Thailand Short-Term Rentals 10.25% Yield
Member since 2023 · 26 posts · 13 votes
Thailand Short-Term Rentals 10.25% Yield
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Ryan MoyerBusiness Member
Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 996 posts · 1k+ votesI don't always spend $80K with strangers on the internet from across the world, but when I do it's with a member that has only 11 posts, all of which are them trying to advertise.
No wait, that's not right.
Cosmic Vacations4.9174 Reviews
62 Replies
- 3yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 996 posts · 1k+ votes
I don't always spend $80K with strangers on the internet from across the world, but when I do it's with a member that has only 11 posts, all of which are them trying to advertise.
No wait, that's not right.
Cosmic Vacations4.9174 Reviews - 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Priti Donnelly, if you are selling something, then drop this in the classifieds section where it belongs. Many more eyes there.
- Member since 2023 · 26 posts · 13 votes3y
My apologies to the group. Sarcasm really wasn't necessary. I am still trying to navigate the site. Thank you @Michael Baum for the constructive input.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Don't be too hard on him @Priti Donnelly. We get more than our share of advertisements in this forum from people trying to make a buck. It gets a bit tiresome after a while. :)
- Kapolei, HI · Member since 2014 · 42 posts · 18 votes3yPriti has a successful investing record in Japan so her response was in line. His wasn’t .
Quote from @Michael Baum:
Don't be too hard on him @Priti Donnelly. We get more than our share of advertisements in this forum from people trying to make a buck. It gets a bit tiresome after a while. :)
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesHi Pritti
Quote from @Priti Donnelly:
International Investors,
The Thai market has opened up with exceptional yield and very affordable. Short-term hotel living rentals under development currently at 8% will have yield of at least 10.25% by April 2024. Prices are USD $80K and less.
Happy to share more info.
--Priti Donnelly
your statement “ Will have a yield of at least 10.25% by April 2024” is incomplete. As it stands you are stating something nobody can accurately predict, less could KNOW. what if Covid hits again? What if we have a 9/11 repeat? What is we have a 2008 style financial crisis? An accurate statement would include the words “in my opinion” and the disclaimer that return is not guaranteed.
‘The reason I am pointing this out is that unless you temper the “absolutes” you will draw the criticism of the more knowledgeable BP participants and probably will not have much success with your marketing campaign.
Also, numerous people have posted on BP in attempts to sell something. They have been uniformly frustrated, unsuccessful, and engaged in bitter arguments with BP members pointing out the shortcomings of their offering, or the perceived shortcomings of their related qualifications. The people who have had success follow one of two formulas; either they engage as participants in BP forums often answering posts or initiating new posts, NONE of which they direct in any way to the product or service they are selling. In other words they exhibit expertise in an area of real estate; some become known as the “go to person” for that niche, and they are mentioned whenever somebody asks for a recommendation involving the particular niche that person represents. For example we have members constantly mentioned when someone asks for a recommended expert in such areas as subject to, hard money, private lending, BRRR, multi family, syndication, non performing notes, performing notes, STR, Probate sales, foreclosure sales, wholesaling, fix n flip, etc.
The second way is to spend the “big bucks” and advertise on BP. This allows the marketer to put forth a strategic advertising campaign, targeting likely prospects, and creating a funnel of interested potential customers who self identify by contacting the marketer seeking more information.
BP does have an area where a member can post marketing/selling posts. I don’t know the effectiveness of this method of marketing, but I’ll guess that a lot of it has to do with the quality of the offering, and all that entails. - 3yMike LambertPro MemberInvestor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
I have followed the Thai market out of curiosity but, even though I'm an international investor, I'll never invest there. Two main reasons:
1. I have made the decision to only invest in Canada, the US, Latin America and Europe for legal reasons. In these countries, foreigners are treated equally to locals. In Thailand, they're not. While foreigners can own a condo freehold, they can't own the ground, which is a bit silly because, as we know, when you own a condo elsewhere, you own part of the land (common parts) and how can you really own a property without the land that's under. Also, I believe that locals need to own and therefore control the majority of the buildings. Regardless of these "details", it shows that the country's legal system discriminates against foreigners so think about who's going to win if you have to bring a Thai individual or company to court!
2. The profitability is way too low in my opinion. I'm not sure how you get such figures and, even if you could, is it worth the risks or headaches to make 8% of $80k = $6,400 per year gross? Generally speaking, short-term rental rates in Thailand are low compared to other countries with a lot of tourism, as are luxury hotel rates so how much would anyone pay to rent one of these minuscule shoebox condos, which they're building by the boatload it seems?
- Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes3y
How are you able to get financing for international STRs?
- Member since 2019 · 7k+ posts · 4k+ votes3y
Since this is investor forum :
1. How's the title being formulated for foreign buyer ? Is it Fee simple equivalent or leasehold ?
2. What's the cons of investing in Thailand ?
3. What's the difference in term of law when buyer is local and foreign like us ?
4. What's the issue with the tax ?
5. What's the comparable yield in the same city/town ? Why this property is so special ?
6. Who is managing the property ?
7. How's the insurance work there ?
8. What's the appreciation rate if any ? is there historical track record ?
9. What's the status of the building ? who owns it ? are they credible ?
10. Is this investment already established or is it ground up new project ? - Member since 2023 · 26 posts · 13 votes3y
Thank you for your input. My post was intended for people to contact me if interested, but in doing so, posted it to the wrong section. And, yes, I agree with you, in this context the 10.25% appeared ambiguous. Let me try to clarify without sounding salesy. This is an actual project under development in Thailand, 6 hotels on 64,000 sqm. They are Wyndham licensed short-term rentals under the Ramada brand. Because the project is a commercial asset class in an international hotel chain, these short term rental yield higher than residential properties. Based on the area,
yield has already reached 8.98% with occupancy rates at 55%. Occupancy rates have been climbing and close to 65% where it was prior to covid. By April 2024 yield is projected to be at 10.62% or higher.You asked, what if covid hits again. Even though the project is expected to be completed in one year, the developers have put a contingency in place for investors of 8% cash back for up to two years. On the 3rd year if the project is not completed, investors can request a refund as part of their contract.
I appreciate your advice on more effective ways to use BP to advertise and will certainly take it into consideration. I used to post in the “International” section, and thought I was doing that, but the site has changed and clearly I posted in error. My apologies to the group once again.
- Member since 2023 · 26 posts · 13 votes3y
Thanks for your comments.
Although investing in the major cities in Thailand has been increasing in popularity, it is personal choice. That being said, I would like to clarify a few points as my initial post was a bit vague. The benefits to investors with Thailand are affordability and higher yield, unlike Canada, US, UK, Australia and other parts of Europe. Yes, your concerns are quite valid if you are investing in a residential condo -- you would own the condo but not the land it is on. This project however is owning a suite that is part of a commercial asset class in an international hotel chain, very different investment from investing in a residential condo. Happy to introduce you to the developers if you wish to explore the profitable differences between the two asset classes.
Regarding yield, 8% is the cash back for up to two years during the development. Upon development, yield is expected to be at 10.62% or higher. The hotel rate is approx. USD $51/night which can vary depending on occupancy. Yes luxury hotels have higher rates, but you cannot invest in individual suites; you would have to purchase the whole hotel.
Regarding comparisons to other countries, I have worked with the Japanese market for over 8 years. 8% is definitely high yield. In Japan that kind of yield would not be found in Tokyo, but in the higher risk areas where occupancy rates are lower. Also, the language barrier poses challenges for investors. I would be interested in knowing which countries you know of that have more than 8% yield and affordable.
As for the location, it is in Jomtien in a tourist attraction area. Columbia and Sony have also chosen this area for their theme parts because of its easy access and proximity to major cities.
I would like to know about the “headaches” you are referring to. The benefit of this project is that it is fully maintained by Ramada, and when you are not using it, they will rent it out for you as well. Also, rooms are refurbished every 5 years at no cost to the investor.
I recognize Thailand might not be for you, but I hope I have clarified any misconceptions.
- Member since 2023 · 26 posts · 13 votes3y
Thanks for your question. The developers have no debt – no bank or private loans. They have 7 projects in total, all self-funded. Therefore, they can set their own terms.
Instead of getting 8%, for a suite, or several suites, investors can opt for developer funding. 25% deposit, with interest free payments on the balance over 17 months, and a balloon payment of 20% on the 18th month, payable when construction is complete.
Not sure if that answers your question. If not pls let me know. Happy to clarify.
- Member since 2023 · 26 posts · 13 votes3y
Appreciated, thank you.
- Member since 2023 · 26 posts · 13 votes3y
Could you clarify what you mean about the risks from China?
I am going to assume to mean what if travel restrictions are imposed on them once again? The project is 1 hour from Bangkok with a population of 14 million people. So, in case of international travel restrictions, occupancy rates won’t be affected as a large number of visitors are only an hour away. The developers are not relying on the international market for yields and returns.
If that was not what you were referring to, please clarify. Thank you.
- 3yMike LambertPro MemberInvestor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
Just to clarify, the comments that have been made about posting here didn't point to the fact that you should have posted in the international forum but rather to the fact that the only place you could have posted are the classifieds if you follow the rules.
Now, regarding your answer to my comments, the fact that this is a condotel investment makes it even less attractive in my book. You have absolutely zero control on your property and you have to hope that the managers will make these figures, who I'd take with a pinch of salt given that they come from those who market the project.
It's definitely not for me but I'm sure there are investors who think this is something for them, whether they understand what they're doing or not and the risks they'd be taking. For me, it makes no sense to me to make such an investment in the hope of making an unproven 8 to 10% gross return before expenses and taxes in a politically unstable country that doesn't grant equal rights to foreign owners and in which you have absolutely no control over your property and all of this to maybe net $2,000 or $3,000 a year if all goes well.
As to the developer funding, this is what I call fake financing. Basically, it's the buyer who is advancing money and lending to the developer (and not the other way round) so the developer doesn't give any financing to the buyer. So the fact that it's interest-free is no advantage as in of course it's interest free. If it wasn't, it'd mean that the buyer/lender would be having to pay interest to the borrower! Basically, it's a payment plan and there's absolutely no financing (of the buyer) involved.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Avoid doing anything the jose carl says. Just say no to trollers.
- Member since 2023 · 26 posts · 13 votes3y
@Carlos Ptriawan sorry for the delay. I had to check with the developers on a few of your questions.
1. It is a commercial class asset, 60 year leasehold
2. The cons of investing in Thailand are that it is governed by Thai law, something you might not be familiar with. That being said it is a popular place for foreign investing because of its democracy.
3. The main difference between foreign an local is the percentage of ownership. With residential condos only 49% can be foreign owned. But, under a commercial class, it can be 100% foreign ownership.
4. Several countries have agreements with Thailand to prevent double-taxation.
5. Insurance for hotels and resorts and their individual rooms are paid under international insurance policies through Ramada hotels. This is part of the operational costs.
6. With new freeways, high speed train, upgraded airport and other infrastructural developments in the area of the hotel, land and real estate have seen steady capital growth.
Happy to chat on a call if you'd like more information.
- Member since 2023 · 26 posts · 13 votes3y
@Mike Lambert you are correct in your language, it is a "payment plan" and not financing.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Priti Donnelly:
@Carlos Ptriawan sorry for the delay. I had to check with the developers on a few of your questions.
1. It is a commercial class asset, 60 year leasehold
2. The cons of investing in Thailand are that it is governed by Thai law, something you might not be familiar with. That being said it is a popular place for foreign investing because of its democracy.
3. The main difference between foreign an local is the percentage of ownership. With residential condos only 49% can be foreign owned. But, under a commercial class, it can be 100% foreign ownership.
4. Several countries have agreements with Thailand to prevent double-taxation.
5. Insurance for hotels and resorts and their individual rooms are paid under international insurance policies through Ramada hotels. This is part of the operational costs.
6. With new freeways, high speed train, upgraded airport and other infrastructural developments in the area of the hotel, land and real estate have seen steady capital growth.
Happy to chat on a call if you'd like more information.
The #3 is super important and need to be mentioned before any offering.
If you have proper marketing brochure from this builder or similar one, let me know.
Next question would be the appreciation since it is 60 years leasehold with 100% foreign ownership is allowed. Is there's story about the local market structure where similar offering has been offered in the past, that would be nice. - 3yMike LambertPro MemberInvestor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
In your answer to @Carlos Ptriawan, you mentioned "With residential condos only 49% can be foreign owned. But, under a commercial class, it can be 100% foreign ownership" after you wrote "It is a commercial class asset, 60 year leasehold". So, under a commercial asset class like that deal, you actually own nothing because you just lease.
So, let me do a quick and dirty calculation, assuming that your figures are correct. You invest $80,000. Every year, you make 10.25% of that in gross rental income if all goes according to plan, which comes down to $8,200 a year. Let's assume that you make 50% of that net before taxes or $4,100. So, over the 60 years of the lease, you'll have made $4,100 * 60 = $246,000 - $80,000 = $166,000 because you won't make any capital gain since you don't own the property. That's a 207.5% return ($166,000 / $80,000) but over 60 years. Using the compounding formula, that translates into an annual return of 1.89%! That's a far cry from the advertised 10.25%!
Who would make that kind of investment with all the associated risks and hassle when anybody can buy today a risk-free 30-year US treasury bond that gives them a 4.285% annual return at the click of a mouse or a call to their broker?
Investing internationally is a great idea, especially now that the US has lost its cheap financing advantage. However, investors need to know what they're doing and work with people who have their best interests at heart. Please note that this is a general comment and there's no judgement about you here. But I've come across so many US investors who have bought pre-construction overseas and have been deceived by misleading marketing materials when it comes to the returns they can realistically hope to make. People need to make their own calculations. The calculation I made is pretty simple. Everybody can do it!
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Mike Lambert:
In your answer to @Carlos Ptriawan, you mentioned "With residential condos only 49% can be foreign owned. But, under a commercial class, it can be 100% foreign ownership" after you wrote "It is a commercial class asset, 60 year leasehold". So, under a commercial asset class like that deal, you actually own nothing because you just lease.
So, let me do a quick and dirty calculation, assuming that your figures are correct. You invest $80,000. Every year, you make 10.25% of that in gross rental income if all goes according to plan, which comes down to $8,200 a year. Let's assume that you make 50% of that net before taxes or $4,100. So, over the 60 years of the lease, you'll have made $4,100 * 60 = $246,000 - $80,000 = $166,000 because you won't make any capital gain since you don't own the property. That's a 207.5% return ($166,000 / $80,000) but over 60 years. Using the compounding formula, that translates into an annual return of 1.89%! That's a far cry from the advertised 10.25%!
Who would make that kind of investment with all the associated risks and hassle when anybody can buy today a risk-free 30-year US treasury bond that gives them a 4.285% annual return at the click of a mouse or a call to their broker?
Pretty much this is my question. Like in Hawaii , all leasehold property are losing value.
However, leasehold property in Bali, could gain value and appreciating.
This is where Priti knowledge would be crucial. In other words: is the foreign owned commercial class property would appreciate in value although it's a leasehold ? - Member since 2023 · 26 posts · 13 votes3y
@Mike Lambert actually by owning the suite there are capital gains as well. The average from 2009 to 2020 was 5.43%. Why would you calculate over 60 years? The buyer can sell whenever they want.
Of course, there are many other options.
- 3yMike LambertPro MemberInvestor · The Americas and Europe · Member since 2016 · 1k+ posts · 1k+ votes
You are the lessee and the capital gain related to the value of the property belongs to the owner.
Mind you, you could resell the lease and make a capital gain in theory. But that's very unlikely because, as time passes, the value of the lease goes to $0, all other things being equal. For that to happen, the hotel rates would have to rise substantially to compensate for the value of time but, eventually, the value of your lease goes to $0 so you'd need a quick and significant hotel rate appreciation and you'd need to sell quickly.
By the way, in my quick and dirty calculation, I underestimated the return in that I assumed that the net income remains constant over the 60 years and hopefully they'll go up. So, the return will be higher but not significantly and the US 30-year treasury bill will still be a better investment.
I calculate over 60 years because, after 60 years, the lease is over and you're out. I assume you could renew the lease without a guarantee but you'll have to pay again so it comes down to the same thing.
- Kapolei, HI · Member since 2014 · 42 posts · 18 votes3y
Quote from @Mike Lambert:
I have followed the Thai market out of curiosity but, even though I'm an international investor, I'll never invest there. Two main reasons:
1. I have made the decision to only invest in Canada, the US, Latin America and Europe for legal reasons. In these countries, foreigners are treated equally to locals. In Thailand, they're not. While foreigners can own a condo freehold, they can't own the ground, which is a bit silly because, as we know, when you own a condo elsewhere, you own part of the land (common parts) and how can you really own a property without the land that's under. Also, I believe that locals need to own and therefore control the majority of the buildings. Regardless of these "details", it shows that the country's legal system discriminates against foreigners so think about who's going to win if you have to bring a Thai individual or company to court!
2. The profitability is way too low in my opinion. I'm not sure how you get such figures and, even if you could, is it worth the risks or headaches to make 8% of $80k = $6,400 per year gross? Generally speaking, short-term rental rates in Thailand are low compared to other countries with a lot of tourism, as are luxury hotel rates so how much would anyone pay to rent one of these minuscule shoebox condos, which they're building by the boatload
Investing in Thailand is difficult. I actually did it and made money but it was from buying land . I worked there, had a work permit, set up a Thai SEC registered company to do it and had financing from Siam Commercial Bank. It can be done (the most successful Thai RE investor is an American citizen and there are others) but it is many hoops to jump through and in retrospect I would not do it again for many of the reasons you cite.
Can you share where you gave had the most success in Latin America and Europe and how/why?
Mahalo
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