Go it alone or be part of a rental guarantee concept?
So, you have decided to take the plunge and buy an investment property in Thailand but the options are so vast and varied, which direction should you turn? The number of tourists is increasing every year as well as there been increased overseas investment – surely that means that gaining a passive income in the form of rent should be quite easy to achieve? In theory that is certainly the case but as we all know; theory and practice are very different.
The problem, as it is everywhere else in the world is tenants. Firstly, you need to find them, then you need to retain them, they must look after your property and it would also be quite nice if they paid the rent! These are all things that you must consider if you are thinking of buying a property and renting it out yourself. All are potential headaches that take away the passive element as well as in many cases, the income part too. The ROI that you may be left with could be marginal to say the least. You need to consider that property prices are fairly stagnant so capital appreciation may only be achieved from exchange rate differences in the short-term.
So, this brings us on to the alternative of the being part of a rental guarantee concept. Firstly, if you are a ‘go it alone’ type of investor, you may feel that these schemes have too many constraints, you lack control and they could limit on your returns. These are all viable POSSIBILITIES but that is exactly what they are, possibilities. They also take away a huge amount of risk and the headaches with tenants therefore giving you back your ‘passive income’ – what you really wanted to achieve in the first place.
How do they work? They are actually very simple and do exactly what the name suggests – pay you a guaranteed return. You basically buy a property and immediately rent it straight back to that person, usually the developer. They then sub-let your unit out, which is often located in a 5-star hotel and pay you a return regardless of if it is occupied or not. They get the initial investment and a share of the rent, you get a healthy, realistic return at a pre-agreed percentage for an agreed term that is relatively safe.
Where are these rental guarantee concepts? At the moment, there are three schemes that particularly stick out and they are are all in the thriving tourist destinations of either Pattaya or Phuket. The first option is available in a completed project owned by Amari in the city of Pattaya. The return offered on this deal is 5% p.a. for five years with expected returns in subsequent years of 8% p.a.
Both next options are available on the island of Phuket and are projects that are currently under construction. The returns offered here are both at a slightly higher 7% p.a. for five years with projected returns in following years of 10% p.a. which reflects that the buildings are yet to be completed. These offers are in properties run by the hotel groups Ramada and Best Western. All three of the hotels are situated in prime locations and have the luxury of being managed by world renowned hoteliers.
With all this in mind, surely buying in a rental guarantee concept is by far the best option?