Brokers Quote

[roadking95]

I have just received a email from a business broker in Pattaya, stating to me that he didnt think that myself and my brother would be able to survive in Pattaya from the profits of a business with a lease cost of around 8 million baht. We were looking at a guesthouse bar, and I have looked at numerous sites with businesses for sale and profits seem to be there, not great, but reasonable. It seemed to me that the cost of living was not that high there, the greatest cost being renting a house in Pattaya. Is he right in what he is saying or is he barking up the wrong tree. Any feedback would be appreciated.

And for any aussies over there, Ian Thorpe at 24 years of age retired today from swimming.

[steveromagnino]

I have just received a email from a business broker in Pattaya, stating to me that he didnt think that myself and my brother would be able to survive in Pattaya from the profits of a business with a lease cost of around 8 million baht. We were looking at a guesthouse bar, and I have looked at numerous sites with businesses for sale and profits seem to be there, not great, but reasonable. It seemed to me that the cost of living was not that high there, the greatest cost being renting a house in Pattaya. Is he right in what he is saying or is he barking up the wrong tree. Any feedback would be appreciated.

And for any aussies over there, Ian Thorpe at 24 years of age retired today from swimming.

my calculation would be that for the risk and effort of running a business with hands on work, I'd be looking for a return on my investment of at least 25% p.a. for 8m baht; otherwise easier to just invest in the share market and make a lazy 10%-15% p.a.

Using the CAPM model, if risk free rate is about 5%, and we know the risk premium for the market is about 5% for a beta of 1, then surely a standalone small business is running somewhere around 2, which means you'd be looking for 15% and that's not taking into account you also cannot diversify away both systematic and nonsystematic risk; so add another 5-10% on top of that, and tha's how I get to my 25%.

25% of 8m is 2m a year; that should be enough to live on.

If the place isn't paying this much, then why bother buying it? Seems like too much work to me; invest in shares or something.

[Naam]

otherwise easier to just invest in the share market and make a lazy 10%-15% p.a.

*****

in what far away galaxis is that "share market" located where one can make a "lazy 10-15% p.a."?

[eljeque]

I do not mean to be negative, but I simply want to inform you of the caution that is required before buying a business in a country which is not your own, and with a language that you cannot read and write.

Also, the broker may be trying to get the two of you to buy a more expensive business when he tells you that an 8M baht business will not support you here.

Have either of you ever run a guesthouse and BAR before? It is an important thing to consider. If there is an industry that you have worked in in your home country, it would behoove you to find something related to it here, or at least something in the general area. You are already a a disadvantage by being in this country.

I think that 25% / year is a little low to shoot for here. I believe you should look to make your money back in 3 years. That is not an unusual length of time in the USA for a small business. Problems will occur which will stretch the 3 years out, and that is why I would look at this shorter length of time.

How long is the lease on the guesthouse/bar? You need to get a long lease in order to avoid the property owner telling you to leave after the "standard" initial 3-year lease. Over three years needs to be registered at the land office and taxes need to be paid by the property owner. They do not like paying taxes, so they try and avoid it. You should not let them, or go elsewhere.

I sold a house to a man with a 3 + 3 year lease on a building that he had invested 7 million into for a hotel. At the three-year mark, the property owners doubled the monthly rent and increased the key money from 300,000 / building (4 buildings) to 700,000 baht per building. The owners helped him to develop the building and then simply waited until it was time for the three years to be completed. This is not unusual!!

On the subject of working the business yourselves, can you acquire work permits for this kind of business? You will more than likely have to rely on the staff for nearly eveything.

How much of the income/profits is based on the guesthouse and how much is based on the bar? It is important to separate them.

"It seemed to me that the cost of living was not that high there"

Have you had the opportunity to visit if not live in Pattaya yet? If not, I suggest that prior to buying a business for $A300,000, that you and your brother come and stay here during a high season and during a low season in order to get a good picture of the place.

I also believe that if you spend/invest your time looking for a business on your own, that you will be able to do a lot better than anythng that you caan pick up from a broker. Although it is true that a lot of businesses are not advertised except with brokers, there are also a lot of businesses available with signs on the windows, and posted at Carrefour and Friendship supermarkets and elsewhere. Internet prices are always higher than the prices on the street, sometimes by more than 10%.

Brokers are employed by the sellers, not the buyers. This broker is not looking out for your interests.

I really think it would be in your and your brother's best interests to come here for a while and do your own research and employ a lawyer to look over everything for you. Do not buy a business that this lawyer has led you to!!! This lawyer will not work for any other entity involved in your business purchase and have no relations within it either.

You want to make sure that the people whom you involve in this transaction do not know each other (lawyer, broker, seller, accountant). Nobody knows Nobody, so it will decrease the liklihood of them working together and against you.

Good luck

[lannarebirth]

I have just received a email from a business broker in Pattaya, stating to me that he didnt think that myself and my brother would be able to survive in Pattaya from the profits of a business with a lease cost of around 8 million baht. We were looking at a guesthouse bar, and I have looked at numerous sites with businesses for sale and profits seem to be there, not great, but reasonable. It seemed to me that the cost of living was not that high there, the greatest cost being renting a house in Pattaya. Is he right in what he is saying or is he barking up the wrong tree. Any feedback would be appreciated.

And for any aussies over there, Ian Thorpe at 24 years of age retired today from swimming.

With the kind of money you're prepared to spend, I think you would be better off spending a year here learning as much as you can, identify a need and start your own business.

[Chang_paarp]

Steve

The broker is trying to insult you into buying, either that or it is a pig of a business that is not delivering any profit.

AVOID both business and broker.

Dr Naam,

The Au stock exchange is delivering in that range if you show some common sense. Even the dartboard method can deliver those returns in the industrial sector here. (Get the darts blessed first )

[roadking95]

Steve

The broker is trying to insult you into buying, either that or it is a pig of a business that is not delivering any profit.

AVOID both business and broker.

Dr Naam,

The Au stock exchange is delivering in that range if you show some common sense. Even the dartboard method can deliver those returns in the industrial sector here. (Get the darts blessed first )

Lance

Just received another email from the same broker, apparently he thought that we were going to come to Pattaya, purchase a business and then travel around and sit back and do nothing. He must of got his wires crossed.

Your right the aussie stock market has been a great place to work your money over the last three years

Steve

[Naam]

Dr Naam,

The Au stock exchange is delivering in that range if you show some common sense. Even the dartboard method can deliver those returns in the industrial sector here. (Get the darts blessed first )

******

Chang, wouldn't it be more correct to use the expression "was delivering" instead of "is delivering"? i am a global investor and live of my investment but i'd rather gamble in Vegas or Macau then investing in shares in any stock market. for those of us who need a steady and calculable income to cover our living expenses investments should be made [broadly diversified] in bonds. i admit that stock markets can outperform bonds, but not in the long run. look at some major markets (AORD is a tiny market) and realize their lean years when no gains but losses were incurred. i am of course taking my picks as far a periods are concerned.

examples:

DOW jan 2000 till sep 2006 = 0% gain

DAX jan 2000 till today = loss 20%

FTSE jan 2000 till today = loss 12%

Nikkei dec 1990 39.000, today 15.700 = loss 60%

[Sunbelt Asia]

I have just received a email from a business broker in Pattaya, stating to me that he didnt think that myself and my brother would be able to survive in Pattaya from the profits of a business with a lease cost of around 8 million baht. We were looking at a guesthouse bar, and I have looked at numerous sites with businesses for sale and profits seem to be there, not great, but reasonable. It seemed to me that the cost of living was not that high there, the greatest cost being renting a house in Pattaya. Is he right in what he is saying or is he barking up the wrong tree. Any feedback would be appreciated.

And for any aussies over there, Ian Thorpe at 24 years of age retired today from swimming.

Just depends if it’s not enough profits. What is the owner’s discretionary cash? You have focus on the cost by stating its 8 million Baht rather than the owner’s discretionary cash. I can show you a hotel that cost 500 million Baht and I would say it would not support your brother and you as its losing money. Perhaps the hotel will in the future but is not now.

It could be the broker is telling you this is a dog with fleas and move on to something else that has a better return by stating it will not support your brother or you.

Look at the owner’s discretionary cash and the asking price. Most businesses sell around 2.5 times owners discretionary cash which would be a 40% return.

Remember, not every business is created equal or the asking price is the same. Just because it has an asking price of 8 million or one trillion Baht means it will support you

Brokers are employed by the sellers, not the buyers. This broker is not looking out for your interests.

Most brokers work on a success basis but I'm never seen a broker that was successful in the long term that didn't work for the transaction. They need to be assisting both sides getting a fair business transfer and if they are helping anyone more, it’s certainly the buyer. At least that is how we run our business. One of our Sunbelt brokers has been a business advisor over 27 years now ( He’s 79 years old!) I myself have been one for over 25 years now and both of us, can't see operating any other way but to look out after the interests of the buyer.

Look at our standard offer to purchase, all the clauses we put into it, all there to help protect the buyer. Not compete in a 5 year period, no solicitation of staff for a year, review and acceptance of lease, review and acceptance of the financials, training by the seller with no compensation, no liens, etc

How many times, if a buyer and seller do a deal on their own and it falls apart, is buyer getting any deposit back? I’ve never seen it once! With us in over 5 years, the buyer always gets his deposit back. The buyer changes his mind, we look out for him, making sure his deposit is refunded. I would say, this has happen over 200 times!

As well, very rarely, the buyer will be asking for any lease deposits, electric deposits and the inventory to be included in the bid price as well. This we automatically do and many times we win this condition for the buyer.

Bottom line, you want to be successful in the long run, take care of your buyers!

www.sunbeltasiagroup.com

[roadking95]

[

It could be the broker is telling you this is a dog with fleas and move on to something else that has a better return by stating it will not support your brother or you.

The funny thing is that we didnt have one particular business that we were looking at, he stated this upon my asking if we could survive in a business of that value. Yes you are right in saying that a hotel at 500 million baht may not give us good returns, I have had the same experience here in Australia with a hotel that I looked at it was going to cost me 40k AUD a year out of my pocket to run it.

I have noticed that some businesses that are advertised which have been owned and operated and by the seller and are now up for lease, it seems that the lease price has not been factored into the new owners return.

Example. Business asking price 3.5 million baht.

Owners return. 1.5 million baht.

The new business owners lease will be 40000 baht per month, which then would needed to be deducted from the original owners return. Or do the brokers adjust the figures when selling from the existing property owner to new business leasee

Thanks in advance

Steve

[~G~]

otherwise easier to just invest in the share market and make a lazy 10%-15% p.a.

*****

in what far away galaxis is that "share market" located where one can make a "lazy 10-15% p.a."?

In a galaxy where so called financial advisors ignore years in which the market drops or moves sideways The market goes up and down, calculating return based on bull years only is a joke, as well as checking the average yield over decades and concluding that one can spend that average yield every year.

As was mentioned here, steady returns are in bonds. Stocks are important if you are saving for 20 years from now or otherwise, know exactly what you're doing.

[steveromagnino]

otherwise easier to just invest in the share market and make a lazy 10%-15% p.a.

*****

in what far away galaxis is that "share market" located where one can make a "lazy 10-15% p.a."?

Said very very tongue in cheek; my money is lazy, it doesn't want to work for me. So I just let it sit around

not a financial advisor; no such thing as a 10-15% guaranteed return year in year out, but here in Thailand (and prior to that in NZ and Australia) I have NEVER had a year of less than 10% return. Several stellar years of far beyond that such as the first TRT year with I think it was 60% (I underperformed the market, too light in property). My mother on the other hand lost about 60% in three months or so, when she decided to invest in the NZSE right before a crash. So I am acutely aware that this is not a constant thing. Share market is volatile, no question.

I'm not going to dig out a whole lot of graphs to say you can make 10-15% consistently in the sharemarket (countless ones exist everywhere). Let's just say that a risk premium above the risk free rate for most share portfolios would be expected to be in the region of somewhere around 5% in most developed markets, and a bit more in the less developed ones. If not....why bother????

Shares have no guarantees, but a market like Thailand rewards people willing to do homework on small to mid caps, and with the amount of money I am investing (piddling) the lack of liquidity is not a big deal, and in fact a bonus as people far smarter than me usually don't analyse these stocks. I know a lot about the companies I invest in, far more than some analyst sitting in Singapore usually, as I personally know the heads of the companies in many cases, or someone else senior. The market here has a lot of off the record information and that's why it is a bad bet for some people who think that it is going to behave like NZSE or Aussie market. I don't have a diversified portfolio, and i am very subject to certain risks in the shipping industry; that said my brother, father and grandfather are all from the shipping industry and so I have access to real time information and can make decisions based on that. my old boss's business model is entirely based on this strategy of small/mid cap stocks in Thailand (he is a fund manager now) and his fund is diong more than double the numbers I've dug out (at the moment....who knows if he can keep doing it?)

Incidentally, choosing high div stocks consistently in a developing market, it would not be hard to hit over 10% in dividends alone; although whether one could do that long term is questionable; who can predict the future?

In the shipping industry the dividend stream is strong enough to match a lot of bond coupons, and they still don't have a payout ratio anywhere near 100%. I guess with P/Es in the 4-6 range, and div yields (depending how you calculate it) as high as 11% that it is hard for a bond to keep up. I guess i could buy the bonds that they are both probably going to issue shortly to fund their fleet upgrades.

Almost all conventional wisdom states a investing in bonds cannot outperform investing in shares long term so long as an investor can eliminate the non-systematic risk (I think I got that around the right way). If it cannot, then there is a major market problem as bonds have less risk than shares and should be rewarded less return as a result. And in particular, small cap stocks tend to have the highest average return in excess of the risk free rate and ALSO tend to have the highest return in excess of the CAPM; the so called small firm effect (Banz I think came up with this one). The risk premium for illiquid stocks is around 5% supposedly according to research by Amihud/Mendelson.

A wise investor diversifies, and govt bonds are great because of the guaranteed income plus liquidity of the market to flick them. Not in Thailand of course, where the bond market is pretty illequid AFAIK. But for other markets...great.

But that said it is all about matching financial goals and requirements to appropriate investments. The reason I named shares is the guy wants to do something; well if he isn't going to be making decent money, might as well be a part owner of some company where he doesn't have to do anything.

Bonds are another option, with even less risk (in some cases) or more risk (in others).

my point was actually, under 25% and for me anyway it isn't worth getting out of bed to do a small high risk business like this. That's my POV for what it is worth.

[womble]

otherwise easier to just invest in the share market and make a lazy 10%-15% p.a.

*****

in what far away galaxis is that "share market" located where one can make a "lazy 10-15% p.a."?

Said very very tongue in cheek; my money is lazy, it doesn't want to work for me. So I just let it sit around

not a financial advisor; no such thing as a 10-15% guaranteed return year in year out, but here in Thailand (and prior to that in NZ and Australia) I have NEVER had a year of less than 10% return. Several stellar years of far beyond that such as the first TRT year with I think it was 60% (I underperformed the market, too light in property). My mother on the other hand lost about 60% in three months or so, when she decided to invest in the NZSE right before a crash. So I am acutely aware that this is not a constant thing. Share market is volatile, no question.

I'm not going to dig out a whole lot of graphs to say you can make 10-15% consistently in the sharemarket (countless ones exist everywhere). Let's just say that a risk premium above the risk free rate for most share portfolios would be expected to be in the region of somewhere around 5% in most developed markets, and a bit more in the less developed ones. If not....why bother????

Shares have no guarantees, but a market like Thailand rewards people willing to do homework on small to mid caps, and with the amount of money I am investing (piddling) the lack of liquidity is not a big deal, and in fact a bonus as people far smarter than me usually don't analyse these stocks. I know a lot about the companies I invest in, far more than some analyst sitting in Singapore usually, as I personally know the heads of the companies in many cases, or someone else senior. The market here has a lot of off the record information and that's why it is a bad bet for some people who think that it is going to behave like NZSE or Aussie market. I don't have a diversified portfolio, and i am very subject to certain risks in the shipping industry; that said my brother, father and grandfather are all from the shipping industry and so I have access to real time information and can make decisions based on that. my old boss's business model is entirely based on this strategy of small/mid cap stocks in Thailand (he is a fund manager now) and his fund is diong more than double the numbers I've dug out (at the moment....who knows if he can keep doing it?)

Incidentally, choosing high div stocks consistently in a developing market, it would not be hard to hit over 10% in dividends alone; although whether one could do that long term is questionable; who can predict the future?

In the shipping industry the dividend stream is strong enough to match a lot of bond coupons, and they still don't have a payout ratio anywhere near 100%. I guess with P/Es in the 4-6 range, and div yields (depending how you calculate it) as high as 11% that it is hard for a bond to keep up. I guess i could buy the bonds that they are both probably going to issue shortly to fund their fleet upgrades.

Almost all conventional wisdom states a investing in bonds cannot outperform investing in shares long term so long as an investor can eliminate the non-systematic risk (I think I got that around the right way). If it cannot, then there is a major market problem as bonds have less risk than shares and should be rewarded less return as a result. And in particular, small cap stocks tend to have the highest average return in excess of the risk free rate and ALSO tend to have the highest return in excess of the CAPM; the so called small firm effect (Banz I think came up with this one). The risk premium for illiquid stocks is around 5% supposedly according to research by Amihud/Mendelson.

A wise investor diversifies, and govt bonds are great because of the guaranteed income plus liquidity of the market to flick them. Not in Thailand of course, where the bond market is pretty illequid AFAIK. But for other markets...great.

But that said it is all about matching financial goals and requirements to appropriate investments. The reason I named shares is the guy wants to do something; well if he isn't going to be making decent money, might as well be a part owner of some company where he doesn't have to do anything.

Bonds are another option, with even less risk (in some cases) or more risk (in others).

my point was actually, under 25% and for me anyway it isn't worth getting out of bed to do a small high risk business like this. That's my POV for what it is worth.

What percentage of your portfolio is invested in Thailand?

[steveromagnino]

What percentage of your portfolio is invested in Thailand?

Of my personal money in the market, 100%. Moved it in from NZ when the currency was a lot weaker than it is now. I have some in small biz ventures, and a bit in equity.

Of family trust combined with mine, maybe about 20%; rest in Singapore, NZ, Australia and a couple of worldwide funds. Mostly NOT in equities either, as this is the money for my mum to live on/travel/go to casino/look after her increasing health problems.

May invest in a start up biz in Canada, which a friend is doing.

Everything I touch goes ok.

Everything my mother touches turns to whatever the opposite of gold is. She has the sadim touch.

[Sunbelt Asia]

I have noticed that some businesses that are advertised which have been owned and operated and by the seller and are now up for lease, it seems that the lease price has not been factored into the new owners return.

Example. Business asking price 3.5 million baht.

Owners return. 1.5 million baht.

The new business owners lease will be 40000 baht per month, which then would needed to be deducted from the original owners return. Or do the brokers adjust the figures when selling from the existing property owner to new business leasee

The lease should have been deducted along with other expenses such as COS, staff salaries leaving owners return or owners discretionary cash.

Example: Gross Income is 3 million

Rent is 480,000

Staff salary is 320,000

Electricity is 200,000

maintenance is 250,000

Insurance is 50,000

misc is 200,000

Owners Discretionary cash remaining is 1.5 million

www.sunbeltasiagroup.com

[womble]

What percentage of your portfolio is invested in Thailand?

Of my personal money in the market, 100%. Moved it in from NZ when the currency was a lot weaker than it is now. I have some in small biz ventures, and a bit in equity.

Of family trust combined with mine, maybe about 20%; rest in Singapore, NZ, Australia and a couple of worldwide funds. Mostly NOT in equities either, as this is the money for my mum to live on/travel/go to casino/look after her increasing health problems.

May invest in a start up biz in Canada, which a friend is doing.

Everything I touch goes ok.

Everything my mother touches turns to whatever the opposite of gold is. She has the sadim touch.

Well good luck, and i'm sure you've done well for quite a few years, do you not worry though having all your $ in one country? You could take a real hammering, and whilst you are certainly making some decent gains, there are good and even better gains to be had elsewhere.

[steveromagnino]

Well good luck, and i'm sure you've done well for quite a few years, do you not worry though having all your $ in one country? You could take a real hammering, and whilst you are certainly making some decent gains, there are good and even better gains to be had elsewhere.

I believe in watching the eggs carefully, and I just don't have the time or enough $$$ to justify bothering with another market right at the moment.

Once i have more $$ then for sure, diversify; rule of shares I was taught by fund management is:

- pick the region

- pick the market

- pick the industry

- pick the stock

No point in buying index funds and having some fancy diversification strategy for getting around the individual stocks and industry issues if you are in the wrong country.

The amount of savings I have is tiny, but one day Womble....one day :-)