What are your thoughts on an apartment complex as an investment?

[ChaangNoi]

What are your thoughts on an apartment complex as an investment?

There are a few places for sale in decent areas up north with a ROI of about 10 to 12 years.

It seems too good to be true so what am I missing?

I do not know any one who has personally ran one of these before. The building was made in the last 5 years and we live pretty close to the complex.

All thoughts both good and bad welcome.

Thanks

[Asiantravel]

There seem to be many Indian families around Sukhumvit Soi 8-11 in Bangkok that think it's a good business based on how many apartment buildings there are (as opposed to condos) and owned by them in that area. You should try to talk to them about the pros and cons

Edited April 29, 2015 by Asiantravel

[beachproperty]

Great idea....problems though

1.You can't own it....

2. Managing properties in the west is hard enough........Lack of payment by tenants, destruction of property by tenants, Stealing, evictions, ...maintenance, ongoing and annoying ..PLUS remember this is Thailand, so multiply by ten.

3. Easy to buy property......very HARD to sell. So when you want out ...you're looking at a few years or more to sell.

4. should be looking for an ROI in no more than 7 years.....shorter time period obviously better

If you can deal with that go for it

Edited April 29, 2015 by beachproperty

[ChaangNoi]

7 years would be nice but that does not seem to be realistic in the market that I am located in. I had thought 10 to 12 would be decent.

Anyway thanks for the post.

[beachproperty]

7 years would be nice but that does not seem to be realistic in the market that I am located in. I had thought 10 to 12 would be decent.

Anyway thanks for the post.

Not sure where you live or your market (you didn't say) but here is a scenario that pays for itself (ROI) in 6 years.

Buy land......1 million baht.

Build 10 Units......35 square meters each, at 10,000Baht/sq meter (personally have built for cheaper but this is a realistic price)......3,500,000 baht

Rent for 7,000 baht/month........840,000 baht per year at 90% occupancy rate= 756,000 baht/Yr

ROI in 6 years. (4,500,000 baht divided by 756,000/year)

Obviously a lot of variables in the above calculations .....but it is doable ....I've done it.

Good luck ...whatever you decide.

[ChaangNoi]

In my area sadly land is high and rent is low. We are looking at anywhere from 1,500 to 3,200 a month for a decent apartment.

7,000 baht a month can get you a small house that would sell for around 3,000,000.

Might not be a good time to buy the apartment complex, we have an appointment and will check it out anyway.

[Robert24]

What type of apartment complex are you talking about? high end or student apartments?

I have 2 student apartment buildings. They are decent investments but you have to look at more towards 12-15 years ROI. And they tend to be a lot of work, from construction to operating them. Plenty of issues coming up but I see them as stable investments. If your location is good (ie for me near uni and bars/restaurants) then you will be fine even when the economy goes down hill.

Edited April 29, 2015 by Robert24

[ChaangNoi]

Student apartments is what I was looking at. I found one for a decent price and the location was just not great. Also not much parking.

The others I was looking at had a 12 to 15 year return in a much better location.

[Robert24]

Student apartments is what I was looking at. I found one for a decent price and the location was just not great. Also not much parking.

The others I was looking at had a 12 to 15 year return in a much better location.

yes parking is important. More and more students have cars these days and they expect parking to be available. Also calculate a night security guard into your operating costs. I have a hired a night security guard for both my apartment buildings. Students like that a lot and prepared to pay a little bit more if there is parking, security, air con in room etc.

[Robert24]

Just to give you an idea about what is sort of a realistic price because people will quote you all sorts of prices.I built one of the apartment building myself, spent approx 11m for a 4 story building with 32 rooms (8 rooms per floor). This is the total cost for the building excl the land. I had recently someone offer me 16m for it. Someone recently asked me whether I want to buy his 10 year old student apartment building with 40 rooms for 30m incl the land (about 1 rai). So clearly some people are asking for crazy prices.

[fvw53]

location ...location...location

We live in an apartment building (17 floors) in Pathum Thani and value per square meter is even lower than when we bought it in 1992....but we do not care as we use it ourselves..but for an investor it would have been very bad

[steelepulse]

Just to give you an idea about what is sort of a realistic price because people will quote you all sorts of prices.I built one of the apartment building myself, spent approx 11m for a 4 story building with 32 rooms (8 rooms per floor). This is the total cost for the building excl the land. I had recently someone offer me 16m for it. Someone recently asked me whether I want to buy his 10 year old student apartment building with 40 rooms for 30m incl the land (about 1 rai). So clearly some people are asking for crazy prices.

What was the total cost per sqm and what is the size of each room? I'm considering something like this also, but am unfortunately in an area where land is expensive.

[Robert24]

Just to give you an idea about what is sort of a realistic price because people will quote you all sorts of prices.I built one of the apartment building myself, spent approx 11m for a 4 story building with 32 rooms (8 rooms per floor). This is the total cost for the building excl the land. I had recently someone offer me 16m for it. Someone recently asked me whether I want to buy his 10 year old student apartment building with 40 rooms for 30m incl the land (about 1 rai). So clearly some people are asking for crazy prices.

What was the total cost per sqm and what is the size of each room? I'm considering something like this also, but am unfortunately in an area where land is expensive.

The rooms are 26sqm each which includes the main room, a bathroom and small balcony. 8 rooms per floor, 4 on each side of the hall way and the staircase at the end of the hallway. 4 floors. We bought all material ourselves and just hired a constructor to do the work.

If you want to build an apartment building in a good location, you have to accept that land will be expensive. But it is important in my opinion to have a good location. Students want to be near their school and near pubs/restaurants and where they sell food. If you get the location right, you will be fully booked, especially if your apartment building is new.

[euca]

There seem to be many Indian families around Sukhumvit Soi 8-11 in Bangkok that think it's a good business based on how many apartment buildings there are (as opposed to condos) and owned by them in that area. You should try to talk to them about the pros and cons

Remember, Asian business families tend to think long term. My arithmetic on apartment blocks my wife inspected suggested 20-years. She has had one now for two-&-a-half years & the arithmetic doesn't change much. I allowed for repairs, mtce, etc & I think I am a bit on the low side. It would be interesting to run a set of books & see how long it takes to recoup capital expenditure & make that first satang. My guess is now 20+ years.

[mike324]

The only way you can get 10 years ROI is if you bought the land or building for really cheap. Since the building is already built, can't be too hard to find out how much they are renting it for and to see the occupancy rate. If its not even half full, then you can forget about it unless you look at it as a long term investment and you know the area is developing.

I would say average ROI for small to medium size apartment building is around 15 years - 20 years, this is based on experience running a 70 room apartment on leasehold land.

[euca]

The only way you can get 10 years ROI is if you bought the land or building for really cheap. Since the building is already built, can't be too hard to find out how much they are renting it for and to see the occupancy rate. If its not even half full, then you can forget about it unless you look at it as a long term investment and you know the area is developing.

I would say average ROI for small to medium size apartment building is around 15 years - 20 years, this is based on experience running a 70 room apartment on leasehold land.

Yes, vital, check occupancy & total monthly income, don't just take seller's word for it [why are they selling?] Also check area for competition & consider site position. Within a year of my wife's purchase several aptmt-blocks mushroomed against ours & the two we knew, so check building sites, too. And what of the ground floor? Does it offer shop space & sales position? Have you laundry machine space there? Quite a good earner. Nothing new here but keep it in mind.

Do you need the income or is this purely an investment? If you can forego profit for 15 to 25 years the land value increase plus reinvested income should be good. If you are borrowing please beware the probability of interest rate rises in the near future, the certainty of it in the medium term.

[ChaangNoi]

It would be an investment for me, but I'm not going to do it after looking into it more. The rent collected is just too low for the price. The amount of work involved and the risk of the value of the place going down in value is just too high.

I will look for other ways to invest in Thailand.

Thanks for all the help guys, let me see things in different light.

[thaibeachlovers]

What are your thoughts on an apartment complex as an investment?

You seem to have made a wise decision not to buy one.

[blackcab]

I work as a manager for a company that owns apartment blocks. I can assure you that apartments are not easy money. We employ live-in building managers, and they are constantly on the go.

Your biggest problem would be speaking Thai. If you are not fluent then in my opinion you're going to need a manager. One problem you may have might is finding an honest manager. I personally know of one manager who stole somewhere between 2 and 3 million baht from the owner and caused chaos in the building.

Who is going to do your maintenance? Are you going to employ someone or pay as you go?

Who is going to clean the communal areas?

Have you considered the municipal building tax imposed by the khet (our buildings are in Bangkok)? The standard charge for this is about 80% of one months rental income. Note that I said income, not profit.

Overall your ROI could easily be 15 years. It's definately a long term business, that's for sure.

[SheungWan]

Sometimes people have a cash ~$100,000 burning a hole in their pocket and there is really no need for them to make such an investment. Alternatively they are desperate for income. Is this one of those scenarios?

[elgordo38]

Talk to the guy that bought a condo in a high rise. It was a luxury condo. Unfortunately his condo was situated under the building swimming pool. The contractor as usual stated " I don't know nothing" It was a thread posted on TV. He has now become a gold fish rancher. I have watched Thai construction first hand and I would never consider buying here in Thailand.

[gopis108]

Re Apartment complex-We have been doing this in Chiang mai for the past 4 years and actually it hasnt been bad .However now in Chiang mai there are hundreds of these apartments going up so it has become increasingly difficult to find good long term tenants at a good rental price, because of the increased competition.AS far as Tenant behavior goes we have has much more hassle with the foreign tenants who are always looking for the dirt cheap price but they absurdly assume they should see five star service.

The Thai tenants on the other hand are generally good and quiet and much less demanding.We have never had problems with people not paying because we have their deposit and we use external door locks in extreme but seldom cases.

We have had a few Thai crooks as Tenants and have helped the Police bring them to justice by our camera system, much to the delight of the police..One respectable looking Thai male banker was renting cars from local dealers and selling them abroad with the assistance of his family.The police came like Keystone cops and he heard them long before they arrived so he ran upstairs and leapt out of the fourth floor window to the adjoining building ,which was a good three metres away, but he made it but he was apprehended in the end.

As far as protecting your investment from your wife and family (assuming they are the 51%)and actual owners you can have a lawyer draw up a will and have them sign it over to your choice of beneficiary before you pay.

[lvr181]

Why the imperative of investing in Thai real estate with all the perceived risks for a foreigner? Are you looking for capital growth or income? Consider other options and elsewhere. Have you considered also political risk? That is a part of investment risk! Are you prepared to take a total loss of your investment? What ever you do DO NOT rush in with any hasty decision or less than a complete and thorough appreciation of any "gains or losses" you could incur in a foreign country. If your proposed investment is only a minor part of your total investment portfolio, maybe do it. But if it is the only investment or major part of your total portfolio be wary. Some have succeeded many have failed.

[aronp1]

Food for thought, maybe look into just buying single apartments in different areas versus buying a whole complex.

[wowfactor10]

Okay let me think about this..

You are going to pay / invest 100% of the total amount and then you will own just 49% of it right?

Do i need to continue about your investment plans?

[Robert24]

Why the imperative of investing in Thai real estate with all the perceived risks for a foreigner? Are you looking for capital growth or income? Consider other options and elsewhere. Have you considered also political risk? That is a part of investment risk! Are you prepared to take a total loss of your investment? What ever you do DO NOT rush in with any hasty decision or less than a complete and thorough appreciation of any "gains or losses" you could incur in a foreign country. If your proposed investment is only a minor part of your total investment portfolio, maybe do it. But if it is the only investment or major part of your total portfolio be wary. Some have succeeded many have failed.

I've read about those warnings many times, i.e. don't invest more than you can afford to loose etc etc. My view is I'm not investing with a risk assessment that I may loose all of that investment otherwise I wouldn't invest at all.

Some people may perceive the risk in Thai real estate investment higher than other countries but how thorough of an assessment is it? My view is that you should diversify your investments both from an asset class point of view and also geographically. Nobody knows the future for sure, you may be alright with your investment in Thailand but you may loose a lot in another country or vice-versa. By diversifying you reduce that risk. Let me give you some example.

1) if you invested in real estate in Germany after the 2nd world war, you may have done well or not. Say you bought something in Eastern Germany, you would have lost everything. If you bought something in Western Germany, you are rich now.

2) If you put your cash savings into a safe bank account in the 1930s, you would have lost everything due to hyper inflation.

3) you would have bought some Gold in the US in the 1930s, the government would have confiscated it and essentially you lost everything.

So if wealth protection is important to you, than diversification is key as some of the risks are just unknown and even some of the best investors may loose a lot money because some of the events are not predictable.

However personally I also look at opportunities and getting a decent return on your investment. I've built a student apartment complex and returns are ok, not brilliant but ok for real estate. I consider the risks relatively low due to the proximity to university and bars/restaurant, i.e. good location. Even if there is an economic downturn, Thai people still want their children to go to uni. So in essence I think the risk/reward balance is ok for this investment from my point of view.

[cracker1]

When buying property anywhere in the world, including Thailand, there are only three things to be sure of :

1. Location
2. Location
3. Location

[Robert24]

Okay let me think about this..

You are going to pay / invest 100% of the total amount and then you will own just 49% of it right?

Do i need to continue about your investment plans?

for me this is sort of at the end of the list of my worries. It would be easier if I could own 100% but many countries have such restrictions. Even if they told me that I cannot own 49%, I have a back-up plan for that. The reason why it's no worry is that I have full control over my investment, I get 100% of the return and if I sell it, I will get 100% as well.

Bigger risks to my investments are - what if the government increases tax on property/property income disproportionally, what if there are some external events that cause damage to my building (fire, water, earthquake), what if there is an economic crisis how does my occupation rate look like. The 49% ownership is really not a big deal. You have many companies investing on that basis in Thailand and it works for most of them.

[chilli42]

My Thai wife buys land and and builds houses and apartment buildings in the mid Sukhumvit area. She has been doing this for years so she buys low, buys well and knows the contracting business so builds at the best price. Great relations with the bank and land office. I would say that her average rate of return on the rental income is 10-15% a year. The value of the land appreciation is staggering. Some exceptional properties properties five times in 10 years. So as a business proposition it's exceptional and certainly not something in profit terms that could easily be replicated in Europe or N America.

People that have no clue what they are talking about will give you lots of reasons to not do things. They sit around, wet their pants about the risk and end up doing nothing. Going into business entails risk you need to spend time to manage and mitigate. That said, for my wife being a Thai with a gift of gab and an ability to build relationships has had no small part I the reason for her success. I do think if you take your time to get to know the market in an area and you start with something small and manageable you can do well.

[Robert24]

7 years would be nice but that does not seem to be realistic in the market that I am located in. I had thought 10 to 12 would be decent.

Anyway thanks for the post.

Not sure where you live or your market (you didn't say) but here is a scenario that pays for itself (ROI) in 6 years.

Buy land......1 million baht.

Build 10 Units......35 square meters each, at 10,000Baht/sq meter (personally have built for cheaper but this is a realistic price)......3,500,000 baht

Rent for 7,000 baht/month........840,000 baht per year at 90% occupancy rate= 756,000 baht/Yr

ROI in 6 years. (4,500,000 baht divided by 756,000/year)

Obviously a lot of variables in the above calculations .....but it is doable ....I've done it.

Good luck ...whatever you decide.

just saw your calculations now. A few corrections if you allow me:

you would need land near university/food and bars to be attractive to students. The minimum size to build so you have enough parking for cars/motorcycles is around 175-200 sqw. I don't think you get that for 1m baht. Calculate at least 2m baht these days for good location.

Construction price completed you are about right with 3.5m for 10 standard rooms.

Rent is about 3,000-3,500 baht per room. About half of what you calculate. Also 90% occupancy is a bit steep for a business case. I would always calculate 75-80%.

Also you need to calculate cost. Cost include tax, cost of hiring a manager, repairs etc.

In summary, if you manage it well, you get an RoI of between 7-8%. Provided you have no cost of capital and you do it well. If you have to borrow money and pay interest, your returns are very low. I have come across people who claim they make about 15% or the 6-7 years you mention, but once you start looking into the detail, it soon turns out not to be true.