Buy-to-let Investment Thailand
The term "Buy-to-Let" signifies the purchase and ownership of a property through normal procedures (see Purchase Procedure). Once the sale is completed, the owner seeks to rent this property for a regular income, often exceeding annual mortgage repayments.
The "Buy to Let" Market in Thailand
The "Buy-to-Let" market in Thailand is expected to grow rapidly, in line with the current government drive to entice tourists to the existing and new resorts on the island. Buy-to-let properties are high in demand and satisfy the need for more short-term accommodation to keep up with increased tourist numbers, targeted at 10% per annum.
The current tourist industry marketing drive is encouraging not only tourists, but also investors. Property buyers are capitalising on the popularity of the destination and current low prices, with a view to achieving maximum returns on investment from their buy-to-let options.
Buy to Let (Example Only)
A Case Study
John decides to purchase an investment property and after joining the IPIN and discussing his requirements with our investment experts, he decides that the "buy-to-let" investment strategy is the best for him.
John has savings of around €80,000.
Our investment advisors suggest property development X which has been vetted by the IPIN (IPIN Global) as a solid investment opportunity and meets with John's deliverable criteria.
Investment property X is a new development with beautiful sea views and priced at €250,000.
- John pays his reservation fee of €3,000 to hold the property.
- John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid)
- Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.
- John rents out his new property immediately and during the 3 months "High Season" he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leave John with 9 months of rental potential to make a further profit.
If we assume that average rental rates for John’s new property are as follows (conservative figures):
- High season - €2,000 per month
- Low season - €1,300 per month
Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 Months during the high period earning €2,000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.
- 3 months x €2,000
- 6 months x €1,300
Total rental income = €13,800 after subtracting the €5,772 mortgage repayments John has made a profit of €8,028.
During this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable. The above figures are intended as a guide, upon which you will need to calculate your returns according to current rental values in your particular Thai location.
"Buy-to-Let" Potential in Thailand
Thailand has always been a popular, exotic holiday location and it is expected that, despite the current economic and political climate, Thailand will recover its tourist numbers and continue to be the number one Asian tourist destination.
Thailand welcomes foreign investors to the real estate market and actively encourages the purchase of property that will boost its growing tourist industry. Total foreign tourist arrivals to Thailand in 2007 reached 14.5 million, but in 2008, a temporary slowdown is predicted due to the gravity of world economics and political uncertainty. However, for 2009, Thailand predicts slow growth with total arrivals reaching 16 million, up by 3.3%, instead of a forecasted 17-million. Undoubtedly Thailand remains the most spectacular Asian tourism destination and this slowdown is set to regain momentum as soon as current unrest subsides.
The goal of any "buy-to-let" investor is to cover any mortgage payments and generate a secondary income stream from their property investment. Provided the property is selected in a prime location, Thailand allows investors to deploy this strategy. They may cover all mortgage payments and bills for the year with rental income generated from the high season months alone (4 months, November to February).
Short-Term Letting or Long-Term Letting
The final decision to be made by the "buy-to-let" investor is which letting strategy to use. It may seem obvious that the highest income is made by the property owner by letting out short term during the high season. However you must remember the increased overheads involved in regularly finding short term rental clients and the maintenance costs involved between clients. Long term rentals typically bring lower priced rentals but they usually require far less input from the property owner and the rental income is fixed and stable over the course of the year.
Some property owners choose to rent medium term during the low season and then short term to higher paying holiday clients during the high season. The decisions to be made on your letting strategy in Thailand are usually answered in part by the property you purchase and where it is located.
Thai Property Rental
In Thailand "buy-to-let" investments are biased towards the short term strategy due to the current luxury style of the developments that are being built and the huge influx of expected tourists. However some investors may decide to rent at lower rates aimed at the international workforce that have re-located to Thailand and who, to a degree, service the increasing tourist industry.
The "buy-to-let" strategy is not ideal for every investor and it is essential that your rental property is chosen wisely. It will need to be a rentable property in a popular location to allow you to maximize the income from your investment. Even in a very busy market, competition is high. In order to maximise occupancy rates it is vital to achieve the correct formula of location, property, unit and monthly rental charge as this will have a direct result on your rental income.
A great benefit from this type of investment is that during the time the property is being rented out, it is earning the investor an income as well as acting as a holiday home while still appreciating in value.
Tax on rental income is charged at between 10 and 30% of the rental income, depending on the type of property you are renting out.
The "buy-to-let" investment option presents a sound investment decision and developments in Thailand are now ideally positioned for this strategy.
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