Buying Property for Investment in Thailand and Rental Yield Returns Calculator

Buying property for investment in Thailand is a good move for those who want to gain potential income from its real estate industry. In this article, we will explore the benefits, features, types of properties, key factors, the process of investing, types of rental yield returns and how to calculate them by PropertySights Real Estate.

Many wish to own real property in Thailand, as this industry beckons investment property opportunities because of its developed economy and the increased population of locals, tourists, and expats. However, it would be best if you were guided by a tool that will gauge you in your decision-making, which is the rental yield calculator.

An important indicator of buying property for sound investment in Thailand is the rental yield returns. The Yield for returns calculates a comprehensive picture of how much you can generate from your investment property. It is helpful for all types of real estate property investment, whether residential or commercial.

What is Property Investment?

Investment Property is the strategic purchase of real property to earn a profit through the sale of the property, rental income, or both. As this property is made to gain profits, it is not used as a primary residence.

Real estate Investment offers manifold opportunities. An investor can opt to choose between long-term or short-term investment property. For the former, an investor desires only a steady and passive income. For the latter, an investor actively partakes by buying real estate, refurbishing it, and selling it for a higher price to gain earnings in a short period of time.

What are the Benefits of Investing in Thailand Property?

The three main benefits of investing in Thai property are the following:

1. Resilient Economy—Thailand’s Economy stands out for its economic strength, surpassing recent global shocks, including the Global Pandemic. Thailand has always been one of the top tourist destinations in Southeast Asia; hence, the tourist industry has been thriving, especially as of late. Tourists spend money on shopping, food, hotels, and transportation, which increases demand and supports the overall Thai economy. It is more than expected that Thailand’s economy will be more developed and potent in the upcoming years.
2. Solid Rental Market Demand—Foreigners, expats, professionals, and retirees who seek to live and reside in the kingdom long-term and sign a one-year or more lease agreement add to the growing local population and property market demand. Large industrial conglomerates bringing their experts from abroad would attract more demand for local properties, as solid rental demand is driven by workers aspiring to maintain employment, which enhances and strengthens the real estate industry.
3. Cost of Living – Thailand is affordable in terms of housing, utilities, transportation, and food, benefiting locals, tourists, professionals, and expats. Nevertheless, the cost of living depends on one’s lifestyle.

   For instance, regarding housing, you can choose to spend $1,000 to $1,500 per month on a luxurious house with a wide variety of amenities, spacious interiors, and wise location. Still, you can opt to enjoy a one-bedroom unit that is much cheaper, depending on factors such as facilities, area size, and proximity to public transportation.

   For the utility fees in Thailand, electricity and water are way cheaper compared to Western countries like the USA and Europe. Hence, utilities are more affordable, and utility bills depend primarily on consumption.

What are the Features of Property Investment?

The four main features of property investment are the following:

1. Superb location—A property strategically located in proximity to local and tourist attractions, with good accessibility to transportation, can significantly enhance your investment property. It is vital that you scrutinize the area’s future growth and economic conditions, such as the economic growth zones, education sectors, healthcare facilities, and private and public offices. This will help you determine a location that aligns with your investment property: potential earnings.
2. Purchase price—To make a profit, you need to buy a property that is not just within your funding but an excellent investment that costs below the market prices. You must identify the property’s intrinsic value and check the market prices and supply and demand of similarly situated properties to see if it would be advisable to invest in that area and afterward make a return.
3. A solid rent-to-price ratio—It is a calculation to forecast the potential demand for the investment. This tool can help you with the decision-making process, guiding you to determine the right rent proportionate to your property price. By assessing the rent offered to tenants and comparing it to the market, you can ensure a sizeable income and a good investment decision where people think more about rent than buying.

   Rent-to-price Ratio = Median Home Value

   Median Annual Rent

   To illustrate, you buy a house worth $100,000, and your tenant pays you $9,000 annually, giving a price-to-rent ratio of 11.11. However, if the same house is rented out for $14,000 annually, that offers a ratio of 7.14.

   The price-to-rent ratio indicates whether to rent or buy. A lower ratio suggests tenants tend to buy better than rent your property; however, a lower ratio would be more profitable for leasing your property and has good potential to generate long-term returns. It is crucial to balance it out with other market prices to be well-informed of your decision.

4. Low Vacancy Rates – This relates more to the strategic location than the property itself. Lower vacancy rates are a positive indication that people are more likely to occupy the area, ensuring a stable stream of prospective tenants. It indicates that the area has strong economic conditions and a solid rental market for locals and expats, providing an excellent potential investment.

What Types of Property for Investment Available in Thailand?

The three main types for investment available in Thailand are the following:

1. Residential—The kingdom has a diverse real estate market for residential property comprising:
   1. Condominiums consist of large buildings with separate units owned by different individuals sharing facilities and services, such as a high level of security, 24/7 maintenance support, and a wide variety of amenities.

      However, before purchasing a condo, it is important to note that Thai real estate law imposes certain limitations on foreigners who wish to buy condos. Under Section 19 of the 2008 amendment to the Condominium Act, the ownership of foreigners in the units collectively should not exceed 49%, with at least 51% being owned by Thai citizens. With that, Freehold condominiums are a popular option for foreigners.

   2. Landed properties like villas, townhouses, and houses cater to different property investors. Villas offer privacy and spacious accommodations that are attractive to families, known as vacation homes. Houses are standard family homes with two or three floors, allocated divisions and mostly have gardens. Townhouses are less modern-style houses with spacious interiors and usually narrow, vertical-like dwellings with shared walls.

      Landed properties are not only available to Thai locals. In fact, foreigners can enjoy and indirectly own landed properties through Thai land holding company that own the land on their behalf and leasehold structures with the landowner for a specific period.

   3. Apartments buildings are mostly owned by a group of investors who can buy an entire residential building as a business operation or buy the land, develop the building, and handle the operation.

      Apartments are different from Condominiums because these units are not registered under the Condominium Act. However, these buildings can be rented out month-to-month or through a longer lease agreement similar to that of a condo.

2. Commercial—The commercial includes office spaces, shophouses, commercial buildings, and shopping malls. With the booming tourist industry in the country and the increasing local population, the demand for this market is rising. And especially with the locals seeking and maintaining employment, office spaces expand to accommodate growing businesses.
3. Hotels— It is widely known that Thailand is one of the most visited countries, and tourists are expected to want not only the country’s culture, attractions, and food but also the hotels where they can enjoy their vacation and relax. Whether the tourist is a backpacker with a tight budget or a lavish person with no limited budget, hotels can be a good property investment.

What Key Factors to Consider Before Buying Property for Investment in Thailand?

The four main key factors to consider before buying property for investment in Thailand are the following:

1. Property Type – One key factor for investors to consider is the property type, which should be chosen in accordance with their objectives and best suit the investment strategy. There is no “one size fits all” approach in this industry.
2. Age of Property – The older properties often require more maintenance, while brand-new properties have a higher price tag. It is essential to strike a balance between the cost and maintenance of the property to avoid financial strain.
3. Capital Growth – Capital Growth is the increment in the value of the property over time. It is essential to be guided by the trend of the property you are investing in, whether it has increased or decreased in value over the past years, and to see the potential of the property in the future.
4. Rental Demand and Yield— With the growing number of locals, professionals and expats in Thailand, rental demand and yield have risen.

Strong rental demand and yield are an integral to assessing the financial viability of an investment property. Rental yield calculates how promising an investment can be based on rental income. Looking into the other performances of the prospective property would be a great help in knowing the rental demand.

What is the Process of Investing in Property in Thailand?

Step 1: Consult Real Estate Expert

Consulting an expert is the starting point before investing in real estate in Thailand, as they can shed light on this matter, especially since this kind of investment is not that ordinary as it entails a vast amount of money.

Property consultants know the do’s and don’ts of investing property and can safeguard your interests because they are well-versed in this industry. They will help you apprehend the market and its potential risks and rewards and advise you on the best property acquisition based on your chosen plans and anticipations.

Step 2: Survey Potential Properties and Reserve the Right One

When surveying potential investment properties, it is paramount to work and network with local licensed property agencies because they have extensive experience and deep-rooted connections in the real estate industry and the local market. These brokers, with their dedicated involvement in this sector, are proficient at securing better deals for you on the properties you’re after.

Remember, it’s crucial to seek out Thai Real Estate Broker Association (TREBA-licensed) agents for your property transactions because they can guarantee that your real estate deals are in the hands of reputable brokers with credible track records. PropertySights Real Estate proudly holds this license, meaning we’re held to higher standards and superior quality in real estate services.

If it aligns with your goals, you need to explore the neighborhood and witness the new developments in the nearby vicinity, the condition of the area, and every detail of the property, such as the lighting, windows, roofs, shared areas, flooring, water installation, and property management. When you conclude your due diligence and are delighted with the outcome of the investigation, you may reserve the right property.

Step 3: Conduct Legal Property Due Diligence and Signing Contract

Conducting legal property due diligence is non-negotiable to protect your rights further, as this would help you decide if you’re making an intelligent decision. It is essential to see the legal intricacies, such as the documentation, Thai title deed, and legality of the property, to ensure that you can fully develop and profit from that real estate without any problems and hindrances.

Once you are pleased with your investigation, you can sign the contract and discuss the required timeline and payments.

Step 4: Finance your Property Investment

Financing your investment property is a key aspect, and you have the control to explore your financing options. Financial institutions or developers offer flexible options with favorable rates and terms that they can tailor to your budget and objective. You can ask these financial institutions or developers how to get a home loan in Thailand.

Step 5: Hire a Property Manager and Handle Rental Income

Once it is all put in place, you need to hire a property manager to assist you in real estate management. A competent Property Manager can help you conveniently manage the day-to-day operations, tenant relations and procurement, maintenance, rental income and overall property betterment. This process would avoid stress and pitfalls as they know better.

Property Investment: What is Rental Yield Returns?

Rental Yield Return is the difference between the earnings of the property you leased out and all the expenditures of the property. Apprehending this matter will ultimately help investors analyze the conceivable returns of the investment and the associated risk.

The rate of return is the percentage calculated based on the rental yield returns formula, whether Gross Rental or Net Rental, which will be described further in this article.

Yield is the term used in real estate to define the income generated by the invested property.

Rental yield is the real estate metric of the expected rental revenue from the property measured against the fair market value of the property, expressed in percentages.

How to Calculate Rental Yield Returns?

To calculate rental yield returns, we need to compute the expected rent for that year divided by the property’s value and multiply it by 100 to get the percentage of the rental yield returns. This calculation basically means knowing the rate of the expected annual rent the investor will receive from the entire property’s market value.

Note that rental yield returns can be computed using gross and net yields.

What is Gross Rental Yield Returns and how to Calculate it?

Gross rental yield is a more straightforward calculation to know the percentage of the rental income an investor will receive in a year measured against the entire market value of the property while ignoring the expenses of holding the property. Because of its simplicity, you may not get realistic potential returns on the investment.

Calculate the expected annual rent divided by the purchase price and multiply it by 100.

To illustrate:

Purchase Price – ฿ 7,256,500

Expected Annual Rent – ฿ 435,390

( 435,390 / 7,256,500 )x 100 = 6% Gross Rental Yield

What is Net Rental Yield Returns and how to Calculate it?

Net Rental Yield is another way to calculate your real estate investment, giving you a more precise outcome. This formula comprises a set of fixed and variable expenses that would be deducted from your expected yearly rent. You need to be aware of the property law and taxes in Thailand because they comprise different taxes and fees that must be included in the expenses.

The capitalization rate is computed based on the net rental income expected to be earned divided by the property value and expressed as a percentage.

The formula for net rental is the same as for gross rental. However, you need to deduct all the corresponding expenses from the expected annual rent.

To illustrate:

It is the same as the value stated in Gross Rental but with overall anticipated expenses of ฿88,892.

((435,390 – 88,892) / 7,256,500 )x 100 = 4.775% Net Rental Yield

What is Guaranteed Rental Yield Returns in Thailand?

A guaranteed rental yield in Thailand is a real estate investment in which there is an assurance of return provided by the developer or operator, who guarantees a fixed rental income to the investor for a designated period of time. In many cases, there is no title deed as the right of ownership in these projects but a long-term leasehold.

Investors can feel confident in the solidity of their investment property, notably in residential development in the most touristy and populated places and the operation of hotels in prospering tourist areas. The guaranteed yield of these properties is a testament to the reliability of the Thai real estate industry.

FAQ

Does Capital Growth Calculated on Rental Yields Return?

No. It is because capital growth is the appreciation of the property you purchase over the period compared to its purchase price, while rental yield is the income you make from the property rented out relative to its purchase price expressed as a percentage.

Does Rental Escalations Increase the Rental Yields Returns?

Yes, rental escalations increase the rental yield returns. With its widely flourishing tourism, Thai real estate valuation has improved a lot over the years, and so have the rental prices.

This will only mean that the real estate industry will drive up, and so will the rental yield. It is because when an owner increases the monthly rental of the tenants, this escalation will increase the expected yearly rent and the rental yield on the said property.

What is a ‘good’ Rental Yield Returns in Thailand?

A good rental yield returns in Thailand can vary from your choice of property relative to the features of the property, factors to consider, economic and market conditions and property type.

Generally, rental yield return that is good in Thailand range from 5% to 10%; however, getting higher yields in particular areas is achievable depending on economic growth, developed areas, market prices and local market conditions.