Building An Apartment Building

[leuven1]

My Thai wife and I are planning to aquire some land and build an apartment building for students. The rental income per unit will be about 2,500 Baht per month and the estimated project cost, incl. the land, about 12M baht.

I am looking for some lessons learned from other people who have succesfully build and managed one of these projects before. The estimates that I am getting for a build price / per room are about 8,000 Baht per square meter. For a basic design building of three floor, 30 rooms in total.

Appreciate the forum member's advice and guidance!

Thanks

[baht&sold]

I'm not a contractor, nor in construction so sorry I can't add much except to say, i find your business idea interesting. What area is the project in if i might ask?

For example, near to Bumrungrad in Bkk, amidst 'trendy' condos popping up all over (many under occupied or alive on fancy brochures only) my Thai neighbour just built a modest 5 storey apt bldng, all rented out instantly upon completion. His target market? 4500 baht rentals to Thai office workers and Bumrungrad staff. It was so successful, he's now started bldng #2.

I know another guy in Rayong doing something similar. His ROI looks great and he turned down many other offers to throw in with 'upscale housing developments'.

Btw, your projected capital 'basics' (12 mil), not including interest costs (if applicable, plus comparable to leaving 12 mil in the bank) plus tax, ongoing maintenance etc, etc, etc, at 75000 baht month total rental revenue, would take roughly 13 years (or likely much longer) to re-capitalise, raw and produce net income. Is that ok by you, or are you looking at the re-sale or longer hold? Just curious.

Will contact my friend in Rayong and see if he'll give some costs from his project, altho, relevancy may likely differ greatly. Good luck and keep us posted.

[stevehaigh]

Btw, your projected capital 'basics' (12 mil), not including interest costs (if applicable, plus comparable to leaving 12 mil in the bank) plus tax, ongoing maintenance etc, etc, etc, at 75000 baht month total rental revenue, would take roughly 13 years (or likely much longer) to re-capitalise, raw and produce net income. Is that ok by you, or are you looking at the re-sale or longer hold? Just curious.

<{POST_SNAPBACK}>

that's what i was thinking, that sounds like a really bad ROI.

[Digger]

The real profit in these sorts of apartments comes from loading electric and water charges. Imagine a real electric rate of some 3 baht a unit then increase the price to 8 baht a unit. Typical useage conservatively say 100 units a month (even more if the landlord is smart and adds in an electric water heater in the bathroom), then work out 500 baht per unit per month in electric surcharge * 30 units = 15,000 baht of which none will ever be declared or taxed on. Similar with water, although the return is not quite as large,(but more scope to fix the meter & charges) but you could figure on another 5,000 baht a month. So ontop of the rent, you have another 20,000 baht every month. Then there is the opportunity to hold onto security deposits etc - all in all it starts to add up. I even saw one place charging to park motorbikes, I think 50 baht a month - must have been 20 outside when I looked, so another 1,000 baht.

Also there is normally a food shop at the apt run by a family member, which is often very convenient for tenants to eat at, given that many of them do not have any cooking equipment of their own.

[leuven1]

I appreciate your comments! This is exactly the reason for my posting. I see hundreds of these buildings popping up all over the country. They seem to fill up nicely, so that is ok.

I have not yet figured out how the owners make money! Unless they are willing to take a very low margin and wait for a very long time.

I am looking outside Bangkok as the landprice in BKK makes the business case even more impossible. I am very interested to find out what I am missing! Most of the building being build have between 30 and 50 rooms, any building over three floors require a elevator to be installed, an additional 1M Baht in cost.

Hopefully someone in this forum can share the secret?

Thanks

[leuven1]

Excellent comments Digger!

[The_Other_Mac]

Rental of fridge/tv at 500 per month. Laundry (coin-op washing machines), drinking water vending machines, internet shop, minimart that's open late and happens to have a table outside and also delivers (alcohol+snacks) to their room. Don't give them a reason to spend a single baht elsewhere

(And for when they drunkenly spend all their money and can't pay the rent, be the first in on the loan-sharking and pimping. )

[think_too_mut]

My Thai wife and I are planning to aquire some land and build an apartment building for students. The rental income per unit will be about 2,500 Baht per month and the estimated project cost, incl. the land, about 12M baht.

I am looking for some lessons learned from other people who have succesfully build and managed one of these projects before. The estimates that I am getting for a build price / per room are about 8,000 Baht per square meter. For a basic design building of three floor, 30 rooms in total.

Appreciate the forum member's advice and guidance!

Thanks

<{POST_SNAPBACK}>

My experience is from a building close to BKK University(10 minutes walk), that's where we rent.

100 rooms, no kitchen in any, each room 42sqm. In some 3-4 students stay, sometimes more. Makes it affordable to Thais.

A good restaurant in there, catering for the students and to anyone in the rooms. Inexpensive and good food. Order by a local phone from the room, they bring it. After, just take the dishes and the tray outside the room, they collect it and no charge.

The nominal rent is 6K baht, then it goes up by the floor (from level 2 to level 10 goes up 4K baht).

Their trick (or tax dogging) is that the furniture must be rented. Beds, wardrobes, study desks, all built in , can't be removed. That cost 1500B monthly, regardless of the floor a room is located at.

Then, electricity and water charges mark-ups. Instead of 3 baht per unit of electricity, the price is 5 baht.

So, something that is 8K baht, easilly goes up to 15-16K around Songkran, when the aircons are used day and night.

I wanted to buy my room there - the office said 300K baht but nobody would sell.

Why anyone would - a 300K baht investment brings 10K per month return. In fact, I wanted to buy 10 rooms and a friend wanted another 20.

Get a good location near a Uni, feel free to make money, me thinks, you won't need much of luck with such an investment.

NB: the son of the owner has moved into one of the rooms, the young bloke could not resist seeing such a parade of Uni uniforms all thay round.

[solo siam]

About ROI, Your not taking into account that rents generally rise, probably at about 3-5% per year on average. Which should knock a few years of the ROI. Also if you factor in the real-estate rise in value it starts looking quite attractive.

[leuven1]

My sincere thanks for your input and suggestions.

One question remains: The estimated cost per square meter for a "standard" design building, ex-furniture. I was given a 8,000 Baht / meter estimate but if someone has better info, that would be much appreciated.

It is clear that this is a business that requires entrepreneurial skills beyond collecting rent, but the opportunities are endless. Creativity is what is needed.

Thanks to all

[think_too_mut]

It is clear that this is a business that requires entrepreneurial skills beyond collecting rent, but the opportunities are endless. Creativity is what is needed.

Thanks to all

<{POST_SNAPBACK}>

What creativity you need if you have a good location and the funds to erect the building near some University?

Huummm. 30 minutes to edit or zero my previous post have elapsed.

[solo siam]

8,000 baht a sqm sounds about right, You can build Western style houses here in Phuket for around 20,000 a sqm so it sounds around the right mark.

[Tomissan]

My sincere thanks for your input and suggestions.

One question remains: The estimated cost per square meter for a "standard" design building, ex-furniture. I was given a 8,000 Baht / meter estimate but if someone has better info, that would be much appreciated.

It is clear that this is a business that requires entrepreneurial skills beyond collecting rent, but the opportunities are endless. Creativity is what is needed.

Thanks to all

<{POST_SNAPBACK}>

Creativity is essential, as is the quality of materials & workmanship.

If you're building to western standards, i.e., grounded electrical, vented plumbing, p-traps in all bathrooms, solid wood doors for security and quality, supervised installation of concrete, steel, tile, roofing, etc.

Taking all the above into consideration I would plan on spending around 12k/m2 on up.

If you haven't built in Thailand before, watch out for the added costs for items, material, etc., that aren't in the plans and signed agreements......and especially monitor the materials being used, lots of tricks to increase profits...

good luck to you....

[Tomissan]

8,000 baht a sqm sounds about right, You can build Western style houses here in Phuket for around 20,000 a sqm so it sounds around the right mark.

<{POST_SNAPBACK}>

Ben,

@ 20k/m2 would that include a/c & cabinetry?

[Digger]

My sincere thanks for your input and suggestions.

One question remains: The estimated cost per square meter for a "standard" design building, ex-furniture. I was given a 8,000 Baht / meter estimate but if someone has better info, that would be much appreciated.

It is clear that this is a business that requires entrepreneurial skills beyond collecting rent, but the opportunities are endless. Creativity is what is needed.

Thanks to all

<{POST_SNAPBACK}>

Creativity is essential, as is the quality of materials & workmanship.

If you're building to western standards, i.e., grounded electrical, vented plumbing, p-traps in all bathrooms, solid wood doors for security and quality, supervised installation of concrete, steel, tile, roofing, etc.

Taking all the above into consideration I would plan on spending around 12k/m2 on up.

If you haven't built in Thailand before, watch out for the added costs for items, material, etc., that aren't in the plans and signed agreements......and especially monitor the materials being used, lots of tricks to increase profits...

good luck to you....

<{POST_SNAPBACK}>

I dont agree - what you want is to do it as cheap as possible - the target market paying couple of thousand baht a month for a room are only interested in two things. Price & location. Therefore keeping it simple and cheap is the way to go - Somehow I cant see anybody looking in this price range, saying, oh look its got a p-trap in the bathroom and grounded electrical connection - wow, this means its worth paying an extra 1,000 baht a month in rent. It will not happen at this price range - the only thing that would make a difference in the rent is fridge, aircon, TV and possibly an electric shower heater, although thats unlikely. Basically go for the cheapest of everything - thats the way to make money and then charge the tenant for replacing something that breaks. Dont even bother with a wardrobe - just some breeze block cemented over and then a steel rail from which to hang clothes.

[Tomissan]

Digger

I dont agree - what you want is to do it as cheap as possible -

Good advise Digger if you want to double the cost over the years by fixing & replacing and creating a lot of noise and upset tennants.

The idea of the P-trap in the bathrooms isn't asthetic, it's to eliminate gaseous & toxic fumes from coming back up from the septic and/or grey water tanks. It's not a law in the states for nothing.

Also, if outlets aren't grounded you risk getting electrical shock and the possibility of damaging electrical appliances, computers, etc., during electrical storms.

If you use cheap materials like paint and inferior tiles, grout, etc., you'll be redoing them over time and use and all the while disturbing everyone in the building with hammering, drilling, etc. "Cheap as possible" is slumlord attitude and contributes to the mass inferior construction attitudude of alot of builder's & owners to increase profit but not to the comforts of the inhabitants nor long term integrity. a quality you seem to be without according to your advise Digger, or quite possibly you enjoy the sound of drills, saws, etc., when you're at home trying to sleep late, watch a movie, listen to music or meditate.

I've lived in apartments, townhouses, single houses, etc., all around the Kingdom over the past 15 years and it's always the same thing, .....pounding (breaking out tile), drilling, sawing, loud workers, etc., etc. as a result from inferior "cheap' construction.

Unfortunaly there are no government inspector's in Thailand to ensure proper construction practices. I've been a builder all my life and sorry to say, but your attitude and advise sounds like it comes from someone with NO building experience at all....OR, you're a Thai builder...with..Makngai attitude...

Edited November 27, 2005 by Tomissan

[JRinger]

(Digger;

I dont agree - what you want is to do it as cheap as possible - the target market paying couple of thousand baht a month for a room are only interested in two things.  Price & location.    Therefore keeping it simple and cheap is the way to go - Somehow I cant see anybody looking in this price range, saying, oh look its got a p-trap in the bathroom and grounded electrical connection - wow, this means its worth paying an extra 1,000 baht a month in rent.   It will not happen at this price range - the only thing that would make a difference in the rent is fridge, aircon, TV and possibly an electric shower heater, although thats unlikely.   Basically go for the cheapest of everything - thats the way to make money and then charge the tenant for replacing something that breaks.    Dont even bother with a wardrobe - just some breeze block cemented over and then a steel rail from which to hang clothes.

<{POST_SNAPBACK}>

my two baht's worth....

I quite agree with Tomissan. I lived in south Jomtien for a long time and can't remember when there was a quiet day; usually sawing tile to replace on the balconies where the contractor obviously did a piss-poor job; and yes, the drilling early in the morning. It's a good thing they don't allow people to buy & own firearms. Perhaps your thinking is that the Thai students probably don't care about excess repair noise, water going down the drain, ruined computers, etc.

although, and I do agree that if your one and only concern is profit, "do it right the first time" or you will end up spending a lot more time and money in repairs if you go the cheapest way.....and also...my battery in my laptop was fried/ruined from blackouts....i.e., non grounded outlets....and one more thing.

The idea of pumping up the price on the electric & water isn't cool.

Edited November 27, 2005 by JRinger

[Digger]

Digger

I dont agree - what you want is to do it as cheap as possible -

Good advise Digger if you want to double the cost over the years by fixing & replacing and creating a lot of noise and upset tennants.

The idea of the P-trap in the bathrooms isn't asthetic, it's to eliminate gaseous & toxic fumes from coming back up from the septic and/or grey water tanks. It's not a law in the states for nothing.

Also, if outlets aren't grounded you risk getting electrical shock and the possibility of damaging electrical appliances, computers, etc., during electrical storms.

If you use cheap materials like paint and inferior tiles, grout, etc., you'll be redoing them over time and use and all the while disturbing everyone in the building with hammering, drilling, etc. "Cheap as possible" is slumlord attitude and contributes to the mass inferior construction attitudude of alot of builder's & owners to increase profit but not to the comforts of the inhabitants nor long term integrity. a quality you seem to be without according to your advise Digger, or quite possibly you enjoy the sound of drills, saws, etc., when you're at home trying to sleep late, watch a movie, listen to music or meditate.

I've lived in apartments, townhouses, single houses, etc., all around the Kingdom over the past 15 years and it's always the same thing, .....pounding (breaking out tile), drilling, sawing, loud workers, etc., etc. as a result from inferior "cheap' construction.

Unfortunaly there are no government inspector's in Thailand to ensure proper construction practices. I've been a builder all my life and sorry to say, but your attitude and advise sounds like it comes from someone with NO building experience at all....OR, you're a Thai builder...with..Makngai attitude...

<{POST_SNAPBACK}>

Seems like I have hit a raw nerve here

My comments were relating to building cheap 2,000 baht a month rooms for rent - I stand by that post that a Thai landlord will NOT offer these bells & whistles at this price range for the simple reason, that the tenants are not expecting or demanding them. Therefore they see no need to spend more money and do it properly.

All your points are spot on - in an ideal world, they should be standard, but the crux of this is that the average Thai will not pay extra for it in this price bracket. Now of course, there are plenty of apts that do have these features, however they are not for rent at 2,000 baht a month. The original poster is interested in maximising his gain in this price range. Do you really think a landlord is going to care if she upsets her 2,000 baht a month tenants by drilling and fixing things, of course not. They think only of maximising money today and have little thought about what tomorrow will bring. If you have been here 15 yrs I would have thought you would have realised that by now.

[Digger]

(Digger;

I dont agree - what you want is to do it as cheap as possible - the target market paying couple of thousand baht a month for a room are only interested in two things.  Price & location.    Therefore keeping it simple and cheap is the way to go - Somehow I cant see anybody looking in this price range, saying, oh look its got a p-trap in the bathroom and grounded electrical connection - wow, this means its worth paying an extra 1,000 baht a month in rent.   It will not happen at this price range - the only thing that would make a difference in the rent is fridge, aircon, TV and possibly an electric shower heater, although thats unlikely.   Basically go for the cheapest of everything - thats the way to make money and then charge the tenant for replacing something that breaks.    Dont even bother with a wardrobe - just some breeze block cemented over and then a steel rail from which to hang clothes.

<{POST_SNAPBACK}>

my two baht's worth....

I quite agree with Tomissan. I lived in south Jomtien for a long time and can't remember when there was a quiet day; usually sawing tile to replace on the balconies where the contractor obviously did a piss-poor job; and yes, the drilling early in the morning. It's a good thing they don't allow people to buy & own firearms. Perhaps your thinking is that the Thai students probably don't care about excess repair noise, water going down the drain, ruined computers, etc.

although, and I do agree that if your one and only concern is profit, "do it right the first time" or you will end up spending a lot more time and money in repairs if you go the cheapest way.....and also...my battery in my laptop was fried/ruined from blackouts....i.e., non grounded outlets....and one more thing.

The idea of pumping up the price on the electric & water isn't cool.

<{POST_SNAPBACK}>

But who had to replace the battery - you or your landlord? The answer is obvious - its down to you, so no loss for the landlord. You move out, someone else will move in and landlord probably retains most or all of your deposit for 'things gone missing/broken" no doubt most of which were never in the apartment in the first place, such as a plug in the sink, hangers in the wardrobe, damage to the door that you never noticed in your hurry to move in. Countless ways in which landlords can and do maximise revenue. Now the average uneducated Thai, who has already given the 4,000 baht or two month deposit, gets back 1,500 baht - what are they going to do about it? Thats right they have to accept it - 2,500 baht whilst a lot to them is not exactly going to have colonel somchai hot footing it round from the local police office to investigate this horrible crime, given that the complainant is a relative nobody going up against someone who has been able to afford to build a apartment building. No brainer but thats the way it is.

Price hiking for utilities is commonplace all over Thailand - it is not a farang thing, I am just stating that its another source of revenue.

[Heng]

Gotta say Digger is pretty much spot in regards to the status quo. You can still do cheap with quality built in. It doesn't have to be bare bones with -10% building overload, no elevator, with tin cans instead of bricks in the walls.

And on the landlord side, it's not an absolute that it's us ripping the tenant off. At this rent level, a lot of the folks indeed do a lot of damage just by the way they live. A good % of their time drinking and fighting. The brand of fighting they engage in is often of the sort where dishes, pots, knives, and people themselves are projectiles. This takes its toll on the room, apartment, or whatever in question. Unrelated to apartment damage but you might want to know that you also have a decent % of having to deal with onsite murders, drug arrests, etc. in this business.

Also, for those who've never been landlords, it's not just sitting in your air conditioned office watching the rent pile up when you refresh your bank account online. It's SUPER management intensive if you're going to manage it yourself and still a minor headache even if you have relatives/managers running the show.

If you want to try your luck and skill... before building that 10-15 million Baht 5 story building with 60 rooms, start by buying 1 or 2 apartments and try managing them first. Plenty of stuff available from the banks in the 200-300k Baht range. Take it slow and easy. Practice makes perfect. Don't fall into the bitter falangs club with the "I'm going to build a better/more beautiful/higher quality _____ and run it better than the locals, nevermind that I've never done this before, just like back home" mindset.

[Ijustwannateach]

Kudos, Heng, for the good advice. A T-Ch friend of mine's building a place now and it's no picnic for him, that's for sure.

[Dakhar]

Growning up, my father ownd 27 rent houses, and every weekend, every holiday, and every vacation was spent fixing something.

That being said, if you build to Thai standards, with solid interior walls, no AC, no Hot water Heaters, you have decreased the amount of things that can go wrong. But let me share just one quick headache I have already ran into.

My wife calls, and says, one of the walls are dirty in one of the town houses, and she can have the worker re-paint the wall... or do you want to wait until you are here to over see the work? My response is, do you have the original paint or color code?

Her response is.....

The worker said, "Pink is Pink, so it does not matter."

OK two questions:

A) Why on earth was pink paint used in the first place?

Is this worker color blind?

Oh welcome to Thailand.

[Khun ?]

$20K a year profit and 10 or more years to get your money back on a crumbling building don't sound so good. That is putting up with 50 or more teenage kids ( most will be at least double occupancy).

Let the bank account pay you $15K a year with no headaches and

cash available at all times. A good investment advisor can get you better than the $20K a year on the $300K you are talking about.

Everybody and his brother seems to be into the thai real estate market

now days.

[Dakhar]

Khun

You have some valid points.

[leuven1]

Dear all

I have read all your responses with great interest! The original question started of as one related to finance but some very valid points have been raised in the "lessons learned" category.

The single most important goal in my investment strategy is to generate multiple sources of income. I have two other single unit properties which generate decent returns but the risk of loosing a single tenant (and income source) is high, hence the concept of spreading that risk through an investment into a multi-unit property.

Somewhere between the apartment building, or a hotel, and a single unit property (house or condo), must be a great investment just waiting to be discovered! Do mini malls make more money than an apartment building? Again, my goal is to generate income, not an increase of the principle investment amount.

The bank route is not very attractive to me as the returns are max at 5% or 6%. Investing in the stock market does not generate an income, only capital gains.

[TizMe]

Investing in the stock market does not generate an income, only capital gains.

Do you honestly believe this? Look up the word "Dividend".

dividend:

    A share of a company's net profits distributed by the company to a class of its stockholders. The dividend is paid in a fixed amount for each share of stock held. Although most companies make quarterly payments in cash (checks), dividends also may be in the form of property, scrip, or stock. Unlike interest on a debt, dividends must be voted on by the company's directors before each payment.

[Dakhar]

The problem I have with investing in the stock market is...

I don't understand it at all! I hate to admitt my stupidity, but it is true.

Realestate, I have a stronger grasp of due to growing up and helping out with my fathers single unit rental properties. I like the fact that in Thailand you can decrease the amount of maintainence problems by building to your market standards. But I don't mean slum standards, my basic rule of thumb is... If I would not live there, then I don't want to have it built that way.

Such as a gas trap in the shower. No I don't want to smell that, so I would not ask my renters to do smell it either. To add a trap would maybe add 2 USD to each unit, no big deal.

[leuven1]

Of course there are dividend payments.

But, if I can choose between a steady income, controlled by me, out of real estate versus depending on a dividend payment, of almost nothing, not controlled by me, I choose real estate any time.

Just my opinion.

[jonik]

For this price you could get a pretty good seaside appartment.12 mbth makes 400kbth pr room for 2500 a month. Makes a downpaiment for 13,3years. If you buy used condoes for 150kbth you're down to 3-4 years.The advance with appartments all over is the better spread location for rent purpose.The downside is to collect the rent. If you're building for 12mbth you should make an hotel for tourists or build bigger apartments for sale, it's only my opinion.

[TizMe]

Of course there are dividend payments.

But, if I can choose between a steady income, controlled by me, out of real estate versus depending on a dividend payment, of almost nothing, not controlled by me, I choose real estate any time.

Just my opinion.

Well I will choose dividend payments every time.

In the past I have owned a number of properties which were rented out. I have now off loaded them all and re-invested the money into the stock market.

No real estate agents to deal with.

No repairs and tradesmen to deal with.

No tenants to deal with.

No vacancy periods to deal with.

Zero out going fees after initial purchase.

Just a portfolio of 20 different companies that provide a steady income stream that has increased on average 27.3% per annum over the last 5 years and nearly tripled in value over the same period.

I am not an expert trader by any means, but I have bought stock in well managed companies at fair value and am holding for the long term.

But, if I can choose between a steady income, controlled by me, out of real estate

The income from dividends is steady, each company has a calendar of payment dates (usually twice per year). The income from rentals is far from steady and predictable because you never know when your expenses are going to be incurred.

Repairs and tenant vacancies always seem to occur at the least oportune time.

Edited November 30, 2005 by TizMe