Buying a 40Mbaht hotel - Bank finance a part of it?

[sitti]

I have successfully obtained loans from various Thai banks. I now own multiple buildings in Bangkok. Getting your very first loan with no history is always the hardest. All banks turned down my first loan as well. You just have to run around and keep trying no matter how many times. Took me 4~5 months but eventually I got my first loan. After I paid it off, getting new loans after the first one became significantly easier.

Not only you need to show convincing business plan, cash flow, your experiences, and other usual stuffs you already know, I guess my advise I can give is figuring out what collateral he'll have. Bank needs to assess their risks. You mentioned he is going to pay 15m and get 25m loan. Not sure how much out of total 40m will be spent on purchasing land and buildings, but let's assume that 30m is spent on property, and that property has market value of 30m. After the bank assessment on a property, no bank will give you full 30m as collateral. Usually they will give you around 40~45% of its market value, maybe a bit higher if the location of property is amazingly good. So from 30 million baht property, you can only use it as 13.5 million baht collateral. The reason of this is banks don't want to hold large stock of properties from bad loans for extended period of time. Once they take your property, they would want to get rid of it as quickly as they can by selling it below market value and hopefully they can collect most of money they lost on this loan soon. If he doesn't have any other collaterals in Thailand, he will need more cash.

Since current government came to power, they imposed more restrictions on issuing loans. So getting a business loan now, especially for a first time applicant, has became a lot tougher than a few years ago when I applied mine. My private banking officer told me the terms of current business loan is not very "favorable". Even if you are approved, majority of small-medium business would run away from it once they see the terms of loan. Only large corporations can take it.

Also note that after you are approved, banks will NOT let you hold the money. All approved loans will remain at the bank. How it works is you send them a bill on the things that you need to buy with your loan, then bank will transfer money directly to the seller's account. So you cannot take 25 million baht cash and disappear.

Edited June 8, 2016 by sitti

[Global Guy]

What city is the hotel located?

I doubt he will get financing for a hotel as a foreigner. Even if he does, I doubt they will give 75% of the purchase price. He might be better served to get an experienced real estate partner to invest some and also bring the needed experience that he lacks and bypass banks for the money. I was looking at hotels in Thailand for a couple years but the more I researched, the less attractive it looked. If anything, now, I would find an underperforming hotel, buy it, make it profitable, and then sell it. This is the business strategy I used profitably elsewhere.

Now, the unsolicited advice part....

You asked: How hard can it be? Very difficult. I own income properties (not in Thailand) and can tell you it is labor intensive. His experience in stocks will have zero carry over in the hotel industry.

I've personally managed complexes of 100+ units. Nowadays, people demand more and expect to pay less for it. People on holiday, you would think, are on their best behavior. Wrong, they are often at their worst. Even now that I have staff look over see my properties day to day, I'm still involved in the decision making. Customers go out of their way to be idiots. I cut down my position in this sector because of that.

Hotels are a 24 hour a day business. You don't want to depend 100% on a Thai when you are not there. You need someone you can trust to at least run the day and afternoon shift at the front desk. Maybe he can cover day shift, but after some time of doing that 7 days a week, it will negatively effect his quality of life.

[Global Guy]

Due diligence in Thailand? As a business broker in Thailand told me, and I found true myself, when you buy a business in Thailand, the financial statements are not weighed too much at all compared to in the West.

You basically project what you could do with the business given the changes/improvements that you would do and compute your value from those forward projections. He said most financial statements you get in Thailand are just not accurate, mostly intentional. In other words, sellers lie about what they make to get a sale done.

You can focus on the physical part of the property to help determine that value added with your own projections.

Your friend needs to think a bit more. He will also need substantial working capital. He can not aquire the property and then run it on fresh air.

If the hotel has excellent profitability then he could try approaching the company's existing bankers.

One question: Has your friend ever operated a hotel before?

He could probably fork up all the money if he wanted. He is making his money on trading stocks, oil, gold etc etc, I don't know it all. So he might need some capital for that as well He is also awesome on online marketing and putting together big parties. But running a hotel, hmm, I don't know. How difficult can it be?

For a well managed business, it's not difficult at all. In my experience, hospitality businesses generally run better without the owner present (where the owner is unqualified to run the business themselves).

His biggest problem will be due diligence before the purchase. There are very, very few people in Thailand with the ability, discretion and neutrality to undertake that job properly.

From experience, due diligence of a hospitality business of that size will cost about 500,000 baht. For that money he will get industry professionals (with work permits) assessing the business to ensure he is buying a legal and profitable business.

Or they will show him the evidence of why it's an unsound investment.

[JacChang]

An investor could easily just buy LHHOTEL. 8.6% EPS right now.

[khunPer]

I've always hear you may be able to borrow up to 50 percent here. Anyway, there must be a lot more to it than that, as a farang cannot just buy a freehold hotel, need to make a company set-up with 51 percent Thai shareholders. If your friend is serious and has that kind of fund, he would be talking to an experienced lawyer already – by the way, first meeting is normally free-of-charge...

[Berty100]

I've always hear you may be able to borrow up to 50 percent here. Anyway, there must be a lot more to it than that, as a farang cannot just buy a freehold hotel, need to make a company set-up with 51 percent Thai shareholders. If your friend is serious and has that kind of fund, he would be talking to an experienced lawyer already – by the way, first meeting is normally free-of-charge...

I may be wrong, but I think hotel owners do not need the 51% Thai shareholders.

[georgemandm]

Surely he would have his own financial advisors and lawyers to negotiate on his behalf. sounds like barstool b.s.

Yes,yes,yes lots of them like to talk bullshiting?t but not do it like to show off in front of the new thai lady her has for sure .

Why would anyone want to put all that money in to thailand need his head check out .

[khunPer]

I've always hear you may be able to borrow up to 50 percent here. Anyway, there must be a lot more to it than that, as a farang cannot just buy a freehold hotel, need to make a company set-up with 51 percent Thai shareholders. If your friend is serious and has that kind of fund, he would be talking to an experienced lawyer already – by the way, first meeting is normally free-of-charge...

I may be wrong, but I think hotel owners do not need the 51% Thai shareholders.

You may be correct...

However I think that's for larger hotels only... ...or under the US-Thai Amity...

Hotel Business is restricted to Thais, so one will need a license, or permission from BOI; however a Thai company limited can operate a hotel. I'm don't have enough knowledge about this subject – that's why I recommend OP's friend to talk to a lawyer, as 40 million baht is some kind of money in my modest horizon – a little bit easy reading here.

[sitti]

Surely he would have his own financial advisors and lawyers to negotiate on his behalf. sounds like barstool b.s.

Yes,yes,yes lots of them like to talk bullshiting?t but not do it like to show off in front of the new thai lady her has for sure .

Why would anyone want to put all that money in to thailand need his head check out .

I really wish more people were blind like you. More opportunities and less competitors for people like me

[robertson468]

so this happened to someone i know. guy went to a bank for a mortgage, got 25 year mortgage at going rate (cant remember exact rate, probably 5%) he paid the deposit on the property. the bank then changed their mind and said it would be a 10% interest rate repayable over 10 years. he is now living a sad life making payments on this loan. anyone reading this should think very hard about taking a mortgage in thailand, then decide not to.

I have difficulty in believing this post. The Lender would need to declare the % interest to be paid for the loan, on a document that would need to be signed by the borrower. The borrower has the right to withdraw from the agreement at any time before signing the agreement. Me thinks you write a load of cr**p!

[blackcab]

Due diligence in Thailand? As a business broker in Thailand told me, and I found true myself, when you buy a business in Thailand, the financial statements are not weighed too much at all compared to in the West.

You basically project what you could do with the business given the changes/improvements that you would do and compute your value from those forward projections. He said most financial statements you get in Thailand are just not accurate, mostly intentional. In other words, sellers lie about what they make to get a sale done.

You can focus on the physical part of the property to help determine that value added with your own projections.

Your friend needs to think a bit more. He will also need substantial working capital. He can not aquire the property and then run it on fresh air.

If the hotel has excellent profitability then he could try approaching the company's existing bankers.

One question: Has your friend ever operated a hotel before?

He could probably fork up all the money if he wanted. He is making his money on trading stocks, oil, gold etc etc, I don't know it all. So he might need some capital for that as well He is also awesome on online marketing and putting together big parties. But running a hotel, hmm, I don't know. How difficult can it be?

For a well managed business, it's not difficult at all. In my experience, hospitality businesses generally run better without the owner present (where the owner is unqualified to run the business themselves).

His biggest problem will be due diligence before the purchase. There are very, very few people in Thailand with the ability, discretion and neutrality to undertake that job properly.

From experience, due diligence of a hospitality business of that size will cost about 500,000 baht. For that money he will get industry professionals (with work permits) assessing the business to ensure he is buying a legal and profitable business.

Or they will show him the evidence of why it's an unsound investment.

A large part of my job in Thailand is managing the due diligence process for people purchasing businesses and property in Thailand.

We do assess the financial statements, then we either prove or disprove their veracity by analysing the accounts in detail. With some businesses that is easy. With other businesses that is quite difficult.

Many businesses for sale overstate their income, however they nearly all make certain errors that can be discovered with experience.

People investing tens, hundreds and sometimes thousands of millions of baht are often very keen to carry out due diligence to the highest standard, whether they are Thai or non Thai.

It's a specialist market though. Not many companies in Thailand offer reputable due dilligence and have the skills, qualifications, contacts and experience to complete the work to the highest standard.

Edited June 8, 2016 by blackcab

[georgemandm]

Surely he would have his own financial advisors and lawyers to negotiate on his behalf. sounds like barstool b.s.

Yes,yes,yes lots of them like to talk bullshiting?t but not do it like to show off in front of the new thai lady her has for sure .

Why would anyone want to put all that money in to thailand need his head check out .

I really wish more people were blind like you. More opportunities and less competitors for people like me

Good you can have it , if you think you have more opportunities in thailand I am happy for you but I am not stupid so I will lever that side of it to you not for me I am smart.

[worgeordie]

Your friend needs to think a bit more. He will also need substantial working capital. He can not aquire the property and then run it on fresh air.

If the hotel has excellent profitability then he could try approaching the company's existing bankers.

One question: Has your friend ever operated a hotel before?

He could probably fork up all the money if he wanted. He is making his money on trading stocks, oil, gold etc etc, I don't know it all. So he might need some capital for that as well He is also awesome on online marketing and putting together big parties. But running a hotel, hmm, I don't know. How difficult can it be?

Get your friend to watch some Faulty Towers videos,it will give him some idea what

he is getting into.

regards worgeordie

[wooloomooloo]

The first and most obvious question must be as to why the current owner is selling up his 45 bed hotel?

[callaway]

Another high flier.

From a balcony

[blackcab]

The first and most obvious question must be as to why the current owner is selling up his 45 bed hotel?

Good question. Some businesses are sold for good reasons. I know of a company that is selling a business for 100 million.

They paid 51 million for it about a year ago in a run down condition. A lot of work later, along with the strategic purchase of a piece of land beside their business for another 13 million, and they want to take their profit and sell it on.

It's now a profitable business in an excellent location. Their winning move was that they made their profit when they bought the business.

[ozyjon]

If the hotel has excellent profitability

If the hotel had excellent profitability then why would they sell,

if it's an old hotel then the cost of renovating would equal the

cost of building a new one plus the downtime during the build,,

it's hard to predict, also why are they selling ?

And yes i have been in the business many years.

Again,,'' a fool and his money,,,,,,,,,,,,,,,''

[blackcab]

If the hotel has excellent profitability

If the hotel had excellent profitability then why would they sell,

if it's an old hotel then the cost of renovating would equal the

cost of building a new one plus the downtime during the build,,

it's hard to predict, also why are they selling ?

And yes i have been in the business many years.

Again,,'' a fool and his money,,,,,,,,,,,,,,,''

It could be a non performing business that was purchased and turned around. I know of one company that specialises in that field. They make about 30 per cent profit between the purchase and the sale, plus income until the business is sold.

Alternatively the business owner might want to retire or they might need the funds.

There are plenty of logical reasons, but none of them are relevant. What matters is the health of the business.