy a small modest condo in a good location in Bangkok.

I have no assets. I have very little job security- I work for myself and a business partner and while the relationship is good, you never know what can happen. It is not beyond the realm of possibility that tomorrow, I lose any income and have to start again from scratch.

So I have this money sitting in the bank. Is buying a small condo a good way to start building wealth (I dont even know if thats the right terminology, I'm a computer tech with very little financial know how)? Should I continue to save and buy a larger property in time? I feel that property is a relatively safe, responsible and appropriate choice for my situation. It would give me some life security, if the need arised, and presumably is one of the safer investment opportunities to boot.

I am not from a rich background and have worked hard to make this money, and such a purchase would deplete my savings back to nil. Is the exchange a wise one?

Thank you in advance for any advice.

[johng]

Assuming that you are not Thai,and you mean a condo in Thailand ??

for me the answer would be a definate NO...

if you are Thai then go right ahead everyone else does it like that.

If you are an Alien ( as the Thai government likes to call us )

having zero savings is in my view not very wise.

You also say you have little job security so if your visa status depends on your job and for some reason you lost it then you wouldn't be able to stay in Thailand to enjoy your condo ( well yes you can but..... )

I'm sure some real estate agents will be along swiftly to tell you what a great "investment" condos are.

Edited January 14, 2010 by johng

[trogers]

First, you should have liquid funds to cover 12 months of expenses, say Bt30k x 12, to help you tide over unforeseen events.

If you have surplus cash over this amount, then look into investing in a condo, for your own occupancy, and also in a location that can be rented out easily should you need to work elsewhere in the future.

If the surplus cash is insufficient at this time, plan and save for another year or so to build it up. Having your own roof over your head and some buffer funds is the right step to financial security.

[chiang mai]

I presume that you think that by buying a condo you will see it appreciate and that you'll be able to sell it later and make a profit? Or is it a case that by putting your money into Baht you'll see the Baht strengthen and that you'll build wealth that way? Maybe it's a bit of both? If you're interested in the former, property speculation, you will need to spend time looking at the market to see what's happening to prices, personally, I don't think that real estate speculation in Bangkok is a good idea but that's just me. Maybe if you were to speculate in the top end of the market you might make some money but for the rest of it currently, I don't think so.

If you take the other option and invest in Thai Baht on the basis that the Baht may strengthen and the Pound may fall, why not put say 50% of your money into Baht and leave the rest in Pounds, that way you are fully hedged. Personally I've given up trying to figure out where the two currencies are headed because there are so many variables and uncertainties - if you need Baht to spend on a daily basis then best make sure you have enough for say the next six months and then take a view on currency directions in the meantime. As we speak the Pound is strengthening slightly because of recent BOE comments, but there again, so is the Baht because of capital inflows, how all that might change in on or three months remains a mystery!

You sound from your post the same way that many people feel today, got cash in the bank and want to do something useful with it but looking for low to medium risk, you are in very good company in this respect so don't feel alone. Sometimes the best thing to do is nothing, earn your 3% on your Sterling and wait and see, that's where I'm at currently.

[Jingthing]

I say, bad move. Too many risks for a young person. All investments have risks, but this one has too many when compared to the potential returns. I say buy one as a PURCHASE for housing only like a disposable consumer item, not an investment if you really must do this.

Cons

-- reports of difficulty transferring money out of Thailand after sale (you need to first transfer it in from abroad to buy it in the first place)

-- maintenance of condo building falling apart, shortening the useful life of the building, a real issue for a young person (corruption and non-functioning condo building management is very common in Thailand (even sometimes violent mini-mafias), this is not the west!)

-- risk of Thai visa changes on a macro level

-- risk of Thai visa changes on micro level, your personal permission to stay could be taken away at any time

-- if you get into legal trouble here, you could be blacklisted or worse (it happens)

-- if you can't live in it, you might have to sell it (or rent it) under duress

-- if rented, tenants may not pay and/or trash your condo or your management company may steal the rent, what can you do from abroad (see above risk)

-- in Thai culture, there is no guarantee "used" real estate will appreciate very much, if it all (Thais favor NEW construction strongly)

-- currency exchange risk

-- it can very, very, difficult to sell used condos (yes that's what Thais call them)

I could probably come up with more. But those are the cons. The two pros

-- if you do manage to live in it for ten years or more you lock in your rental cost, so the opportunity cost of the locked up money at least pays interest in "free" housing (but it is not free as the money could have been invested somewhere else)

-- you just might get lucky and get a percentage return on sale that is better than other investments you could have made

Bottom line, I truly think most rational people would say don't do it.

Edited January 14, 2010 by Jingthing

[chiang mai]

Agreed JT except that there is no real difficulty moving the money out of Thailand after a sale, some folks just think this is a problem but it isn't.

[Jingthing]

Agreed JT except that there is no real difficulty moving the money out of Thailand after a sale, some folks just think this is a problem but it isn't.

Yeah, and the funny part is I do own a condo!

[hhgz]

"I am 26...I have no assets. I have very little job security...Is buying a small condo a good way to start building wealth..."

Why are you in BKK? Regardless, the stock markets in both the US and Thailand have increased by 65% in a year, and that would have been a good place to start building an asset base.

[chiang mai]

"I am 26...I have no assets. I have very little job security...Is buying a small condo a good way to start building wealth..."

Why are you in BKK? Regardless, the stock markets in both the US and Thailand have increased by 65% in a year, and that would have been a good place to start building an asset base.

Or perhaps try playing red and black at the roulette wheel, the odds are better!

[trogers]

"I am 26...I have no assets. I have very little job security...Is buying a small condo a good way to start building wealth..."

Why are you in BKK? Regardless, the stock markets in both the US and Thailand have increased by 65% in a year, and that would have been a good place to start building an asset base.

Or perhaps try playing red and black at the roulette wheel, the odds are better!

I believe saving and committing surplus cash into a condo at this young age (before 30) is a good start, bearing in mind how many older farangs succumb to the temptation of the flesh and spent lavishly on dames and booze, and when things go wrong, commit crimes or suicide.

[aussiebebe]

For the OP 'OxfordWill' to deplete his entire savings to buy a Thai Condo wouldn't be the smartest thing to do, as others have pointed out.

Sounds like he's from the UK, not sure; but if he's living in Thailand, he should be using his non-resident UK status to save money tax-free in a reptuable offshore bank account. All major UK high-street banks have branches, mostly in the Isle of Mann, which are within the UK Clearing system but offer tax-free savings accounts to expatriates.

I've got very little idea of whether the Baht with strengthen or weaken against the pound, but historically it's quite a poor rate at present - around 54baht to the pound. Barely four years ago it was more like 70. So, making a major transaction is unlikely to see a good return, I'd suggest.

[cmsally]

If you have surplus cash to invest AND do your homework on the market I would say it is a good idea - and I have done so myself. One I am using for my own use and others renting.

If however this is your life savings I would think very carefully about it.

Difficult to say any further as we don't know what price of condo you are aiming at.

Is it possible to buy something half the price you were thinking of, or were you already thinking bottom of the market?

Prices vary wildly.

[philliphn]

Don't do it.

Rent. Then if you need to you may move at no loss to you.

You are too young and their are to many uncertaainties in your situation.

[Benjie]

Are you going to live in it? How much rent do you pay now?

You are 26, plenty of time to think about savings/investment etc... With little job security at least if you own your own home you will always have a place to live.

[gregb]

Depends on the condo really. If you are talking about a VERY good condo, and by this I mean a luxury unit on the order of 30 - 40 million baht or more, then it might not be a bad investment. They very, very best will always command good prices and will likely appreciate.

If you are talking about a middle class condo however, that is extremely dangerous. I highly doubt we have seen the end of the current financial crisis. Condos in Thailand may not appreciably decrease in price, but as the crisis deepens they will certainly become progressively harder to sell and generate declining revenue.

Sounds to me like you need an investment that is substantially more liquid. Real estate is not the safe haven it used to be. Stick with a mixture of gold and carefully selected equities. You'll be happier you did.

[Jingthing]

Are you going to live in it? How much rent do you pay now?

You are 26, plenty of time to think about savings/investment etc... With little job security at least if you own your own home you will always have a place to live.

The chances of a guy 26 in Thailand still living in the same place in 10 years (or wanting to) are miniscule. It would be an albatross, owning him, not him owning it. Its different for older people. Its not a place to live if the building turns to rot in 20 years.

Edited January 14, 2010 by Jingthing

[jcon]

For once I agree wholeheartedly with Jingthing (no poll??? )

[Benjie]

Are you going to live in it? How much rent do you pay now?

You are 26, plenty of time to think about savings/investment etc... With little job security at least if you own your own home you will always have a place to live.

The chances of a guy 26 in Thailand still living in the same place in 10 years (or wanting to) are miniscule. It would be an albatross, owning him, not him owning it. Its different for older people. Its not a place to live if the building turns to rot in 20 years.

He'd have sold it by then, he can always rent it out. Personally I can't stand renting and all the hassles that go with it. I've lived in Phuket since I was 26, some 8 years or so and wish I would have bought a condo when I first got here.

[AddictedToThai]

Depends on the condo really. If you are talking about a VERY good condo, and by this I mean a luxury unit on the order of 30 - 40 million baht or more, then it might not be a bad investment. They very, very best will always command good prices and will likely appreciate.

Top end condos (with the prices above 150,000 per sqm) not so liquid at the moment with exception of few building like Infinity.

[Benjie]

OP is a 26 year old with MODEST savings, I don't think that equates to million dollar+

[OxfordWill]

Thanks for the replies!

I am looking at places in the almost bottom of the market price wise. I think the average price I looked at was 45 000 baht per sqm?

I think like Benjie I will still be here in 8 years. But of course none of us can say anything for sure. Barring an act of god or other disaster I would still be visiting and have interests here, for sure, even if not living. and in 8 years, I would have enough money to have purchased another condo by then. I know "life savings" sounds big but think about my age and how long ive been working full time- not long at all in a normal human lifespan. Of course many people have more at this age and many people have less.

I am tired of throwing money away at rent (which is a sign I think I am not "temporarily" in thailand, I feel like I want to be the one receiving that rent money not the one providing it) and I am tired of worrying about what I would do if, tomorrow, I had a motorbike accident and my hands got mangled. Replace motorbike with any kind of activity and hands with any part of my body required for my earning power.

Say I put it in a savings account which is either locked for a period of time or not- this doesnt give me the security I seem to really want. If a condo is a more risky idea than I realised, then what else is going to provide security of the sort I mentioned? And this year, not in 5 or 10. Thanks again.

JT- appreciate your negative advice, its important to hear both sides. Ive never seen a rotting apartment though, does that really happen? Or will the whole city be underwater by then anyway?

Edited January 15, 2010 by OxfordWill

[Jingthing]

JT- appreciate your negative advice, its important to hear both sides. Ive never seen a rotting apartment though, does that really happen? Or will the whole city be underwater by then anyway?

Actually, yes, I have seen rotting units. This is the tropics. However, I was more talking about the common occurrence of the condo management going to pot and neglecting maintenance of the building that contains the units. Remember there are annual maintenance fees and many people don't pay them, and most people want to keep them very low which sounds good, but isn't. Of course sometimes the collections are OK, but the building is run by a mafia which steals the money and doesn't do the maintenance. This brings down the entire building. People's units may be diamonds but they are located within rotting wrecks. It is very expensive to repair/replace elevators, fix major damage, paint the entire exterior of the building periodically, etc. That of course, severely impacts potential resale values. Thais generally don't build condos for the ages, that is obvious to most everyone.

As far as Bangkok sinking, well smarter people than me believe that will happen by 2030. You might factor that into your choice of location if you do buy one.

Another investment option? If I were you, I would buy a diversified international stock market portfolio. I truly think this will be a better return for you considering your youth, over the long term than a condo in a tropical country with an unstable government. Actually much better. Up to you.

Edited January 15, 2010 by Jingthing

[OxfordWill]

When you put it like that... !

[emsfeld]

You've got some good advice here. Personally I do not agree with someone's statement saying that because you are still young, you should play safe. Quite the opposite in my opinion. The younger you are, the more risk you should take as time (value) is on your side. Just paint the worst case scenario - within the next 5 years you lose everything. You'll just be 31 yrs old, very employable with lots of experience under your belt. You can easily start over again. Now consider the same picture, but with you being 50 or 55. See were I am getting at? Your risk profile should change as you get older and you structure your portfolio accordingly. In simple terms, be more speculative while you are young, and more conservative when you are older.

I am not so familiar with BKK's high end condo market, but considering what has happened in USA, EU, UK I am not sure whether it's the best place to be. Sure, in good times, the turnaround times are quicker and returns higher than in the lower end, however, this segment also gets hit hardest during not so good times. I reckon, that prices came down by up to 30% per sqm at the higher end, but remained fairly stable at the lower end. In terms of rental yields, yes, they will be considerably higher in the upper end, however, I think you have much more idle time after a tenant moves out. I'd be interested to hear from other users how much their actual yield was when averaged over, say, five years rather than stating their best year.

We bought a condo late last years in the lower market segment (not for residential purposes). Had lots of viewings and were able to lease it out at the upper end of the price range, despite the bad times. Our strategy is to focus on areas that have good access to public transport and amenities, BUT are attractive to rather affluent Thais and foreigners alike (eg Sukhumvit area is a no-go for us; only for living there ourselves).

Given the average salary in BKK stands at roughly 35,000Bt/ month we positioned ourselves accordingly. In fact, we are thinking of getting in on the next one and weighed up the option of a trade up versus remaining in the segment we are in right now. We ultimately decided against it, as the rent we would have to charge would be roughly at the average monthly salary meaning your share of the market will be considerably smaller. You'd be mostly appealing to expats and being solely in that market is quite competitive. Thais who can afford 35k Baht a month rent, would purchase themselves rather than rent, I'd like to believe (also considering the extremely low mortgage rates here at the moment!).

Edited January 15, 2010 by emsfeld

[Jingthing]

I agree absolutely you must take big risks especially while young. I am older and still take big risks but that reflects my risk tolerance, which is massive. If you are in investments that keep you up at night, the risk it too much for you. However when looking for risks, the goal is potential BIG rewards. Sorry I don't see those as being very probable in the Bangkok condo market. I honestly think in Thailand it is best to think of housing as a consumer item, buy it to live in it, or rent it to live in it, that's it. It turns out a lot of people in the west now think they should have though of it that way before the crash. BTW, I think NOW is a superb time to buy USA real estate. So cheap, it can hardly go lower.

Edited January 15, 2010 by Jingthing

[emsfeld]

Agreed that there are no big rewards, but fairly stable yields at a bit over 7%. We are leveraged and have a stable tenant, so that works in our favour. I wouldn't want to buy outright to be honest, as (like you said JT) that kind of sum can be more profitably placed elsewhere (which requires also more time, effort and knowledge on the other side).

[trogers]

The younger you are, the more risk you should take as time (value) is on your side. Just paint the worst case scenario - within the next 5 years you lose everything. You'll just be 31 yrs old, very employable with lots of experience under your belt. You can easily start over again.

I am not so familiar with BKK's high end condo market, but considering what has happened in USA, EU, UK I am not sure whether it's the best place to be. Sure, in good times, the turnaround times are quicker and returns higher than in the lower end, however, this segment also gets hit hardest during not so good times. I reckon, that prices came down by up to 30% per sqm at the higher end, but remained fairly stable at the lower end. In terms of rental yields, yes, they will be considerably higher in the upper end, however, I think you have much more idle time after a tenant moves out. I'd be interested to hear from other users how much their actual yield was when averaged over, say, five years rather than stating their best year.

Seems there is contradiction here. First, more risk should be taken for higher expected return due to age.

Then, high end condo may not be the best position to take with its high risk and high returns...

[trogers]

It turns out a lot of people in the west now think they should have though of it that way before the crash. BTW, I think NOW is a superb time to buy USA real estate. So cheap, it can hardly go lower.

Sorry, cost of holding and maintaining residential properties in the US is too high. Property taxes, and the cheap lightweight stud walls...

[Jingthing]

It turns out a lot of people in the west now think they should have though of it that way before the crash. BTW, I think NOW is a superb time to buy USA real estate. So cheap, it can hardly go lower.

Sorry, cost of holding and maintaining residential properties in the US is too high. Property taxes, and the cheap lightweight stud walls...

Good point on the holding costs. The quality varies. I do think the long term potential is generally better there than Thailand in any case especially for foreclosure sales. The other plus is that foreigners can buy anything they want there, ha ha.

Edited January 15, 2010 by Jingthing

[bodegl]

I agree with some of the other posters. I'm new here but already I can see that if you don't like the risks of an uncertain government, don't like the risks of the ability to take money out of the country if you need to, don't like the risk of bodgy contruction or property maintenance, don't like the risk of the share market (someone suggested investing in a diversified share portfollio), then maybe you need to be looking at investing in a low end property in your home country where there's more stability. Sure that has additional problems such as relying on a property manager to do the right thing by you and depending on your situation (not sure of your home country), you may have some tax complexities, but investing in property in your home country might give you more peace of mind, especially if you still have family that can help keep an eye on it. Then you an use the rent from that property to fund your lifestyle over here.