Formula for monthly rent into 30-year lease?

[Trujillo]

Let's say you are renting a house for 10,000 baht a month (to make it easy to calculate). You like the place and the landlord is willing to give you a 30-year lease. What is the formula for the total price of the lease? Obviously, it can't be the full equivalent of 10,000 baht a month times 360 months (3.6 million baht). Or can it? 

What do the people in the know have to say? 

[true blue]

I would say the price an the lease are two separate arrangements

[Trujillo]

Of course they are two separate arrangements. 

My question is how does one value the property for a 30-year lease given that it has been renting for 10,000 baht a month on a month-by-month basis?

[jobin]

Offer 1/3 the total (1m ++), in advance, and listen to the response.  You might be surprised.

[SOUTHERNSTAR]

If you lease year on year you will get at least one month free, even two months. But the correct formula is complicated as it involves financial formulas. Step 1 you must determine an assumption on the discount rate to be used. The discount rate is the interest you can earn on the money minus the inflation rate. For example if you assume an interest rate over the 30 years of 5% and an inflation rate of 3% the discount rate will be 2%. This rate is then used to workout the present value of future payments. In other words the B 10 k per month over the 30 years are worked back to a present value. That is the value you should pay. Hope it makes sense, you can do the calculation on an Excel spreadsheet.

[Morakot]

Yes, start off with 1 mil and set 2 mil max if necessary!

Edited August 16, 2016 by Morakot

[Griffo63]

I don't understand why you would want a 30 year lease or why your landlord would want to grant one. 

 

So much can happen over 30 years (make up your own list but think what has happened over the past 30 years) that committing so far ahead is full of risk and from the landlord point of view the opportunity to increase rent every 3 years or so is reduced. 

 

I'd start by offering to enter to 3 year agreement at (say) 100,000 baht per year

[alfieconn]

12 minutes ago, Griffo63 said:

I don't understand why you would want a 30 year lease or why your landlord would want to grant one. 

 

So much can happen over 30 years (make up your own list but think what has happened over the past 30 years) that committing so far ahead is full of risk and from the landlord point of view the opportunity to increase rent every 3 years or so is reduced. 

 

I'd start by offering to enter to 3 year agreement at (say) 100,000 baht per year

 

Because it is closest a foreigner can come to actually owning the property !  if the price is the same on a 30 year lease as buying it outright then why wouldn't the landlord want this arrangement ?

[alfieconn]

4 hours ago, Trujillo said:

Of course they are two separate arrangements. 

My question is how does one value the property for a 30-year lease given that it has been renting for 10,000 baht a month on a month-by-month basis?

 

I always thought that the price on a 30 year lease is the same as buying it outright, something i could never understand as there should be some sort of discount !

[dru2]

22 minutes ago, alfieconn said:

 

Because it is closest a foreigner can come to actually owning the property !  if the price is the same on a 30 year lease as buying it outright then why wouldn't the landlord want this arrangement ?

 

If the price for a 30 year lease is approximately the same as purchasing the property, then why not buy it in the name of a Thai partner or good friend and immediately have it transferred to your usufruct (50 Baht, 20 minutes) for the rest of your life - perhaps you will live longer than 30 years! Also, in this way, you can leave the property to a friend, loved one, future partner... or even get the landholder to sell it for you.

 

Usufruct (setigepkin) is really easy and fast here in Chiang Mai, and your name goes on the back of the land deed, stating '(name of Thai land owner) has transferred all rights to live on and use this land to Trujillo for the rest of his life'. That's about as secure as it gets for us in Thailand at present.

 

Amazingly, when I did this and my wife went to register another property in her own name - nothing to do with me at all - the Hangdong amphur actually refused to transfer the property into her name until I had gone into the office and agreed to it! She wasn't particularly pleased, but the amphur were actually, unbidden, making sure that my rights were fully protected.

 

Best of luck - Dru

 

 

 

Edited August 16, 2016 by dru2

[Griffo63]

I still don't understand why you'd want to commit to and pay for 30 years ahead but I guess it's your call. 

 

Property valuations on vary but the most common conversion to/from rental to/from value is to take the rental value and multiple by 150-200 to find the value or vice versa to establish a rental price. 

 

So your landlord has an asset worth 1.5m - 2.0m baht ( based on 10000 baht per month) . So something around those figures gives him a fair price for a 30 year lease and he still maintain ownership.

 

Other suggestions about buying outright etc make more sense if you can persuade your landlord to do it but Thais are very reluctant sellers ( I'm assuming your landlord is Thai) so your 30 year lease idea might make more sense. 

 

Likewise though Thais have a poor record of sticking to contracts/agreements so take good care

 

[bark]

46 minutes ago, dru2 said:

 

If the price for a 30 year lease is approximately the same as purchasing the property, then why not buy it in the name of a Thai partner or good friend and immediately have it transferred to your usufruct (50 Baht, 20 minutes) for the rest of your life - perhaps you will live longer than 30 years! Also, in this way, you can leave the property to a friend, loved one, future partner... or even get the landholder to sell it for you.

 

Usufruct (setigepkin) is really easy and fast here in Chiang Mai, and your name goes on the back of the land deed, stating '(name of Thai land owner) has transferred all rights to live on and use this land to Trujillo for the rest of his life'. That's about as secure as it gets for us in Thailand at present.

 

Amazingly, when I did this and my wife went to register another property in her own name - nothing to do with me at all - the Hangdong amphur actually refused to transfer the property into her name until I had gone into the office and agreed to it! She wasn't particularly pleased, but the amphur were actually, unbidden, making sure that my rights were fully protected.

 

Best of luck - Dru

 

 

 

Yes, I agree. with above.

Why would want to sign for 30 years. The landlord will not fix anything as he know you are stuck.

10,000 baht a month is a good price for a house. Do 2 year lease. After 2 years see how you feel.

Maybe by that time you meet a Thai girl, etc etc.

Good Luck

[KhonKaenKowboy]

If you are recording the lease on the chinot; you will pay 1% of the total.  monthly x 360 x .01....We used 500,000 for 30 years...they wouldn't accept 300,000.

[Dante99]

3 hours ago, alfieconn said:

 

Because it is closest a foreigner can come to actually owning the property !  if the price is the same on a 30 year lease as buying it outright then why wouldn't the landlord want this arrangement ?

probably because he would not get paid all up front and thus have to wait a long time for his money.

[alfieconn]

iv'e always imagined he would get paid up front, so are you saying the landlord would have to wait 30 years for his money ?

 

Taken from another thread    Think about it for a minute and give me one good reason why a Thai landowner should " finance" the purchase for you by allowing you to effectively finance you purchase via lease payments. If they have land and want to sell, they want their money up front. The concept of "lease to buy" doesn't exist here and if you think they care about selling to you they don't

Edited August 16, 2016 by alfieconn

[Dante99]

It is about a house not land.  

 

It is also not about a purchase, it is about a lease.

 

And no I did not say the owner would have to wait 30 years to get his money that would be simply stupid for an owner to accept.

 

You have a lot of semi-random thoughts.

[Mapguy]

In my experience, the tax calculations are done when the lease is registered and the chinote prepared based on an estimate of "fair market value."

Edited August 16, 2016 by Mapguy

[seancbk]

11 hours ago, alfieconn said:

 

Because it is closest a foreigner can come to actually owning the property !  if the price is the same on a 30 year lease as buying it outright then why wouldn't the landlord want this arrangement ?

If you lease a place for 30 years that is not the same as owning it.   That is the same as leasing it for a year and renewing the lease each year.

A lease agreement can be terminated with one months notice, whether you sign a one year lease, a 3 year lease or a 30 year lease.   You are just a tenant.

The owner of the property is going to want to increase the rent each year or so depending on the current market.   Why would anyone agree to the same rental each month on a place for 30 years?!!

Edited August 16, 2016 by seancbk

[MyFriend You]

19 hours ago, Griffo63 said:

I don't understand why you would want a 30 year lease or why your landlord would want to grant one. 

 

So much can happen over 30 years (make up your own list but think what has happened over the past 30 years) that committing so far ahead is full of risk and from the landlord point of view the opportunity to increase rent every 3 years or so is reduced. 

 

I'd start by offering to enter to 3 year agreement at (say) 100,000 baht per year

Paid in advance of course - carrot on a stick........

[hml367]

9 hours ago, Mapguy said:

In my experience, the tax calculations are done when the lease is registered and the chinote prepared based on an estimate of "fair market value."

 

My landlord (me!) pays annual income tax on the lease payments.  This is separate from the tax paid when we registered the lease at the land office.

[hml367]

8 hours ago, seancbk said:

If you lease a place for 30 years that is not the same as owning it.   That is the same as leasing it for a year and renewing the lease each year.

A lease agreement can be terminated with one months notice, whether you sign a one year lease, a 3 year lease or a 30 year lease.   You are just a tenant.

The owner of the property is going to want to increase the rent each year or so depending on the current market.   Why would anyone agree to the same rental each month on a place for 30 years?!!

 

My lease agreement has the monthly payments spelled out and any changes must be agreed by both parties.  My lease was for a total of 30 years, not year by year and not similar to a year by year lease .   A lease longer than 3 years is supposed to be recorded at the land office.

[seancbk]

1 hour ago, hml367 said:

 

My lease agreement has the monthly payments spelled out and any changes must be agreed by both parties.  My lease was for a total of 30 years, not year by year and not similar to a year by year lease .   A lease longer than 3 years is supposed to be recorded at the land office.

What protections are there to stop the landlord forcing you out by increasing the rent significantly?

Where I'm from the owner of a property can increase the rent to whatever they like once the current lease is up.   It's not uncommon for landlords to want double the rent knowing that will force the current tenant to move out.

I get that you have a 30 year lease, I just don't quite understand how the owner has decided on what to charge after the first couple of years.   He doesn't have a crystal ball (and neither do you) so how do you have any idea what the market rates are going to be in 5 years or 10 years, let alone 20-30 years?

 

[hml367]

The monthly amount is written into the lease, which is a contract, which is legal in Thailand.  It states 360 monthly at a certain amount.

 

Edited August 17, 2016 by hml367

[seancbk]

1 hour ago, hml367 said:

The monthly amount is written into the lease, which is a contract, which is legal in Thailand.  It states 360 monthly at a certain amount.

 

I'm staggered to think anyone would agree to an amount of rent that far into the future.   Unless the property is a pile of bricks in an area where rentals aren't going to rise much
 

 

[GOLDBUGGY]

On 16/8/2559 at 0:19 PM, dru2 said:

 

If the price for a 30 year lease is approximately the same as purchasing the property, then why not buy it in the name of a Thai partner or good friend and immediately have it transferred to your usufruct (50 Baht, 20 minutes) for the rest of your life - perhaps you will live longer than 30 years! Also, in this way, you can leave the property to a friend, loved one, future partner... or even get the landholder to sell it for you.

 

Usufruct (setigepkin) is really easy and fast here in Chiang Mai, and your name goes on the back of the land deed, stating '(name of Thai land owner) has transferred all rights to live on and use this land to Trujillo for the rest of his life'. That's about as secure as it gets for us in Thailand at present.

 

Amazingly, when I did this and my wife went to register another property in her own name - nothing to do with me at all - the Hangdong amphur actually refused to transfer the property into her name until I had gone into the office and agreed to it! She wasn't particularly pleased, but the amphur were actually, unbidden, making sure that my rights were fully protected.

 

Best of luck - Dru

 

 

 

I agree that other then condo property ownership in which you fall into the 49% Class, that the Usufruct is about as good as it gets in Thailand.

 

However a Usufruct is only valid and in force for as long as your life is. So if you plan to pass this property onto a Love One, like your wife, then you had better be sure she is the one listed as the owner.   

[Dante99]

32 minutes ago, seancbk said:

I'm staggered to think anyone would agree to an amount of rent that far into the future.   Unless the property is a pile of bricks in an area where rentals aren't going to rise much
 

 

How about if the rent amount is very appealing?  Depends on one's circumstances.

 

Anyway who said it was an arms length transaction?  Nobody, right?

[KhonKaenKowboy]

45 minutes ago, seancbk said:

I'm staggered to think anyone would agree to an amount of rent that far into the future.   Unless the property is a pile of bricks in an area where rentals aren't going to rise much
 

 

It's common in commercial properties.  Real Estate Investment Trusts call them "triple net leases," which means the tenant pays rent, insurance/taxes, and maintenance.  Many hotels operate this way, too.  Conrad Hilton built his empire without owning one talang wah of land or building.  Was on Siri Mangkalajarn yesterday...Prime parcel for long term lease....and as prime land values skyrocket; you will see much more leasehold type properties.  Quite a few leasehold condos at Hua Hin.  http://www.investopedia.com/terms/n/netnetnet.asp

[GOLDBUGGY]

I don't think you will find too many people in the know here in your case as I think most people here wouldn't get into this type of lease you plan to make and as you described. You also never mention quite a few important factors, like if your planned lease is all cash up front, or monthly payments. 

 

If it is all cash then it makes no sense to give someone the full value of the property of 3.6 M to lease it, when you can buy your own, or even the one you like from this owner, at this same price. Then have it in your Thai Wife or Thai Child's Name, so you can pass this property on to them after you are gone. As someone mentioned, at a 5% return on an investment worth 3.6 M, you would get about 15,000 Baht a month. So then it makes more sense to invest your money, pay your 10,000 for rent, and pocket the extra 5,000.

 

If it is in monthly payments, and the owner wants the same price you are paying now for rent, then it would be okay to lease it at the same price for 30 years. You have to give up mobility, and will probably get stuck fixing everything yourself, but at least this protects you against any further rent increases for many years to come and having to move again. 

 

But if you are just looking at what would be a fare Lease Price under the conditions you described I would look at a few things first. For example what is the true value of this property? The true value being of course what it can sell for, and not what he thinks it is worth.

 

Is it worth 3.6 M, or more, or less? This is important as it tells you how much money the owner has tied up in this place and what he can sell it for. If the property is worth 12 M, and you are only paying 120,000 a year, then you are renting (or leasing) this property for only 1%, which is a good deal for you.  

 

If you insist on leasing this property, then the best advice I read here is to offer him 300,000 for a 3 Year Lease or Rental Agreement. If you want to stay long term then look at other possible ways you can do this. Paying the full value of this property to only lease it for 30 years is not worth it. I also doubt the owner would let you have it for much less when he can rent it out for 10,000 a month to people like you.  

[Trujillo]

This was a thought question. 

My landlord will never sell, my rent is not 10,000 baht a month, I am not married nor do I have a kid to buy property for me. 

 

The reason I might want a long lease on where I live, even though that is impossible, is because it's a great location and great grounds. Pretty much nothing will change given the way the property is situated.