So you want to be a landlord?
Rental income done the easy way
I’m not sure when it started, but recently I’ve noticed a phenomenon in Pattaya I had not seen before. Guaranteed rental income from properties is all the rage these days. It started with a few international name-brand condo buildings that use this business model worldwide. But I was shocked when I saw some newer villa developments using it for single family homes.
“Guaranteed” rental agreements are a marketing tactic aimed directly at a certain segment of the buying population. Buying property and making it work for you as it appreciates in capital value is a pretty solid plan; especially in a dynamic market like Pattaya.
I’m not the first genius to figure this out, so that piece of the buyer’s market pie is a pretty big one. What’s more, these types of buyers are usually very serious and have cash in hand. So, it should come as no surprise that developers would attempt to lure them in with such a simple solution as a “guaranteed” income for a certain period of time.
With that said I don’t know a single person who has ever purchased one of these properties and have no idea if it really works. I should have absolutely no opinion about
guaranteed rental deals at all … right?
As you might suspect, I have plenty to say. As I’ve said before; I’ve never personally seen it work. If it was such a great deal, there should be dozens of people bragging about their 8% guaranteed income rolling in right?
Secondly, there is absolutely no way a developer could afford such a promise unless they built the cost of this payout into the purchase price. Most people figure that out right away as there is absolutely no negotiation room when it comes to properties on offer with guaranteed income contracts.
The final objection I have to the guaranteed income deal is a very old business axiom; “if it seems too good to be true” … well you know the rest. Annual guaranteed return deals range from 6 to 10%. A 66% variation seems like a lot doesn’t it? But the old “me too” bug seems to bite all the developers here in town constantly trying to outdo each other until it gets ridiculous.
Here are the facts: free markets regulate themselves and the property market in Pattaya is no exception. Research entities like Global Property Guide, International Living, Colliers International and others all agree that average net rental returns in Pattaya are around 5.5 to 6%. This figure is a little misleading as it does not breakdown the type of dwelling and length of rental contracts.
Easily the best buy-to-let properties are medium to large one bedroom units as they enjoy the best of both worlds; attracting long term tenants and a higher average return per
square meter. I can personally list a dozen customers I know that consistently earn a 7% net return.
My point here is; why overpay for a property promising an 8% return? The extra income you think you are earning gets eaten up by retarded capital growth. Perhaps the smartest thing a buy-to-let investor can do is purchase a property with the tenant already in place.
Tenanted properties are a far less mysterious investment. You know what the price is … you know what the return is … you can negotiate to achieve your desired return. Buying a 1 bedroom condo at market price and making 7% is far better than overpaying for one and being promised 10% I can “guarantee” you that!
What would I buy if I planned to enter the “buy-to-let” game? Why, this month’s Property of the Month of course!
Jomtien Park Villas has long been a favorite development of mine for several reasons. The location in the middle of Jomtien is strategically superior. And now with all the new development, the neighborhood had finally come to JPV.
The house I am featuring this month is 4 bedroom 4 bathroom, 220 square meter open plan villa that is just about as comfortable as it comes. I could personally see myself chilling out in the cobalt blue tiled swimming pool and roaming around the 608 square meter tropical garden plot on lazy Sundays. It is quiet, it is secured, and the value of Jomtien Park Villas has a great history of appreciation.
But, most importantly, there is a shortage of this type of housing for corporate clients on the beach side of Sukhumvit Road in Pattaya. And, many corporate clients are unconcerned about paying a little more because their company is footing the bill.
Gorgeous house, good location, capital growth, stellar income … that my friends is what being a landlord should be all about.
Written by Jan Nuijten
Managing Director, Pattaya Prestige Properties Co., Ltd.