How Much Can You Expect To Get In Rent?

[austallia_1980]

I think I have heard that you should expect to get 1/200 monthly on the total value of the property. Is this generally correct? So, an 10m Baht Condo would rent monthly for 50K Baht?

[Heng]

Depends. We have properties doing as little as half a percent* in returns and others doing around 10%

*at current value; more if one's family uses acquisition cost

[austallia_1980]

That means if your property value was 10million baht, that you are collecting a million dollars a month from rent? Are you serious? Please tell more...

[Heng]

Per year.

[Heng]

... and I'm not saying you'll be getting 80,000 a month in rental returns either. You might only get half that or a fraction of that. You might not even be able to lease it out at all. Hence...'it depends.'

[think_too_mut]

I think I have heard that you should expect to get 1/200 monthly on the total value of the property. Is this generally correct? So, an 10m Baht Condo would rent monthly for 50K Baht?

10 mil baht, it's about 350K A$. Take it to any Oz bank and you will get about 50K baht or more in monthly interest.

If you live outside Oz, the bank will retain 10% of monthly interest as a tax. So, Bank West's 6.6% will be 5.94% into your pocket.

And the money remains yours, you can pack up at any time without being saddled with impossible to sell property (or it may take years or you have to make terrible loss if you want it quick or at all, in any case a big hassle).

Instead of bying a condo, I put that much money into StGeorge "DirectSaver" account and monthly interest covers the rent. Now, the place is turning to be not so attractive as it seemed (swimming pool is useless as it never receives any sun and the water is ice cold, the main reason for moving into there was to have the pool for our child). What would I do if bought it? There are hundreds of units for sale in the block, would never sell.

[Gary A]

I think I have heard that you should expect to get 1/200 monthly on the total value of the property. Is this generally correct? So, an 10m Baht Condo would rent monthly for 50K Baht?

I'd say that 1/200 is a fairly close estimation at least for a condo. Houses generally go for less.

[Old Man River]

I know it gets said in every real estate thread, but it always comes down to location, location, location. Even in the worst times in Bangkok, there was demand. The lessors at that time were work out specialists and staff of companies buying distressed properties. Still, there was demand.

[markuk]

That means if your property value was 10million baht, that you are collecting a million dollars a month from rent? Are you serious? Please tell more...

that wouldnt be bad! but i think you have made a slight mistake

10 million BAHT = 263k US$ (approx) and return 1million $ per month / year??

[thedude]

what you are refering to is called the 'cap rate' in real estate investment, also sometimes refered to as the yield to denote its return to investment. generally the cap rate should be reflective of actual interest rates plus a spread to reflect industry and sector risks.

a good grade property is considered lower risk because it is more liquid, and so there is normally only a slight premium to the interest rate. a lower grade property (less attractive location, lower quality finishes etc) is seen as higher risk and hence it should have a higher premium over interest rates.

as you should gather by now, the cap rate has an inverse relationship with property value, the lower the cap rate, the higher the multiple, and hence the more expensive the property, and vice versa.

okay, so much for the theory. in reality, actual yields are oftentimes lower than the prevailing interest rates. this is because sometimes people believe they can achieve a higher future multiple for their property than present rental rates can support, so they pay a premium for their property, hoping that future capital gains outweigh present shortfall in rental yield to cover the cost of money. furthermore, the problem is sometimes compounded by fast rising interest rates (as seen lately) which outpace the average rental contract term ie locking in rental prices for a longer duration, therefore causing a pricing lag between the capital market and real estate market.

in the long run though, the lag evens out, and generally speaking, if the rise in rental in the long run outpaces the overall raise in interest rates over the same period, then you have asset appreciation.

what will cause rental rates to rise consistently over the long run? there are many factors, but they boil down to the long term economic health and developmental prospects for the country.

[Old Man River]

what you are refering to is called the 'cap rate' in real estate investment, also sometimes refered to as the yield to denote its return to investment. generally the cap rate should be reflective of actual interest rates plus a spread to reflect industry and sector risks.

a good grade property is considered lower risk because it is more liquid, and so there is normally only a slight premium to the interest rate. a lower grade property (less attractive location, lower quality finishes etc) is seen as higher risk and hence it should have a higher premium over interest rates.

as you should gather by now, the cap rate has an inverse relationship with property value, the lower the cap rate, the higher the multiple, and hence the more expensive the property, and vice versa.

okay, so much for the theory. in reality, actual yields are oftentimes lower than the prevailing interest rates. this is because sometimes people believe they can achieve a higher future multiple for their property than present rental rates can support, so they pay a premium for their property, hoping that future capital gains outweigh present shortfall in rental yield to cover the cost of money. furthermore, the problem is sometimes compounded by fast rising interest rates (as seen lately) which outpace the average rental contract term ie locking in rental prices for a longer duration, therefore causing a pricing lag between the capital market and real estate market.

in the long run though, the lag evens out, and generally speaking, if the rise in rental in the long run outpaces the overall raise in interest rates over the same period, then you have asset appreciation.

what will cause rental rates to rise consistently over the long run? there are many factors, but they boil down to the long term economic health and developmental prospects for the country.

I'm told a number of people have purchased units in the Athenee Residence to lease out. When this comes on market, approx. how much can they expect? I realize it depends on what floor, etc., but in your best guestimate, approx. how much?

Thanks,

[thedude]

I'm told a number of people have purchased units in the Athenee Residence to lease out. When this comes on market, approx. how much can they expect? I realize it depends on what floor, etc., but in your best guestimate, approx. how much?

Thanks,

the athenee residence would have sold at around 100k baht psm. assuming gross yield of 6-7%, i would say somewhere between 500 to 600 baht psm, unfurnished, unserviced.

[Old Man River]

I'm told a number of people have purchased units in the Athenee Residence to lease out. When this comes on market, approx. how much can they expect? I realize it depends on what floor, etc., but in your best guestimate, approx. how much?

Thanks,

the athenee residence would have sold at around 100k baht psm. assuming gross yield of 6-7%, i would say somewhere between 500 to 600 baht psm, unfurnished, unserviced.

Thanks.

Sorry about the A's.

[Heng]

I think I have heard that you should expect to get 1/200 monthly on the total value of the property. Is this generally correct? So, an 10m Baht Condo would rent monthly for 50K Baht?

10 mil baht, it's about 350K A$. Take it to any Oz bank and you will get about 50K baht or more in monthly interest.

If you live outside Oz, the bank will retain 10% of monthly interest as a tax. So, Bank West's 6.6% will be 5.94% into your pocket.

And the money remains yours, you can pack up at any time without being saddled with impossible to sell property (or it may take years or you have to make terrible loss if you want it quick or at all, in any case a big hassle).

Instead of bying a condo, I put that much money into StGeorge "DirectSaver" account and monthly interest covers the rent. Now, the place is turning to be not so attractive as it seemed (swimming pool is useless as it never receives any sun and the water is ice cold, the main reason for moving into there was to have the pool for our child). What would I do if bought it? There are hundreds of units for sale in the block, would never sell.

Yeah, one should definately have a solid foundation of fixed income investments before adding extensive amounts of real estate to one's portfolio. Stay diverse.

[think_too_mut]

what you are refering to is called the 'cap rate' in real estate investment, also sometimes refered to as the yield to denote its return to investment. generally the cap rate should be reflective of actual interest rates plus a spread to reflect industry and sector risks.

a good grade property is considered lower risk because it is more liquid, and so there is normally only a slight premium to the interest rate. a lower grade property (less attractive location, lower quality finishes etc) is seen as higher risk and hence it should have a higher premium over interest rates.

as you should gather by now, the cap rate has an inverse relationship with property value, the lower the cap rate, the higher the multiple, and hence the more expensive the property, and vice versa.

okay, so much for the theory. in reality, actual yields are oftentimes lower than the prevailing interest rates. this is because sometimes people believe they can achieve a higher future multiple for their property than present rental rates can support, so they pay a premium for their property, hoping that future capital gains outweigh present shortfall in rental yield to cover the cost of money. furthermore, the problem is sometimes compounded by fast rising interest rates (as seen lately) which outpace the average rental contract term ie locking in rental prices for a longer duration, therefore causing a pricing lag between the capital market and real estate market.

in the long run though, the lag evens out, and generally speaking, if the rise in rental in the long run outpaces the overall raise in interest rates over the same period, then you have asset appreciation.

what will cause rental rates to rise consistently over the long run? there are many factors, but they boil down to the long term economic health and developmental prospects for the country.

Are you drumming it up? What a load of nonsense it is.

[steveromagnino]

what you are refering to is called the 'cap rate' in real estate investment, also sometimes refered to as the yield to denote its return to investment. generally the cap rate should be reflective of actual interest rates plus a spread to reflect industry and sector risks.

a good grade property is considered lower risk because it is more liquid, and so there is normally only a slight premium to the interest rate. a lower grade property (less attractive location, lower quality finishes etc) is seen as higher risk and hence it should have a higher premium over interest rates.

as you should gather by now, the cap rate has an inverse relationship with property value, the lower the cap rate, the higher the multiple, and hence the more expensive the property, and vice versa.

okay, so much for the theory. in reality, actual yields are oftentimes lower than the prevailing interest rates. this is because sometimes people believe they can achieve a higher future multiple for their property than present rental rates can support, so they pay a premium for their property, hoping that future capital gains outweigh present shortfall in rental yield to cover the cost of money. furthermore, the problem is sometimes compounded by fast rising interest rates (as seen lately) which outpace the average rental contract term ie locking in rental prices for a longer duration, therefore causing a pricing lag between the capital market and real estate market.

in the long run though, the lag evens out, and generally speaking, if the rise in rental in the long run outpaces the overall raise in interest rates over the same period, then you have asset appreciation.

what will cause rental rates to rise consistently over the long run? there are many factors, but they boil down to the long term economic health and developmental prospects for the country.

Are you drumming it up? What a load of nonsense it is.

Dude's post seems to make sense, and is a logical explanation of yields for real estate. Which bit is the nonsense bit?

[think_too_mut]

what you are refering to is called the 'cap rate' in real estate investment, also sometimes refered to as the yield to denote its return to investment. generally the cap rate should be reflective of actual interest rates plus a spread to reflect industry and sector risks.

a good grade property is considered lower risk because it is more liquid, and so there is normally only a slight premium to the interest rate. a lower grade property (less attractive location, lower quality finishes etc) is seen as higher risk and hence it should have a higher premium over interest rates.

as you should gather by now, the cap rate has an inverse relationship with property value, the lower the cap rate, the higher the multiple, and hence the more expensive the property, and vice versa.

okay, so much for the theory. in reality, actual yields are oftentimes lower than the prevailing interest rates. this is because sometimes people believe they can achieve a higher future multiple for their property than present rental rates can support, so they pay a premium for their property, hoping that future capital gains outweigh present shortfall in rental yield to cover the cost of money. furthermore, the problem is sometimes compounded by fast rising interest rates (as seen lately) which outpace the average rental contract term ie locking in rental prices for a longer duration, therefore causing a pricing lag between the capital market and real estate market.

in the long run though, the lag evens out, and generally speaking, if the rise in rental in the long run outpaces the overall raise in interest rates over the same period, then you have asset appreciation.

what will cause rental rates to rise consistently over the long run? there are many factors, but they boil down to the long term economic health and developmental prospects for the country.

Are you drumming it up? What a load of nonsense it is.

Dude's post seems to make sense, and is a logical explanation of yields for real estate. Which bit is the nonsense bit?

It's written for a wrong place and worth nothing in Thailand. Nothing.

[austallia_1980]

Can you explain why toomut?

[eljeque]

An asset's value is based on the value of ths stream of payments (rent) that it will generate. If the asset is expected to increase in value as well, then the difference between the present value and the future value can be converted into a stream of payments and added to the rent.

Real estate is a LOOOOOOOOOOOOONG Term investment. Only do it if you plan on staying here, in fact will be here 100%, and have the facilities to rent out the condominium. If it is simply an idea that you were toying with, it is worth you time to find another investment to work with. Selling a condo in a country that is nto your own is NO FUN!!! One more SARS scare or another bird flu, and you will be sitting ont he place for a year or two longer than you had originally planned.

You must also know about the building and its maintenance.

Stick to an investment that you can sell on a keyboard when necessary that has a high liquidity.

Good luck

[think_too_mut]

Can you explain why toomut?

Ownership rights (land, house, don't get me into company owned tricks);

Lack of, or near non-existant, secondary market other than generated by farangs.

Introduce the 2 distortions into any real estate market in the West and you get something hard to describe and deal with.

Tokyo, no secondary market either. Whover buys something, sits on it until end of their life.

80 years loans, spanning 4 generations are quite common in Japan.

What can any western real estate logic do with it?

edit: The Dude's writeup, although somewhat systematic and reasonable, simply would not work in Thailand.

Edited November 10, 2006 by think_too_mut

[austallia_1980]

Do thai people really not buy second hand condos? why not? as more and more thai people gain wealth, more and more will want to buy a house, there is only so many new develeopments that can pop up around BKK

[think_too_mut]

Do thai people really not buy second hand condos? why not? as more and more thai people gain wealth, more and more will want to buy a house, there is only so many new develeopments that can pop up around BKK

Ask Thais why not. Ex-boiler room staff, turned real estate agents, would have their own story.

[Heng]

I'm Thai and most of our real estate portfolio is 'second hand.' Given that it's been there for millions of years, it's kind of difficult to get 'first hand' land.

Seriously though, for condos and houses as well, I'd have to disagree with think_too_mut. There's a fairly active market dealing with seized and foreclosed properties. Those that subscribe to the LED seizure and auction lists and monitor the foreclosed and for sale lists published by all the major banks would agree.

[cheekymonkey]

I think I can add something to this discussion although I'm not Thai.

I am British but have recently sold a condo to a Thai. My experience clearly demonstrates why "ordinary" Thais do not buy secondhand properties, especially in farang/premium areas.

With newly constructed properties, usually, the property developer has an arrangement with preferred lenders to offer very attractive mortgages (in our case, 95% on the sales price upon construction). Most of these properties and indeed, most properties in Bangkok rise in price quite sharply after construction. Then add in the fact that, the secondary market buyer will not get as good a deal as the original buyer (sometimes both in terms of percent lent and an appraised value that is significantly lower than the 'market price'). The net result of all this is that an ordinary Thai participant of the secondary market, with say a salary of between 20k - 50k (just a ballpark figure for a typical thirtysomething Thai professional looking to buy his/her first condo), has to put up a massive amount as downpayment. In most cases, this amount is totally inhibitive.

That is why ordinary Thais (not rich Thais who buy to invest all over Bangkok) wait for news of new developments and why these developments sell out so quickly. To put it simply, it's the only way they're ever going to be able to afford a condo. That's also why most of the Sukumvhit/Lumpini etc. condos are bought/sold by foreigners or rich Thais (who want to make money off foreigners).

Finally, although I can confirm that the dude's explanation of interest rate theory is indeed accurate, I have to agree with toomut that it is a bit rich and pretentious of the dude to come on this forum and recite it as an explanation, especially when the original question was quite specific in its focus (and did not require a lesson in property economics). the dude should be aware that economics models do not reflect reality for a variety of reasons, including transaction costs, market inefficiencies, government legislations and many other factors. When the case is a single property, as opposed to the entire property market, economics is almost completely irrelevant!

Heng, based on your replies to this topic, I have to say that I feel equally scornful. Although diversification is indeed very admirable and indeed, necessary for risk management of portfolios, spouting content from an elementary finance course is rather pathetic and unhelpful to people with a simple, specific question. Note that there are people who have made huge gains on the property market as one-off transactions, without resorting to fixed income securities. Every case is different!I wonder if you and the dude are both property professionals and take every opportunity to look down on the ordinary person by reciting economic theory.

[Heng]

Heng, based on your replies to this topic, I have to say that I feel equally scornful. Although diversification is indeed very admirable and indeed, necessary for risk management of portfolios, spouting content from an elementary finance course is rather pathetic and unhelpful to people with a simple, specific question. Note that there are people who have made huge gains on the property market as one-off transactions, without resorting to fixed income securities. Every case is different!I wonder if you and the dude are both property professionals and take every opportunity to look down on the ordinary person by reciting economic theory.

Not looking down on anyone CM, and if anything elementary finance courses encourage folks to leverage themselves. I on the other hand, have always suggested a much more conservative: fixed interest income + 100% equity in property ownership approach to investing and estate management. If not encouraging people to undertake 'risky unsupported by alternate conservative income investments' is "unhelpful" then you can only expect to continue to hear more unhelpful opinions from myself.

Edited November 18, 2006 by Heng

[cheekymonkey]

Fair enough, you have a right to recommend whatever you want.

If anyone has read this topic from the start to this point, please feel free to comment. I have made my views clear.

[cheekymonkey]

Ask Thais why not. Ex-boiler room staff, turned real estate agents, would have their own story.

Well said too mut. Heng, as if your fixed income comment wasn't pretentious enough, your comment on the existence of a Thai secondary market is just beyond belief. I have to wonder if you really are Thai or whether you have been spending all your time with Sukumvhit farangs. I also find too mut's description above rather amusing and well timed...sound like someone you know Heng? Again, I'd love to hear what others think...

[Heng]

Not sure what you're still going on about CM. Are you doubting that a secondary market exists or are you just having issues with me or my post?

If the latter, oh well. If the former, then you can simply look into any Thai bank website... with minimal browsing, you'll find the foreclosed properties for sale. With a little bit of monitoring (both online and in person at these properties... which is the normal process for purchasing), you'll see that these properties are actually moving and to Thai buyers. Regarding the LED... their website is www.led.go.th There are property auctions year round. All second hand (and often passed through many many other owners) properties as well. There are foreigners that attend these auctions as well, but these auctions in my experience are still about 99% Thai. For those who feel confident about their readiness to invest in local real estate, their own buying power, and knack for picking out real estate bargains from... well, a lot of real "long term" properties, pick up an auction paddle and join in.

Edited November 19, 2006 by Heng

[quiksilva]

To answer the OP, expect 5-8% net yield depending on age, size, condition and location of the subject property.

However, that is once you can actually find a tenant. Given the current amount of buy to let units in the market, be conservative and expect fairly long void periods (in the region of 6 months +)

Also if you are in this for investment, expect minimal capital appreciation, unless you refurb and flip, or buy off plan and flip within 18 months of completion.

[thedude]

Finally, although I can confirm that the dude's explanation of interest rate theory is indeed accurate, I have to agree with toomut that it is a bit rich and pretentious of the dude to come on this forum and recite it as an explanation, especially when the original question was quite specific in its focus (and did not require a lesson in property economics). the dude should be aware that economics models do not reflect reality for a variety of reasons, including transaction costs, market inefficiencies, government legislations and many other factors. When the case is a single property, as opposed to the entire property market, economics is almost completely irrelevant!

i answered the op's question directly by explaining the theory behind rent multiples and also its application in reality. i fail to see how this was pretentious.

the topic likewise does not deserve to be hi-jacked by onlookers who happen to have issues with the secondary market, which was not the op's question.