HOW TO BEAT INFLATION: Invest in a condo and rent it out

[Khun Don]

HOW TO BEAT INFLATION
Invest in a condo and rent it out
By Jiwamol Kanoksilp
The Nation

Pre-retirement sideline for those with patience


With constantly rising prices becoming a worrying aspect of the economy, people are beginning to search out forms of investment that will deliver returns to beat inflation.

There are various such investments, ranging from stocks and fixed-income instruments through mutual funds, gold and property assets.

The problem is that ordinary fixed deposits at banks are no longer making the grade. While banks are offering interest rates of 1.5 to 3.25 per cent for three- to 12-month fixed deposits, the Bank of Thailand expects inflation to reach 4 to 5 per cent this year, and Finance Minister Surapong Suebwonglee warned just this week that it could reach 5.5 per cent, because of rises in food and oil prices.

This means that money left in bank fixed deposits is quite rapidly losing its purchasing power. Seeking investment channels that keep the value of savings ahead of inflation will depend on your risk profile.

One inflation-proof investment perhaps worth considering is buying a condominium for rent. With good management and prudent procedures, investing in a condominium and then offering it for rent will generate much higher returns than leaving your money in bank deposits. However, it is suitable only for investors with enough money to invest for some years, because nobody gets rich from this business in a few short years.

A condominium for rent will provide a gradual return. It can be a sideline to your current job, something that can become a permanent job in retirement. But it would be wise to begin before retirement.

For example, a condo in a prime location can cost about Bt5 million and you can charge about Bt50,000 per month in rent. After deducting maintenance and other expenses, the payback period can be around 10 years. Normally, the value of real estate rises over a long term, so once you get your money back, you can consider selling the unit when the price is right.

For those who wish to get a mortgage for a condominium, remember that you must have money reserves in case there is a period without tenants and you must foot the repayments personally.

Demand for condos in prime areas of Bangkok is still high, particularly for projects near mass-transit routes. Grade A to B condominiums make good investments as many expatriates coming to work in Thailand need residences within walking distance of the Skytrain or subway. This could make investment in a condominium for rent a long-term business, as long as the government provides an open door for foreigners to work here. Moreover, Thais who wish to live in condos for convenient access to work or education will also be potential customers.

Grade-B and A customers who are able to pay Bt20,000 to Bt30,000 per month, or more, for space of 50 square metres will soon dispel fears that they may be unable to continue rental payments.

Where to find such customers? You can advertise in newspapers or on the Internet, but an easier way may be to find a broker. However, a broker will charge one or two months' rent for a rental contract covering one or two years. Experts say most foreigners prefer a large living area of at least 60 to 70 square metres and the rental fee for this group could be Bt30,000 to Bt50,000 per month.

Location is always the heart of this business. Some expats don't need expensive serviced apartments. They just want a cheaper condo located in central Bangkok. So think about Sukhumvit, Phloenchit, Silom, Sathorn and areas with lots of foreign companies and international schools. Other less-than-prime areas that are still near mass-transit routes include Soi Aree, Ratchadaphisek and Phya Thai.

Another key factor is choosing to buy a unit from a project with credible developers. Don't buy if the project is less than 80 to 90 per cent completed. Check the financial status of the owners, particularly in times of economic slowdown.

The overall atmosphere of the condominium must be attractive, with good facilities including a lobby, garden, swimming pool, fitness centre, security and parking. In addition, the project and the surrounding area must be calm and quiet. This is very important for foreigners. All construction and structural materials must be standard or A grade, and you must also check out the administration of the project.

[kit23]

i know this is an old topic. but i do not want "open" one, just for a few words.

i was in Thailand and i saw a lot of empty condos in Pattaya. i talked with a lot of Farangs who went there to buy-invest in condos/Apartments/flats and then "rent-out" their rooms, because they thought they could live from the "rent-out", for the rest of their lives, like a King.
But they forget a lot of details, for example there is a lot of competition about "rooms", the tourist only go there in high-season, ( from May to October-low-season, it is a Ghost-Town) and Thai people do not go to Pattaya to stay in condos on their holidays.

Guys! the real estate agencies only do their business

[paul_au]

Rent is not a guaranteed income, they can go up and down the same as asset prices, so look at it as a long term investment even in good times.

[FaranginPhetch]

Ain't worth the effort,, 1 month bad renter can wipe out a years good renters..

Been there,,Done that.. No More.

[Slywalker]

One of the mistakes of buying a condo for renting out is targeting the wrong customers. The high end is very difficult and those renters are very picky and change there preferences easily. The 10 years is a good goal but very hard to realize. 50K a month rent is higher middle class or the somewhat better paid foreigner. That segment will disappear the quickest when there is a little economic turmoil.
In my experience it is better to target normal native working people in the lower or middle class segment. Condo's can be bought for around 1M and rented out for 10-12. Even the English teacher crowd can be your target if you prefer westerners.
Even better profits can be made if you look for condo's around 400K and a rental price around 4K-5K. Throw in some furniture or airco to get a better return. A steady income is practically guaranteed. All you need to do is be a notch better in maintenance and service.
Also shop houses are a good investment. With those you often have a shop downstairs plus two to three floors to change into a small 1 bedroom condo.
Prices can be better then for a condo, ROI's are definitely better. Ownership will be more problematic but solutions for that are possible.
As always location will be the most important factor. Match location and the targeted customer and you can make a decent return. It beats the interest from the bank on an ever declining value of paper money in the long run.

[Clashfan]

Hope to see more contribution/posts in this thread soon....

[MK]

As foreigner can we own a shophouse in our own name? The thought crossed my mind before but assumed that shop houses can't be owned by foreign individual.

[Swelters]

First, the good news. Shophouses are a great buy with 2011 prices near BTS stations on the order of 30 percent of condos (per square meter). They can be nicely renovated at reasonably low cost. Living in a dense Thai neighborhood can be much more fun than a condo.

We have been doing small projects like this for several years and have posted some useful info on removed.

Now, the problems. Foreigners cannot own them. But if you have a reliable Thai partner there are workarounds to protect your investment. Also, managing the whole business is not a task for the inexperienced.