Right time to invest in Phuket?

[Shazdeb]

Shazdeb, here is how it works re hotels - according to a little elf who told me all this.

First, you need to understand that there are different licencing requirements, depending on whether the business is a hotel, guesthouse or homestay. The classification is generally (but not excludsively) dependant on how many letting rooms you have.

For a 'hotel', one is required to complete an EIA (environmental impact assessment) and other stringent checks/inspections. For a major hotel chain, that is either not an issue (squeaky clean business), or there's enough $$$ in the kitty to pay off the government guy who signs off the planning permission in the local OrBorTor office.

But for smaller hotels, where $$$ bribes are not feasible, the OrBorTor does not like to put their signature to a planning approval, in case they are held accountable some years later. So they ask those new businesses to state that they are not hotels but guesthouses, by classifying some guest rooms as staff rooms or other buildings. The planning application gets signed off without the need for an EIA or on-site inspections etc.

This is all fine unless investigations are made. The OrBorTor will be unwilling to 'upgrade' the guesthouse to a hotel because their original 'collusion' will become evident. Yet this same OrBorTor guy is happy to demand and receive biannual business taxes (receipts given) for that same business.

So many of these hotels are not licenced hotels, but do at least (I hope) have planning permission as a guesthouse or homestay. How they get upgraded to hotel status? Perhaps an inspection of their fire escape etc facilities and sewage treatment etc might help.

Out of the 4 hotels/guesthouses that I have built, 1 has hotel status (due to the number of letting rooms), 2 are registered correctly as guesthouses and 1 is still to go 'live'.

so to add - if you are considering to buy a guesthouse or hotel, ask to see the original, approved planning permission documents and plans. Check if the planning permission was for a hotel, guesthouse, homestay or private house.

If approved plans do not exist, or have not been signed off by the OrBorTor, stay well away!

Thanks all for info so far. Very interesting and great leads as to what to look for. Met with him yesterday and asked for building plans and he stated he didn't have any ??? found this strange and told him so, he finally said he will look at home, thanks to these posts I am sure I know why he is being cagey

[simon43]

and asked for building plans and he stated he didn't have any ???

I wouldn't touch this 'wonderful offer' with a 12 foot barge pole.

But for our enjoyment, please can you provide brief details of this business and how much he is asking for it.

[ALFREDO]

The right time to invest in Phuket was at least 10 years ago! Now… Roll of the dice. Good luck!

More likely 30 - 15 years ago.

I had a chance in 1998 to purchase a small Hotel in very good location in Patong and let the possibility slip away.

[jocko]

i would also think that what was the normal before might not be the normal in the future.

In other words a blind eye and under the counter money.

Be wary.

[Peterocket]

So many of these hotels are not licenced hotels, but do at least (I hope) have planning permission as a guesthouse or homestay. How they get upgraded to hotel status? Perhaps an inspection of their fire escape etc facilities and sewage treatment etc might help.

Operating a guest house still requires inspection and meeting a list of criteria.

Personaly I wouldn't be worried about buying a guest house that wasn't licenced as it's not a hard process to bring it up to the relevant standards and then arrange the inspection and sign off. If there was no hope of it meeting the guest house licencing requirements then it would have to be a deathtrap.

[Shazdeb]

and asked for building plans and he stated he didn't have any ???

I wouldn't touch this 'wonderful offer' with a 12 foot barge pole.

But for our enjoyment, please can you provide brief details of this business and how much he is asking for it.

LOL basically small Resort of 38 rms restaurant ( building there but not furnished in any way ) pool, various out building not utilized. Beautiful ( or potentially it is with cosmetic work done ) he has fairly well run it into the ground for years putting nothing back. He wanted 7 mil key ( so far down to 5 and what ever it will cost to fix license he paying for or I walk ) rent is too high ( I think, talking but he seems set ) 340,000 per mth. All buildings sound but needs a lot of cosmetic work to make it the beauty it should be. Associate spoke with Or Bor Tor yesterday to find out what he wont.

If Im not satisfied it's safe there is no way im going any further

Don't laugh too much Simon

[Shazdeb]

So many of these hotels are not licenced hotels, but do at least (I hope) have planning permission as a guesthouse or homestay. How they get upgraded to hotel status? Perhaps an inspection of their fire escape etc facilities and sewage treatment etc might help.

Operating a guest house still requires inspection and meeting a list of criteria.

Personaly I wouldn't be worried about buying a guest house that wasn't licenced as it's not a hard process to bring it up to the relevant standards and then arrange the inspection and sign off. If there was no hope of it meeting the guest house licencing requirements then it would have to be a deathtrap.

Not even close to being a death trap. run down yes but sound, has fire extinguishes, fire alarms etc just checking now to make sure he didn't ( as I have been advised is rather common ) apply for building permission to build house and build slightly ( lol ) more. Will know soon He seems rather pushy to get signed and done by August and in either August or October the Army starting checks on Hotels to see if legal, I know he isn't so ( although he says nonsense wont do it but taxi & illegal beach front thought this too ) think he wants out before he copes fines and fee's. OK by me as long as I can make it legal

[stevenl]

in either August or October the Army starting checks on Hotels to see if legal

If I were you I would not listen too much to rumours floating around.

[Shazdeb]

To the OP, there is an oversupply of shophouse "hotels" and "guesthouses". These are the types of properties I've seen listed, and most of them aren't even available to purchase, merely a few year lease involving key money and rent. It's tough to be viable with low occupancy rates and 500 baht rooms. The only winners are those owning the land and the buildings that are renting out these "hotels". Original lessee then tries to make a go of it, find it's not worth it, then subleases, releases or abandons the property forfeiting his substantial deposit, then the cycle continues................

Yes its quite often the " subleasing " that makes it untenable

[Shazdeb]

in either August or October the Army starting checks on Hotels to see if legal

If I were you I would not listen too much to rumours floating around.

Not listening too as gospel but need to take note off as they are fixing heaps. Always best to beware

[SDM0712]

For people who understand their market and their trade it's always a good time. For people who come over and stay in a small guest house and think this is easy, or go to a bar and think this is easy, or go out for a massage and think this is easy, it is sometimes, but rarely. Most failed businesses are from people who come over, fall in love, buy a "this is easy business" and then discover it isn't.

Most of you know that part of my business is selling businesses and I've lost count of the times people meet with me and tell me they have decided to sell up at home and move over here. The first question I ask is "what kind of business do you want to buy ?", the second question is do you have any experience in that ? The answer to the second question is normally no, but "how hard can it be"

I have seen people who do have experience in their chosen business do well and make a lot of money. I have seen people who don't have a clue do badly and just have enough money to cover the cost of their airfare home.

My usual advice is don't sell your life at home, put it in mothballs if you can. Come here for 6 months or ideally a year. Don't work, just sit back, observe and limit yourself to the same daily budget as you do in your own country. You will find that Thailand will appear very different after a few months and when you make a few friends and can see through their eyes you will see it is not the paradise you first thought and business is no easier than in your own country, probably harder. If after your period of observation you still want to come over then good luck, you could do well.

For me the only reason I went into real estate here is because that is all I have ever done, I would never have considered anything else.

SDM

PS if anyone wants my advice PM me, but it won't be candy coated.

Edited July 24, 2014 by SDM0712

[SDM0712]

To the OP, there is an oversupply of shophouse "hotels" and "guesthouses". These are the types of properties I've seen listed, and most of them aren't even available to purchase, merely a few year lease involving key money and rent. It's tough to be viable with low occupancy rates and 500 baht rooms. The only winners are those owning the land and the buildings that are renting out these "hotels". Original lessee then tries to make a go of it, find it's not worth it, then subleases, releases or abandons the property forfeiting his substantial deposit, then the cycle continues................

There's a lot of truth in that, some of these buildings are available to buy though in the 20/60 million range depending on size. But most peoples pockets aren't that deep and prefer to take along lease with say 2/4 MB key and then a monthly lease.

500/600 baht a night is very common for low season, but the same rooms will achieve 1200/2000 high or peak season. This is the first thing that many people don't understand. These businesses don't make money low season, they can cover their costs, but that's normally it. The majority of the income is from high and peak season.

SDM

Edited July 24, 2014 by SDM0712

[simon43]

7 million key-money? So you are not buying this resort but renting it? How long is the rental term?

[Shazdeb]

7 million key-money? So you are not buying this resort but renting it? How long is the rental term?

No not buying buildings just the business, should say " thinking of buying " If im not happy with everything not committing. Key money is now through lots talking 5 mil and the lease is 12 yrs

Rent is high due to the dreaded " sub lease " there is a reason we don't sublease in Australia its expensive and full of unknowns and pit falls

[simon43]

No not buying buildings just the business..

It sounds as if you are renting the business, not buying it.

5 million key money over 12 years = about 35,000 baht/month

Rent = 340,000 baht/month

Electricity, staff salaries =???, maybe another 100,000 baht/month (manager, cleaning, reception staff etc).

38 rooms....

What is the star rating of this business? Is it trading right now?

Personally, having got these brief details, I would run very fast! The future for Phuket is very uncertain right now, as far as tourism is concerned. You need to cover up to half a million baht EVERY month (including low and monsoon season) before you begin to see a profit.

If this guy is keen to 'rent' out his business in a hurry, I'd make him an offer of 1 million key money and 200,000 baht rent (still high IMHO).

[LivinginKata]

Take Simon's advice. That key money and rent is insane. A 38 room hotel will be a handful to manage. You will need quite a number of staff, plus electric and laundry costs. Would need to in a prime location to make it work.

[simon43]

How does the owner justify the key-money and monthly rent figures? Presumably he has shown you 'the books' which indicate a wonderful profit each month.

If the business is still trading, check out how it rates on Agoda, Expedia and Booking.com. If it really is a popular hotel with many bookings, it will be near the top of the hotel list for that area, when you sort the search results by 'recommended'.

Some of the agents also show when the last customer booking was made, eg '3 hours ago', '2 days ago' etc.

This 38 room resort must be a 'hotel' by the number of rooms. So ask the owner to show you the approved EIA certificate, (which covers things like how sewage and waste-water are processed/disposed of).

Finally, a rule that is not unique to Thailand. Big doesn't always mean best. The first small hotel that I built in Phuket (now sold) has a 100,000 baht monthly land rent and 12 rooms. My current little 'guesthouse' with 9 rooms in the same area of Phuket has a monthly land rent of 15,000 baht. That first hotel has a monthly income much higher than my current guesthouse...... but their monthly profit is less than mine

[NamKangMan]

No not buying buildings just the business..

It sounds as if you are renting the business, not buying it.

5 million key money over 12 years = about 35,000 baht/month

Rent = 340,000 baht/month

Electricity, staff salaries =???, maybe another 100,000 baht/month (manager, cleaning, reception staff etc).

38 rooms....

What is the star rating of this business? Is it trading right now?

Personally, having got these brief details, I would run very fast! The future for Phuket is very uncertain right now, as far as tourism is concerned. You need to cover up to half a million baht EVERY month (including low and monsoon season) before you begin to see a profit.

If this guy is keen to 'rent' out his business in a hurry, I'd make him an offer of 1 million key money and 200,000 baht rent (still high IMHO).

Based on the small amount of information available, I agree with your figures, and would remind the OP, these figures are before you have even put 1 baht in your own pocket.

I wouldn't walk away from this deal - I would run.

"If this guy is keen to 'rent' out his business in a hurry, I'd make him an offer of 1 million key money and 200,000 baht rent (still high IMHO)." - he probably paid too much for it, and now needs to recoup as much of his losses as possible.

[bantatnin]

Looks like he wants his capital plus monthly rental from sublease as well.