Buying A Business In Thailand

[thai_time]

If someone was looking to buy a business in Thailand like a guesthouse or bar why is the price always given on a 3 or 5 year lease basis. I know that foriegners can not own a business outright but do Thais also operate in this way. Are bars and guesthouses ever just sold outright like in the west or does the owner usualy want to keep control of the property. For example if a Thai was buying a bar would they operate in the same way or could they just buy the business fully?

[rishi]

Usually, what you buy from the business owner is the business - and nothing but the business. In many cases the business owner doesn't own the space/building where the business is located.

So... when checking out a business, you consider to buy - don't ever pay any money until you've met the actual landlord and have secured that you don't get kicked out from the physical place, where your dearly paid business is located, one month later.

[Sunbelt Asia]

Are bars and guesthouses ever just sold outright like in the west or does the owner usualy want to keep control of the property.

Yes. We have over 75 businesses that now can be acquired with land and the building. Over 20 busineses were acquired last year with our services that had land and the building included.

For example if a Thai was buying a bar would they operate in the same way or could they just buy the business fully?

Many businesses have leases. The business owner rents the space.

When looking at a property with a business, the ROI will be much higher by renting than owning. For instance a restaurant I co-own makes 200,000 net per month. The investment was 4 million which gives a 60 % ROI. If I bought the shophouse it would cost 50 million baht and I would save rent of 255,000 baht per month. My net then would be 455,000 baht per month or around 11% ROI. But that doesn’t take in account capital appreciation. Real estate fluctuates on average 10% in a year so with this the standard deviation, this would be a return that year of 21% or if real estate went down 10%, just a 1% return. My great business that has a 60% ROI is more a real estate investment than a restaurant investment. Figure out how many restaurants I could invest in with that same 50 million and do the math. Renting simply makes more sense in this case.

If you are concerned about the lease and not being kicked out. It pays to have good advice.

We very seldom use the existing lease with the existing owner that allows an assignment or sublease,( in less than 2% of all cases.) If you do it, it is critical to look at the original lease if it allows subleasing you also need to make sure that the lease has clauses in it to protect you as the tenant.

Many people feel that an option of another 3 years lies with the tenant and an option is automatic. The option lies with both the landlord and tenant unless it’s been covered by a good lawyer with the clause already in the lease such as "As a material consideration for Tenant to enter into this Lease, Landlord hereby irrevocably covenants and offers to Tenant the right to extend.... "

The second choice is to do a long term lease ( from 3+years to 30 years) and the landlord pays 1.25 % on the total value of the lease. To avoid the tax, many landlords do a three year plus three year option instead of 6 years. Any lease longer than 3 years has to be registered at the Land Dept to be valid. However if you are willing to pay the tax then it should be no problem to get a long term lease from the Landlord.

www.lawyer.th.com

www.sunbeltasia.com