100% To 400% Return On Condo Investment?

[travellife]

I was trying to figure out how much these flippers are making by buying condos. Here is my guess, and why it is so prevelant now.

I made a simple example to illustrate the point. The returns will vary based on the negotiated discount and how the down-payment is paid. I just used a straightline method to make it simple. I used a 10% gap between investors, though it may be 8% or 12% but a nice size gap definitely exists today.

New condo lists for 5M baht

Invester negotiates 10% off. Price is 4.5M for the invester.

The condo will be ready in 20 months.

If the investor transfers the booking for the original price of 5M baht (10% gap), here is the return.

in 5 months = 400% return

in 10 months = 200% return

in 15 months = 133% return

in 20 months = 100% return

This type of frenzy usually lasts a few years. So the question is, how long has this been going on in Thailand?

[richardt1808]

The simple answer is : For years.

However your calculation is based on the assumption that the investor is able to successfully find a buyer when he is ready to turn his investment. There are numerous cases where developments run into problems prior to completion, such as revoked or illegal permits; or more tempting condos go up in the same area etc. Not all investors will be able to find alternative buyers... and if they cannot, the seller may end up doing the transfer at a reduced price. If he is unable to find a buyer, he may be encumbered with the full mortage since the original offer to purchase is binding.

It is a mathematical certainty that for every investor who manages to turn a profit on one of these deals, there is at least one other investor who makes a loss.

Edited August 1, 2010 by richardt1808

[HampiK]

There are no business where a win is guaranteed. As always, if there is someone who win money, then there have to be one who lose money.

If that would be that easy, many more people will do that.

[travellife]

The simple answer is : For years.

However your calculation is based on the assumption that the investor is able to successfully find a buyer when he is ready to turn his investment. There are numerous cases where developments run into problems prior to completion, such as revoked or illegal permits; or more tempting condos go up in the same area etc. Not all investors will be able to find alternative buyers... and if they cannot, the seller may end up doing the transfer at a reduced price. If he is unable to find a buyer, he may be encumbered with the full mortage since the original offer to purchase is binding.

It is a mathematical certainty that for every investor who manages to turn a profit on one of these deals, there is at least one other investor who makes a loss.

But flippers are looking for the fastest turning properties and those are the new 30+ story condo complexes. It doesn't appear anyone is losing money yet.

There are no business where a win is guaranteed. As always, if there is someone who win money, then there have to be one who lose money.

If that would be that easy, many more people will do that.

Most people don't do it because they are scared. The bold movers make the most money early on. They are the front-runners. Its the stragglers that lose money. That is why I was curious if this rapid pace of grow has been going on for 2, 4, or maybe 6 years. I've seen booms last 5 years.

Because real estate prices increase over time, there can be more winners than losers.

[trogers]

Most people don't do it because they are scared. The bold movers make the most money early on. They are the front-runners. Its the stragglers that lose money. That is why I was curious if this rapid pace of grow has been going on for 2, 4, or maybe 6 years. I've seen booms last 5 years.

Because real estate prices increase over time, there can be more winners than losers.

Same is being said in games of musical chairs...

[HampiK]

Because real estate prices increase over time, there can be more winners than losers.

This is not 100%. Have a look at US real estate prices... They are going down...

OK, i don't think that the prices in Thailand are too high same as in US, but i am not a professional.

[DonTron]

To me there are too many unknowns that I do not have control over...

- Current market conditions, will there be enough buyers willing to pay the price?

- Delay in project completion, this happens way too often that it goes 4-8 months over time.

My strategy is different. Wait until the project is completed and the units are being transferred. There are always owners and especially flippers who don’t have the cash to make final payment and risks losing everything back to the project owner/seller. That’s where I step in and often buy 10-20% below pre project price. I then furnish the condo and rent it out (I can manage both short and long term periods)

And let me tell you... there is nothing sweeter than those rent payments ticking in on the account month after month after month... Sure a unit might be vacant for a month, and yes it is slower cash since most of my rental units only yield 7-12% ROI - I could probably flip to much higher ROI, play the stock market or gamble at the craps table in Vegas. But I like this very steady, controlable almost passive income, and whether condo prices go up or down, I don’t care, and that makes me sleep like a baby every night

[PattayaParent]

What about exchange rates?

They will affect 'profit & loss"?

As will any financing costs if you bporrow the money overseas.

[Jingthing]

Real estate always goes up? I had to laugh at that one. I was seriously looking at a suburban townhouse in the US five years ago, at 110,000 USD. The same units are going now for as low as 35,000 USD. Look up the definition of speculation, it is a RISK.

[johnnyk]

Real estate always going up?

Lots of poeple in Arizona, Florida, Nevada, most of England beyond central London would like to hear that.

They need a good laugh.

[travellife]

To me there are too many unknowns that I do not have control over...

- Current market conditions, will there be enough buyers willing to pay the price?

- Delay in project completion, this happens way too often that it goes 4-8 months over time.

My strategy is different. Wait until the project is completed and the units are being transferred. There are always owners and especially flippers who don't have the cash to make final payment and risks losing everything back to the project owner/seller. That's where I step in and often buy 10-20% below pre project price. I then furnish the condo and rent it out (I can manage both short and long term periods)

And let me tell you... there is nothing sweeter than those rent payments ticking in on the account month after month after month... Sure a unit might be vacant for a month, and yes it is slower cash since most of my rental units only yield 7-12% ROI - I could probably flip to much higher ROI, play the stock market or gamble at the craps table in Vegas. But I like this very steady, controlable almost passive income, and whether condo prices go up or down, I don't care, and that makes me sleep like a baby every night

I wasn't initially aware of the frenzy in the new condo market. But after visiting a few places, it seemed that the speculation was high enough that there were more than enough buyers to keep the prices above the original project price.

Did you have to compromise on what you bought (lower floor with view being blocked, not an optimal size to live, etc) to get the 10-20% discount? I would think the higher floors with a view would have demand in this market.

[trogers]

Did you have to compromise on what you bought (lower floor with view being blocked, not an optimal size to live, etc) to get the 10-20% discount? I would think the higher floors with a view would have demand in this market.

Even flippers in the general public will have no chance in getting the choice units...

The directors of the development company usually get the first bites.

[travellife]

Because real estate prices increase over time, there can be more winners than losers.

This is not 100%. Have a look at US real estate prices... They are going down...

OK, i don't think that the prices in Thailand are too high same as in US, but i am not a professional.

Is there a site that talks just about bangkok real estate (in English). I wanted to get a feel of whether the frenzy is slowing down. It seems it isn't even close to ending since many condos are coming online and they are still selling strongly. And the taxi drivers are not asking people to buy condos yet.

I was asked by my Thai friend if they should buy a condo now to live in (wants to live in one of the new highrises). That is why I started researching the market. From what I see, it doesn't seem like a bad time. Usually the end of a frenzy will see large increases like 30%+ increases in price per year. So this may just be year 2 or a 5 year run.

As for the US, I would advise to buy as much as possible now. Interest rates are low and prices are low. That is where big big money can be made. Not here.

[Jingthing]

You're right about the US. It's like the great depression now. If you have cash, you are King. The thing to buy is foreclosed properties, pennies on the dollar. We are near the bottom, and long term you almost can't go wrong. There is so much distressed property though that it is stupid to buy a retail property these days.

Edited August 2, 2010 by Jingthing

[huawei]

Because real estate prices increase over time, there can be more winners than losers.

This is not 100%. Have a look at US real estate prices... They are going down...

OK, i don't think that the prices in Thailand are too high same as in US, but i am not a professional.

Is there a site that talks just about bangkok real estate (in English). I wanted to get a feel of whether the frenzy is slowing down. It seems it isn't even close to ending since many condos are coming online and they are still selling strongly. And the taxi drivers are not asking people to buy condos yet.

I was asked by my Thai friend if they should buy a condo now to live in (wants to live in one of the new highrises). That is why I started researching the market. From what I see, it doesn't seem like a bad time. Usually the end of a frenzy will see large increases like 30%+ increases in price per year. So this may just be year 2 or a 5 year run.

As for the US, I would advise to buy as much as possible now. Interest rates are low and prices are low. That is where big big money can be made. Not here.

went to buy at the hamptons soi 10 thonglor at 70k per sqm in 2004. No rush ( i thought) as the price at that time seemed excessive, went 3 days after the launch. Completely sold out, it was a massive shock to me, because 70k seemed outrageous at the time. Lakes on 18 same. Went back 6 months later one re-sale at 85k. As these are 2 bedroom, i presume not bought to flip. Anyway when did the market start becoming active for flippers soon thereafter. Market has gone crazy since.So based om the premise this is a 5 year cycle..we are in the frothy period.

[trogers]

You're right about the US. It's like the great depression now. If you have cash, you are King. The thing to buy is foreclosed properties, pennies on the dollar. We are near the bottom, and long term you almost can't go wrong. There is so much distressed property though that it is stupid to buy a retail property these days.

Problem in buying forclosed properties during a depression is that not only the property could have been badly kept, but the whole neighborhood is in ruins. You may not know the kind of neighbors you eventually end up with. And this will have a direct bearing on the future value of your property.

[Jingthing]

You're right about the US. It's like the great depression now. If you have cash, you are King. The thing to buy is foreclosed properties, pennies on the dollar. We are near the bottom, and long term you almost can't go wrong. There is so much distressed property though that it is stupid to buy a retail property these days.

Problem in buying forclosed properties during a depression is that not only the property could have been badly kept, but the whole neighborhood is in ruins. You may not know the kind of neighbors you eventually end up with. And this will have a direct bearing on the future value of your property.

You can inspect the property and neighborhood before buying.

[reefsurfah]

You're right about the US. It's like the great depression now. If you have cash, you are King. The thing to buy is foreclosed properties, pennies on the dollar. We are near the bottom, and long term you almost can't go wrong. There is so much distressed property though that it is stupid to buy a retail property these days.

Problem in buying forclosed properties during a depression is that not only the property could have been badly kept, but the whole neighborhood is in ruins. You may not know the kind of neighbors you eventually end up with. And this will have a direct bearing on the future value of your property.

You can inspect the property and neighborhood before buying.

Flipping doesn't happen unless someone else is willing to buy at 10-20% markup. The flippers normally go with the better condo units such as higher floor, more bedrooms, etc..where prospective buyers who didn't get in try to buy for whatever reasons. Suspect most flippers are from wealthy thai families, so they can hold and afford the condo if required. Better to put it in real estate vs a bank for them.

[HampiK]

Flipping doesn't happen unless someone else is willing to buy at 10-20% markup. The flippers normally go with the better condo units such as higher floor, more bedrooms, etc..where prospective buyers who didn't get in try to buy for whatever reasons. Suspect most flippers are from wealthy thai families, so they can hold and afford the condo if required. Better to put it in real estate vs a bank for them.

In the condos i checked, they book the better parts of rooms. But also i saw a lot booking of studios...

The fast money they can make is, because they only need to pay the booking fee (20'000 - 150'000) and then try to sell.

If they can resell the booking for 400'000 and only need to invest 100'000 it is a good salary.

If you have to wait till finish, then you need money (3M - 10M) and then 400'000 win is not so much anymore.

And for a condo of 7M, if you pay 300'000 more for a better floor, i think many people say.. it is only 300K. But then i have something i really like.

As some other already wrote.. if there aren't buyers, they also wouldn't be flippers.

[travellife]

went to buy at the hamptons soi 10 thonglor at 70k per sqm in 2004. No rush ( i thought) as the price at that time seemed excessive, went 3 days after the launch. Completely sold out, it was a massive shock to me, because 70k seemed outrageous at the time. Lakes on 18 same. Went back 6 months later one re-sale at 85k. As these are 2 bedroom, i presume not bought to flip. Anyway when did the market start becoming active for flippers soon thereafter. Market has gone crazy since.So based om the premise this is a 5 year cycle..we are in the frothy period.

Nice data. Thanks. Too bad there isn't a site here that shows selling prices. It would be much easier to trend. 2 bedrooms are being sold out in the new condo developments. There might be 4 per floor and those are bought by flippers pre-sale. The smaller sizes are usually the last to go (since they have more per floor). The Lad Phrao area is topping around 90k now.

You're right about the US. It's like the great depression now. If you have cash, you are King. The thing to buy is foreclosed properties, pennies on the dollar. We are near the bottom, and long term you almost can't go wrong. There is so much distressed property though that it is stupid to buy a retail property these days.

Problem in buying forclosed properties during a depression is that not only the property could have been badly kept, but the whole neighborhood is in ruins. You may not know the kind of neighbors you eventually end up with. And this will have a direct bearing on the future value of your property.

In the US, its best to buy in the neighborhoods with the best schools. The property cost is higher and the quality of the neighborhood is better.

[hhgz]

"Invester negotiates 10% off."

Your analysis is faulty at the very start.

[johnnyk]

I've got a wonderful bridge for sale.

It connects Oakland and San Francisco. You can get rich just by collecting the tolls.

I'll let it go for $5 million. Cash. Large bills. In a brown paper bag.

[hhgz]

"I've got a wonderful bridge for sale."

Will you accept an IOU?

I'd be interested in how the OP expects to make money, whether it's 500% or 5%. The OP believes that he can negotiate a 10% discount after a building is half-finished. Ha! Conveniently, he ignored the money required to secure a unit (commonly referred to as a "down payment"), and the monthly payments until he flips the unit. Perhaps he's the world's best negotiator and, not only will get a 10% discount, he'll negotiate he'll never make any payments - down, or periodic.

[Chunky1]

USA real estate is down 70% in some cities. lol.

[Pakboong]

You're right about the US. It's like the great depression now. If you have cash, you are King. The thing to buy is foreclosed properties, pennies on the dollar. We are near the bottom, and long term you almost can't go wrong. There is so much distressed property though that it is stupid to buy a retail property these days.

Article at the link below suggests the situation is not unique to the US.

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007092/reckless-europe-beats-reckless-america-at-property-bubbles/

[midas]

You're right about the US. It's like the great depression now. If you have cash, you are King. The thing to buy is foreclosed properties, pennies on the dollar. We are near the bottom, and long term you almost can't go wrong. There is so much distressed property though that it is stupid to buy a retail property these days.

Wildly inaccurate statement !

Why are all the lending institutions from coast to coast holding back from marketing

properties at or above $300,000 ? Do your research before making such a ridiculous comment !

Edited August 7, 2010 by midas

[wpcoe]

USA real estate is down 70% in some cities. lol.

A house I own in Riverside County, California -- sometimes considered Ground Zero for the sub-prime lending crisis -- was worth (i.e. could easily have sold for) $300,000 about three or four years ago. This time last year, identical houses in the gated community were not selling even though they were listed for $90,000. Prices have now "shot up to" about $100,000, and a few home sales have actually closed at that price level.

Luckily that house was purchased as a retirement home for my parents, so I have no plans to sell it, but had I bought it for an investment, YIKES!

I also read in the paper there (so consider the source), that the California banks have so many foreclosed homes that they can only release less than half of them on the market for sale/auction at a time. If they opened their entire portfolios of foreclosed properties, it would tank the entire economy. Again. No LOL...

[trogers]

USA real estate is down 70% in some cities. lol.

A house I own in Riverside County, California -- sometimes considered Ground Zero for the sub-prime lending crisis -- was worth (i.e. could easily have sold for) $300,000 about three or four years ago. This time last year, identical houses in the gated community were not selling even though they were listed for $90,000. Prices have now "shot up to" about $100,000, and a few home sales have actually closed at that price level.

Luckily that house was purchased as a retirement home for my parents, so I have no plans to sell it, but had I bought it for an investment, YIKES!

I also read in the paper there (so consider the source), that the California banks have so many foreclosed homes that they can only release less than half of them on the market for sale/auction at a time. If they opened their entire portfolios of foreclosed properties, it would tank the entire economy. Again. No LOL...

Good time for boutique builders - construct to order. Small outfits that network with designers and specialised tradesmen.

Large contractors cannot survive the drought of new construction that will last at least a decade.

Next property bubble peak would be 2025.