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Properties, Return on Investment – and a new Law!

by Heiner Moessing

It been discussed on social media already: there is a new law about the renting out properties. It only affects landlords who rent out 5 or more properties, so for most owners and real estate companies it is business as usual.

The new law will give greater protection to tenants dealing with ruthless landlords, who don't return deposits, don't maintain the property and intimidate their tenants. We at Siam Properties have heard stories like this but although we are doing more rentals now than ever we may only see 1 or 2 critical cases per year, half of them due to the landlord, the other half caused by the tenants. Another reason why owners and renters should involve an agent! Less conflict if you are doing it properly! -so have a look at the extra box on this page as we now focus on ROI...

There has been intense discussion on Facebook with all the usual whining about bad returns, agents pushing buyers into investments, no lights on at the new condo buildings at night etc.etc. So lets assume a person weighing more than 120 kg, smoking 2 packs of cigarettes per day, drinking 10 beers and takes his meals at a fast food stall gets a heart attack! Is it the doctor's fault? A lot of people get cheated or badly advised by useless agents and people who have lived here already for several years and think they know everything. Social media is full of people who have made mistakes but still think they are super sharp and the world (Pattaya) is bad.

Then there are property owners who listen to well informed and honest agents, build up a rental portfolio and do extremely well.

If I open a car rental I would not equip my business with cars I like but with cars that are reliable, low cost at high mileage. In my experience this is the most common mistake of property buyers. One customer once told me” I don't like the condo” - I answered him”you don't need to as you don't want to live there, but there is a huge demand exactly for this kind of unit”.

The so called “Thai Quota” or “Thai Ownership” is not very popular with foreign buyers but ROI is rent in relation to investment. You will not get more rent for a foreign ownership unit but you probably pay less for Thai Quota, There are always 2 sides to the equation! Depending on the client's personal situation there might be interesting solutions an experienced agent can offer.

Location, location, location – the 3 most important criteria for real estate as we are always told. Even more important if you want to rent out the property. And now, as the police are busy checking alcohol levels of drivers this gets a new twist. Baht taxi rout now means “to rent or not to rent, that is the question”. Shakespeare knew this already.

As a landlord you are a businessperson so you have to know your market! What kind of property has the highest demand? Common sense tell us, that you can sell more Toyotas than Bentleys. As nice as the duplex penthouse might be, most people opt for a 1 bedroom.But there is also a very strong high end rental market as the east cost of Thailand (especially the hinterland”) attracts more and more international companies with foreign “expats” who usually have a high allowance for rent. Again, the CEOs or MDs have nice monthly budgets, but they come with wife and kids, so the proximity to international schools in important. And they have long working hours so every minute they can save to commute is precious! And technicians and middle management don't have 100 000 Baht per month for rent.

Retirees: now a big market, many foreign couples with no family ties to Thailand spend half of the year (for example the European winter) or even the whole year in Thailand.

Again, know your market, they might get 50 000 Baht pension per month and can only spend a part of that on rent! Or people who work on oil rigs: 30 days of hard work, 30 days off, a common situation.These people earn good money and if the rent is not too high, they will rent for the whole year and travel back and forth without luggage.

I could write a couple of more pages about the rental market but I hope I could sensitize

the reader what to consider to be a successful landlord.

So what return can you expect?

My formula is “5 + 5 =10”: get 5 % return after costs but before taxes and buy in good locations to get another 5 % in capital gain. 10% and we are in paradise, might not happen at all and not for every year. The rental return is the easy part if you know what you are doing, the capital gain might be lower and can only be achieved over a longer period. Property investment is not day trading, so don't get in a position where you have to sell! “Immobilia” is Latin,meaning “property that cannot be moved”. If you need to cash in buy gold, but that you cannot rent out!

So here we are with yearly returns of 5, 6 or 7 % (10%?)- not bad at all compared with interest rates banks are offering nowadays. And even not bad compared to rental returns in Europe or the US. And when your are living in Thailand – the rent is paid in Baht, the same currency you pay your groceries with! No problem with exchange rates going up and down.

Renting out is like any other business: the product must be good and you have to know your market. If you focus on this, it will be successful and my customers have been doing well over the last 23 years. Everything else we leave to the experts on facebook and elsewhere.

The New Law:

The most comprehensive summary you will find is on the web page of the law firm Tillek & Gibbins, btw a top address if you need a excellent lawyer.

In short;

  • The law only affects landlords with 5 or more properties

  • The maximum security deposit is one month’s rent

  • The maximum advance rental fee is one month

  • The tenant can terminate the lease with 30 days notice

  • Surcharges for electric and water are not allowed

  • Landlords are not allowed to block access to the property for example by changing locks

  • Landlords are not allowed to seize personal belongings of tenants to cover for rent or utility bills

For more please visit www.tilleke.com and search under “resources” for a pdf “New Contract Controls,,,”and pay attention to the disclaimer at the end of the article.

Furthermore: I am not a lawyer but a real estate agent, so this article is in no way a legal advise. Always contact your lawyer!