Buying A Cheap Condo For Rental Income - I'm Still Not Seeing The Math.

[bangkokburning]

There are a few people on the board who are buying cheap condos to let.

In this current market, I do not see how this is profitable or even works. My misgivings are based on assumptions so if the guys who are doing tbis could clarify a bit.

I might add that I really appreciate trogers, jean and bpbertha's input on the board.

Here is an example:

Condo found and paid for: 600k

I have read that the return on tbis should be within ten years which I find highly dubious. Maybe 12 for Thailand. 12 years is the softer number, so lets play with that. 600k / 144mos is roughly b4,200. My hunch is that you would be hard pressed to rent this place out for more than that.

If you use 10 years, it seems to become quite impossible. So are you using a longer timeframe than others suggest?

Thanks

[rgs2001uk]

Welcome to the internet where people can make whatever claims they like, often with no details to back up those claims.

They come from all over, real estate experts from, California, Florida, Australia, the UK, each and everyone thinking the Thai property market is the same as back home in farangland, well guess what it aint.

I have read on these very forums, rental rates of 1/100 the purchase price, in the real world the rate is probably 1/200, anyone making over 6% per year is doing exceptionally well.

Yes these older properties are out there, less than 400k baht will give you a rental rate of say 3500 baht per month, you are paying tax on all those rentals arent you?

The problem is, these condos never seem to increase in value, I know condos that have been the same price for at least the last 5 years, heaven help you should you ever need to sell these condos, they shift very slowly

[PattayaPhom]

Many will take much longer than 12 years, do your DD and you can find those will give a return of 10% p.a and some even more

[54321]

Have never seen (to my knowledge) a 600k condo. I prefer off plan with decent developers. On average the capital appreciation over the first 2-3 year is worth a lot more than the rental income over the corresponding time period.

Good luck with what you do, and in my view if you can buy a 600k baht condo or a 6 million baht and it pays for itself (through rental income) in 10 or 12 years, then why not?

[rgs2001uk]

Many will take much longer than 12 years, do your DD and you can find those will give a return of 10% p.a and some even more

do your DD and you can find those will give a return of 10% p.a and some even more

Is this some sort of arcane or esoteric knowledge known only to the chosen, please give me examples in Thailand where such returns are available, especially more than 10% p.a.

Yes I have read the adverts that used to litter the Highway to Pattaya making all sorts of promises, but to date have never met anyone able to achieve such returns, perhaps you could enlighten us.

[isawasnake]

Isn't the general principle for renting a condo to secure a source of monthly income? I don't think worrying about whether it will be 10 or 12 years is really doing you any good. I think it is more about if you feel the investment is warranted by the 4200 a month. Anyway, I'll let more qualified people give the real advice

One last note though, it seems the way to go is to always be in the market to buy. That way, deals and motivated sellers can be found, which I am sure would bring you closer to your mentioned 10 year mark, even below it. This would be opposed to saying "ok, i'm buying a condo soon". Big difference between those two. I would venture to say the successful investors are the ones who are always in the market and looking for a deal, and who crunch the numbers (including maintenance fees + things like empty months) and make offers based on them.

[johnnyk]

Don't forget they cost money to own and maintain.

[bangkokburning]

But my sincere question to the board is how it makes financial sense. OK so not 10 or 12 - I also think.that is aggressive, but surely the condo should be paid off over 15yrs = to rent? No, not appreciation, that is not only unknown but quite possibly the reverse may be true, depreciation. Empty months in the equation is simoly a deal.breaker.

DD property using a metric of even 20yrs is often fantasy. Seems like anything with potential has some broker and a silly price.

I think Thai condo owners are not very financially sophisticated. They take a 25yr loan on a box and only look at the monthly paymrnt. TV investors I see as very different.

There is a condo near me, they want 2.4m. Claim condo will rent for 14k, I don't see it going for more than 10k and that would be disregarding proximity to large toad and fact it gets full afternoon sun. Add to this taxes, monthly fees. I'm not seeing it.

Im not in the market for a 600k condo, just an example. The % ratio return might be better around 1.5m Indont know, bit the guys buying condosn to let on this board seem mainly to.believe the target is the bottom end.

Using a metric of 15yrs, condos are overpriced by 50% or more but I am eilling to admit thits is the nature of the Asian market where premium is applied to land.

I don'tbsee how "being ready to buy" makes any difference. Math is math. Can anyone help me understand how any unit can be paid off inn12yrs rent in this market (with a ton, simply a ton of condos coming to market)? Thanks.

PS this is honestly important to me, my wife is quite a bit younger than me and I want to know she is safe and situated when I head on down to the fire below.

Edited May 26, 2013 by bangkokburning

[PattayaPhom]

Many will take much longer than 12 years, do your DD and you can find those will give a return of 10% p.a and some even more

do your DD and you can find those will give a return of 10% p.a and some even more

Is this some sort of arcane or esoteric knowledge known only to the chosen, please give me examples in Thailand where such returns are available, especially more than 10% p.a.

Yes I have read the adverts that used to litter the Highway to Pattaya making all sorts of promises, but to date have never met anyone able to achieve such returns, perhaps you could enlighten us.

One example, Pattaya Condochain, bought 2 years ago 630,000 spent 60k on refurb has rented at 7,500 per month with only a 2 week break. Do the maths and get back to me with %

[Jasun]

There's little capital appreciation in apartments, but there has been 10-15% relative growth with the rising baht. In any case, I'd take a 6% yield on an investment property any day.

[Khun Jean]

The cheaper the condo the better the return.

Less then 10% roi is not interesting so that means 99% of all condo's for sale are not interesting.

The trick is to find the 1%. When you take time, like i did over the last 11 years it is possible to build up your assets.

Targeting the Thai workforce instead of the tourist/would be expat ensures occupation rates that are close to 100%.

If you want to target foreigners, start a hotel.

[bangkokburning]

Jean - Interesting. So you, the condo king believe that only 1% of condos that properly valued in this market. That these may not be even something that one would want to live in, but the return on the rental makes it a valid investment.

Thanks.

[PattayaPhom]

Jean - Interesting. So you, the condo king believe that only 1% of condos that properly valued in this market. That these may not be even something that one would want to live in, but the return on the rental makes it a valid investment.

Thanks.

It seems your mind was already set befor your 1st post so anything that is posted and dosnt agree with your preffered 3 members is not going to make any difference. Yes 99% of condos in Thailand are overvalue

[impulse]

Jean - Interesting. So you, the condo king believe that only 1% of condos that properly valued in this market. That these may not be even something that one would want to live in, but the return on the rental makes it a valid investment.

Thanks.

It seems your mind was already set befor your 1st post so anything that is posted and dosnt agree with your preffered 3 members is not going to make any difference. Yes 99% of condos in Thailand are overvalue

Unless you have some rather dirty money that needs to be cleaned up a little bit. But then the ROI doesn't really count, does it? If your "I" is money you can't use otherwise, and you don't give out receipts to renters that would trigger any scrutiny, it's all good.

Aside from that, I think the 99% figure is probably a good one to live by. It may be lower, may be higher, but scrutiny and skepticism here are good things.

And I love the way some folks figure that 120,000 annual rent on a 1,000,000 condo is a 12% return without factoring in regular maintenance, reserves for the big stuff, depreciation (or appreciation, but things seem to go downhill in this "climate"), their time and effort, insurance, management fees, and the risks involved.

Kind of like the day trader that works all day, every day to make $500 a week and claims his ROI is great.

[isawasnake]

But my sincere question to the board is how it makes financial sense. OK so not 10 or 12 - I also think.that is aggressive, but surely the condo should be paid off over 15yrs = to rent? No, not appreciation, that is not only unknown but quite possibly the reverse may be true, depreciation. Empty months in the equation is simoly a deal.breaker.

DD property using a metric of even 20yrs is often fantasy. Seems like anything with potential has some broker and a silly price.

I think Thai condo owners are not very financially sophisticated. They take a 25yr loan on a box and only look at the monthly paymrnt. TV investors I see as very different.

There is a condo near me, they want 2.4m. Claim condo will rent for 14k, I don't see it going for more than 10k and that would be disregarding proximity to large toad and fact it gets full afternoon sun. Add to this taxes, monthly fees. I'm not seeing it.

Im not in the market for a 600k condo, just an example. The % ratio return might be better around 1.5m Indont know, bit the guys buying condosn to let on this board seem mainly to.believe the target is the bottom end.

Using a metric of 15yrs, condos are overpriced by 50% or more but I am eilling to admit thits is the nature of the Asian market where premium is applied to land.

I don'tbsee how "being ready to buy" makes any difference. Math is math. Can anyone help me understand how any unit can be paid off inn12yrs rent in this market (with a ton, simply a ton of condos coming to market)? Thanks.

PS this is honestly important to me, my wife is quite a bit younger than me and I want to know she is safe and situated when I head on down to the fire below.

Being ready to buy at any time would just give you a better chance to buy low is all I was saying.

[market trader]

Jean - Interesting. So you, the condo king believe that only 1% of condos that properly valued in this market. That these may not be even something that one would want to live in, but the return on the rental makes it a valid investment.

Thanks.

It seems your mind was already set befor your 1st post so anything that is posted and dosnt agree with your preffered 3 members is not going to make any difference. Yes 99% of condos in Thailand are overvalue:lol:

99% of houses also

[rgs2001uk]

Many will take much longer than 12 years, do your DD and you can find those will give a return of 10% p.a and some even more

do your DD and you can find those will give a return of 10% p.a and some even more

Is this some sort of arcane or esoteric knowledge known only to the chosen, please give me examples in Thailand where such returns are available, especially more than 10% p.a.

Yes I have read the adverts that used to litter the Highway to Pattaya making all sorts of promises, but to date have never met anyone able to achieve such returns, perhaps you could enlighten us.

One example, Pattaya Condochain, bought 2 years ago 630,000 spent 60k on refurb has rented at 7,500 per month with only a 2 week break. Do the maths and get back to me with %

Well thanks for taking the time to reply with facts (its more than most do), and yes your maths looks ok to me.

I dont understand the point of this thread, maybe I am thick and missing something.

What does the OP want us to tell him, what info is he seeking, where is he looking to buy, whats his target audience Thais or farang?

The Thai property market is what it is, so forget about back home wherever that may be.

[bangkokburning]

I am just generally interested how the purchase of a condo csn be considered not even an investment but simply a worthwhile purchase for home ownership.

Right now, most condos are priced into the stupidsphere. Prices are not matched to rents, even in the same buildings. Of course renting and buying are very different on many levels but on one they are identical - a roof over ones head.

Add to this all the issues of condo ownership.

Its a personal question about ROI, Ive got no stake in the game, point to make or axe to grind.

My take away (from Jeans post) is....in this market, you can find a cheap property (not an expensive property) in which the numbers work. You must be ever vigilant and constantly searching. These flats might not meet any farang standard (!) But are bought to rent to Thais.

[commande]

My opinion, there are other investments you could make and get a better ROI than purchasing a condo to rent out in Thailand. The people that make the most money on real-estate are the construction companies and the real-estate agents selling the condos. Lot of people try and purchase off-plan units with full intention of reselling when construction is near or completed they are even sometimes successful. This so called "Flipping" as it's called where I come from was a great business to be in many years ago but I don't think so anymore. Here in Pattaya there are so many units for sale that an auction house has been engaged to try and sell of some units, they claim that there are over 36,000 units in Pattaya for sell (not rent) and they are still building condos here.

People have made money, some people are still making money but I would suggest that this 1% are either lucky or very astute business men that really know what they are doing.

Edited May 27, 2013 by commande

[rgs2001uk]

I am just generally interested how the purchase of a condo csn be considered not even an investment but simply a worthwhile purchase for home ownership.

Right now, most condos are priced into the stupidsphere. Prices are not matched to rents, even in the same buildings. Of course renting and buying are very different on many levels but on one they are identical - a roof over ones head.

Add to this all the issues of condo ownership.

Its a personal question about ROI, Ive got no stake in the game, point to make or axe to grind.

My take away (from Jeans post) is....in this market, you can find a cheap property (not an expensive property) in which the numbers work. You must be ever vigilant and constantly searching. These flats might not meet any farang standard (!) But are bought to rent to Thais.

Right now, most condos are priced into the stupidsphere

Depends where you are looking.

Prices are not matched to rents

Why should prices be matched to rents?

They are priced at what someone thinks buyers are willing to pay.

Its a personal question about ROI

What are you looking for, regular income or capital appreciation?

As another poster pointed out, yes these 1/100th properties can be found.

Some invest in properties, some the stock market, some buy gold and others trade currencies.

One thing I have learned, if you dont understand it dont touch it.

Still waiting for the property bubble/crash the merchants of doom have been talking about for the last 5 years, most seem to be from the disgruntled who now can no longer afford to buy due to a fiat currency, the west is in decline, Asia steamrolls on ahead.

Take your pick and back your fancy.

[trogers]

Prices are not matched to rents

Why should prices be matched to rents?

They are priced at what someone thinks buyers are willing to pay.

And this is the reason why prudent investors will only buy into the market when "the lemmings are heading the other way", when prices fall due to a lack of buyers.

Location, location, location...the golden rule in real estate investment. When the property can be easily rented out with an attractive rental yield, it can also be sold easier.

[bangkokburning]

Thanks trogers, aleays value your opinion.

Appreciation? I can't beleive someone would buy property (anywhere) especially at this moment in history and factor in "appreciation". In Thailand seems like just as much depreciating force is working against you. Not daying that units can't or don't appreciate. Just think its pure folly to assume that they will, even more so to put a number on it as a rationale and factor for "investment".

I bet condos hide huge pools of black money in this country. Not so concerned about rental income or returns.

All the building now, cannot possibly see how the local Thai can abdorb these units at asking prices. Im seeing signs everywhere of cracks...

Condos in.buildings now being aggressively rented with signage

Signage with markdowns of substsntial "savings"

Giveaways...iPhones to automobiles

They will do absolutely anything and everything - except simply offer units at fair market.

And they build more and more because money, labor and materials are cheap. Yes money, you don't think for a second theybare borrowing for 30yrs at 7% do you??!

But whatever the loan rate, how can developers stay afloat selling less than have if the business? Maybe its just a break even game now. The rest are rented and sold whenever. So like the noodle vendor in.the street, everyone in Thailand suffers with low profit margins.

Edited June 1, 2013 by bangkokburning

[commande]

Thanks trogers, aleays value your opinion.

Appreciation? I can't beleive someone would buy property (anywhere) especially at this moment in history and factor in "appreciation". In Thailand seems like just as much depreciating force is working against you. Not daying that units can't or don't appreciate. Just think its pure folly to assume that they will, even more so to put a number on it as a rationale and factor for "investment".

I bet condos hide huge pools of black money in this country. Not so concerned about rental income or returns.

All the building now, cannot possibly see how the local Thai can abdorb these units at asking prices. Im seeing signs everywhere of cracks...

Condos in.buildings now being aggressively rented with signage

Signage with markdowns of substsntial "savings"

Giveaways...iPhones to automobiles

They will do absolutely anything and everything - except simply offer units at fair market.

And they build more and more because money, labor and materials are cheap. Yes money, you don't think for a second theybare borrowing for 30yrs at 7% do you??!

But whatever the loan rate, how can developers stay afloat selling less than have if the business? Maybe its just a break even game now. The rest are rented and sold whenever. So like the noodle vendor in.the street, everyone in Thailand suffers with low profit margins.

1 year Bond yields in Thailand where paying 3% a while back... So lets see, 10% or 15% NET yield on a condo over 10 years is still less than what you would make on your money sitting in a bank account collecting interest and that's in a perfect world; 10 Years at 3% per year in a bond, you do the math and you don't have to sell anything or worry about damages or renters when you want to cash out. Other investments pay even higher. Bottom line you don't make any money till the you realize a net gain after investment repayment or leveraged reinvestment profits off the asset, so unless you rent the condo out for whatever amount of time and then at least sell it for what you paid to include maintenance cost you lose; most people do and will never admit it. Real estate is a very long term investment and my opinion right now valueless unless commercial at least in Thailand.

People that own a few condos always think they are making money when it's rented out but fail to realize how much money in cash they paid up front to realize a very low and inconsistent rental return. They then after a few years realize they aren't making any money and try to sell to find that they can't sell fast for the money they spent and then they discount and go negative on the investment. It's a 1% game at this time, 1% win based on luck, timing, or they are just really good at playing the game which is a very rare person and even they loose sometimes.

I might add one of the additional risk of buying a new condo is that the original builder by law only has to maintain it for 2 years after construction is completed, after that they sell off the maintenance management to the lowest bidder for continued maintenance and then the property slowly goes downhill because the Thai maintenance company just takes all the money, they pay themselves first and then what is left over maintain the property. Lot of people won't pay their maintenance fees, mostly the Thai's which represent 51% of the units sold due to the owners based on the law in Thailand. This is why when you look at used condos the area looks run down, people don't take care of things here like they do in the West, they just look at it from a revenue standpoint and the people coming here to rent are looking for cheap, majority anyway so there is no incentive to maintain the units at a quality western standard.

Edited June 2, 2013 by commande

[bangkoklad1]

Thanks trogers, aleays value your opinion.

Appreciation? I can't beleive someone would buy property (anywhere) especially at this moment in history and factor in "appreciation". In Thailand seems like just as much depreciating force is working against you. Not daying that units can't or don't appreciate. Just think its pure folly to assume that they will, even more so to put a number on it as a rationale and factor for "investment".

I bet condos hide huge pools of black money in this country. Not so concerned about rental income or returns.

All the building now, cannot possibly see how the local Thai can abdorb these units at asking prices. Im seeing signs everywhere of cracks...

Condos in.buildings now being aggressively rented with signage

Signage with markdowns of substsntial "savings"

Giveaways...iPhones to automobiles

They will do absolutely anything and everything - except simply offer units at fair market.

And they build more and more because money, labor and materials are cheap. Yes money, you don't think for a second theybare borrowing for 30yrs at 7% do you??!

But whatever the loan rate, how can developers stay afloat selling less than have if the business? Maybe its just a break even game now. The rest are rented and sold whenever. So like the noodle vendor in.the street, everyone in Thailand suffers with low profit margins.

1 year Bond yields in Thailand where paying 3% a while back... So lets see, 10% or 15% NET yield on a condo over 10 years is still less than what you would make on your money sitting in a bank account collecting interest and that's in a perfect world; 10 Years at 3% per year in a bond, you do the math and you don't have to sell anything or worry about damages or renters when you want to cash out. Other investments pay even higher. Bottom line you don't make any money till the you realize a net gain after investment repayment or leveraged reinvestment profits off the asset, so unless you rent the condo out for whatever amount of time and then at least sell it for what you paid to include maintenance cost you lose; most people do and will never admit it. Real estate is a very long term investment and my opinion right now valueless unless commercial at least in Thailand.

People that own a few condos always think they are making money when it's rented out but fail to realize how much money in cash they paid up front to realize a very low and inconsistent rental return. They then after a few years realize they aren't making any money and try to sell to find that they can't sell fast for the money they spent and then they discount and go negative on the investment. It's a 1% game at this time, 1% win based on luck, timing, or they are just really good at playing the game which is a very rare person and even they loose sometimes.

I might add one of the additional risk of buying a new condo is that the original builder by law only has to maintain it for 2 years after construction is completed, after that they sell off the maintenance management to the lowest bidder for continued maintenance and then the property slowly goes downhill because the Thai maintenance company just takes all the money, they pay themselves first and then what is left over maintain the property. Lot of people won't pay their maintenance fees, mostly the Thai's which represent 51% of the units sold due to the owners based on the law in Thailand. This is why when you look at used condos the area looks run down, people don't take care of things here like they do in the West, they just look at it from a revenue standpoint and the people coming here to rent are looking for cheap, majority anyway so there is no incentive to maintain the units at a quality western standard.

Excellent point.

I bought a condo in BKK and having this issue now. Price, ROI is all ok from what I see in Bangkok but this is the one issue that keeps me from buying again in BKK

[cheeryble]

.

I might add one of the additional risk of buying a new condo is that the original builder by law only has to maintain it for 2 years after construction is completed, after that they sell off the maintenance management to the lowest bidder for continued maintenance and then the property slowly goes downhill because the Thai maintenance company just takes all the money, they pay themselves first and then what is left over maintain the property. Lot of people won't pay their maintenance fees, mostly the Thai's which represent 51% of the units sold due to the owners based on the law in Thailand. This is why when you look at used condos the area looks run down, people don't take care of things here like they do in the West, they just look at it from a revenue standpoint and the people coming here to rent are looking for cheap, majority anyway so there is no incentive to maintain the units at a quality western standard.

I always tell people that given the basics like location etc are in place the next essential is a viable power structure in the building.

This is best a good working committee, and sometimes OK can be a historically successful benevolent dictatorship.

Edited July 11, 2013 by cheeryble

[ace]

"People that own a few condos always think they are making money when it's rented out but fail to realize how much money in cash they paid up front to realize a very low and inconsistent rental return. They then after a few years realize they aren't making any money and try to sell to find that they can't sell fast for the money they spent and then they discount and go negative on the investment. It's a 1% game at this time, 1% win based on luck, timing, or they are just really good at playing the game which is a very rare person and even they loose sometimes."

Hello :-)

You have succinctly described my exact situation. I have 3 of the things which equals 2 headaches (I live in 1 of course).

Overbuild is a huge issue in the Pattaya area.

Inconsistent rent.

Rental agents who are almost indescribably useless.

I could go on.....