Does this sound like a good investment or a gimmick?

[DavidMavec]

Hello...

I am thinking of investing in a condo in Pattaya that guarantees an 8% return for the first two years of ownership, meaning they will find tenants for the first two years. It's located in a well traveled area on one of the main roads. The agent says that this would likely mean it is easy to rent out since the developer is making such a guarantee. Would you agree or is this likely a marketing gimmick?

It is "off plan" but after doing a search I see that the developer has a proven track record. I am interested in buying as an investment, not to live in personally.

Looking for experience or knowledgable opinions. Thanks!

[trogers]

Find the answers to these questions:

Is the 8 percent gross or net, and what will the net be?

And what will be the cost and return to manage this property after 2 years?

Does the return justify the risk of buying offplan?

[Gsxrnz]

It means they have done their maths and have a required rate of return from the sales of the actual condos.

They then inflate their calculated selling price to you by 16% and as a sales incentive promise an 8% return to you per annum for two years.

The irony is that based on NPV, they're creaming you twice because they get your additional 16% on day one, but drip feed it to you monthly for two years. So not only are they funding themselves with your money, they're getting it at no cost and in reality can make margin on your cash because you are improving their cashflow, thus (arguably) reducing their reliance on bank funding.

Nothing in this world is free.

EDIT: I forgot to add that they don't really care if they get a tenant as they've already got their 8% off the purchaser by inflating the selling price so they can drip feed the "rent" back to you. The know the chances of them getting some (or probably any) tenants is low, but of course if they do get tenanats then they triple cream you because they get the rental income as well.

Plus, because they have more sales by offering the 8% return, they also recover an improved level of building maintenance/management fees to cover their operating overheads than they would otherwise expect if selling at the true price with no purchase incentive.

Edited April 24, 2014 by Gsxrnz

[Bkungbank]

Property noting to lose if buying a car every year the market value will drop but house and condo will raise, if you don't need short terms return it's okay in contract mention in 1 years you are entitle to stay for few nights for free if not mistaken.Keep it for few years then it's yours even can go for mortgage the condo when you need cash after it already pay back the only worried about raising sea level in 40-50 years due to global warming.

[KittenKong]

"Does this sound like a good investment or a gimmick?"

You can be fairly sure that 90% of all claims you read or hear in Pattaya from anyone involved in property dealing will be out and out b*llocks. That is a good example.

Yes, they will get you an 8% return for 2 years by overpricing the purchase price of your condo by 15% (on which the selling agent will get 8% or more commission) then charging you to manage the lettings and overcharging you for maintenance and repairs which they will oblige you to do via them . And they will happily put Thai yaba addicts or drunken Russians into your condo as they do not care at all what state it will be in when the 2 years are up. Not their problem. All they want is a sale.

If you want to "invest" in property in Pattaya/Jomtien then buy a used condo in a popular building in a sensible location from someone who is genuinely keen to sell. This will be fairly easy to let to a desirable tenant for a sensible rent and wont be overpriced to buy. But dont expect the asking prices for rentals to remain at the level they are now when all the tens of thousands of new condos become available for rental. They cant let all the existing ones, even in high season.

[Senechal]

As the others said, the guarantee is achieved by inflating the purchase price. But one must also point out that there is really no guarantee from a legal perspective: Should the developer find themselves in hot water, there are many ways to not pay you -- including condominium fees and just outright not paying. Remember: The legal system in Thailand is not something that is there to protect you. If your natural reaction to any deal potentially going sour is "Well, then I'll sue the bastards!" then you haven't been in Thailand very long. Trust what's in your hand. Not what's promised down the line.

[WhizBang]

Buy a condo to live in, not to rent out. Condo vacancies are very high.

[thrilled]

When businesses say the word guarantee ,I have warning bells going off.If the condos are empty how can they guarantee.

The answer is they can't.I wouldn't trust them but I'm not in that position.I don't need that kind of return.

[trogers]

As the others said, the guarantee is achieved by inflating the purchase price. But one must also point out that there is really no guarantee from a legal perspective: Should the developer find themselves in hot water, there are many ways to not pay you -- including condominium fees and just outright not paying. Remember: The legal system in Thailand is not something that is there to protect you. If your natural reaction to any deal potentially going sour is "Well, then I'll sue the bastards!" then you haven't been in Thailand very long. Trust what's in your hand. Not what's promised down the line.

The project may not be completed should the developer gets into hot water. There is no guarantee for the risk of buying offplan. The guarantee of 8% rental income would then becomes a non-issue...

[ezzra]

Find the answers to these questions:

Is the 8 percent gross or net, and what will the net be?

And what will be the cost and return to manage this property after 2 years?

Does the return justify the risk of buying offplan?

Bear in mind that here in Thailand, if someone dose no deliver on their promises,

written or not, you have almost no recourse to get back at them unless you sue

them in a civil court and good luck to you to wait 2-3 years to the court case to come

up and your chances to win are no better that 50/50......

[falkan]

buying to rent in pattaya it's a bad idea..