Resale Condos - Creating Wealth through Investment
26 Jun 2017
buy sell rent tips
Now, more than ever, it is important to carefully consider one’s investment opportunities. What is the best investment for someone with a certain amount of savings? Simply depositing one’s savings into a bank account is no longer a viable option, with inflation now outpacing interest rates.
Purchasing bonds may yield higher returns; however, should you lack investment experience this avenue can easily lead to losses. Investing in stocks can also pose risks due to the market’s often unpredictable fluctuations.
If you are unsure about what to invest in and how much risk you can afford to take, it could be that you do not yet have a clear investment goal to give purpose to your decisions.
This is akin to going for a hike without a destination in mind; you are very likely to get lost or end up somewhere you don’t want to be.
Therefore, before making an investment, it is essential to define your investment goal and familiarise yourself with the landscape to ensure that you properly understand the choices you make.
For those with cold cash who are looking for an investment that will outperform inflation rates, the regular monthly income afforded by real estate may provide a particularly suitable option.
As well as being an excellent investment choice as a tangible asset, the value of real estate increases annually without the kinds of fluctuations experienced by stocks and bonds.
Many folks are unaware that investing in real estate does not necessarily require the upfront payment of a lump sum. Instead, easily manageable instalments can be paid periodically while receiving rental income on a regular basis.
This differs from other assets, such as stocks and bonds, whose returns may be higher than the rate of inflation but are subject to mitigating forces like the fluctuation of the market and other external factors.
Notice that millionaires and billionaires the world over mainly invest in two types of assets – real estate and stocks. This is because both of these assets can generate wealth in the long term.
The advantages of real estate investment vis-à-vis investment in stocks is evident to experienced investors who have witnessed the drastic fluctuations of the stock market due to manipulation, “dealer’s stocks”, news reports, false news and rumours, annual business reports, and shifts in technology.
Stock investment also requires capital, experience and constant study and analysis, which is why many incur losses when making such investments.
In contrast, investment in real estate is accessible to all. For instance, a condominium unit with a price that generally mirrors the demand for urban housing and a location close to commuter electric train lines, shopping centres and offices would make for an ideal investment.
The limited space for housing, coupled with an increasing population of urbanites and growing demand, continuously drives the prices of such condominium units upward.
This results in the constant appreciation of one’s investment. Unlike stocks, condominium units are tangible assets.
Their prices do not fluctuate, requiring less time to keep track of, and they do not require you to spend your entire life’s savings.
For a clearer picture, based on an available capital of THB 1,000,000 for investment in a “time deposit”, “stocks” and “renting out a condominium”.
Example 1: Time deposit of THB 1,000,000 with 2-percent/year interest rate (1.7 percent after tax). Interest earned after a 5-year time deposit is THB 88,652 (including compound interest), or about THB 1,477 per month.
Example 2: Investment in stocks of THB 1,000,000. The yield will be in the form of the difference in the stock price that has increased plus dividend averaging at 8 percent/year compounded.
When liquidated after five years, the yield will be approximately THB 469,328, or THB 39,110 per month. (The actual yield will depend on the market fluctuation at various times.)
Example 3: With THB 1,000,000 cash in hand to invest in a condominium unit priced at THB 3,000,000, with a THB 2,700,000 loan from the bank (90 percent of the value of the unit) at an interest rate of 5 percent/year.
The cash investment of THB 300,000 and another THB 200,000 for other expenses contribute to the initial investment of THB 500,000. (As evident here, you can invest in real estate with capital of a lower value than the asset that you acquire.)
In this case, you still have THB 500,000 left in pocket that you can put towards a bank time deposit at an interest rate of 2 percent/year (1.7 percent after tax). Interest earned after a five-year time deposit is THB 44,325 (including compound interest).
The monthly instalment payment to the bank is THB 20,000, and the condominium central management fee is THB 2,000 per month. The monthly rental fee collected from the tenant is THB 20,000, which is tax deductible for THB 2,000. This means that each month, no extra expenditure is required.
After five years, if you decide to sell the condominium unit for THB 5,000,000, the profit derived from the sale would amount to THB 2,000,000.
Profit from the investment in Example 3: (Profit from sale of condo + profit from time deposit at bank) Totalling THB 2,044,325, or THB 34,072 per month.
Conclusion: The investment in Example 3 is almost twenty-three times more profitable than Example 1, and more than four times more profitable than Example 2. All three examples utilise the same amount of initial capital.
There are many types of real estate; however, condominium units are the most popular option at present, complementing the modern lifestyle of the new generation, with locations that provide easy access to commuter train lines.
Comprehensive facilities are another factor that make condominiums much easier to sell and rent out than other types of real estate.
In recent years, good city locations have increased in price considerably. Buying a unit in a brand new condominium to rent out may not make good business sense, as space per square metre is often worth hundreds of thousands of baht.
This is a huge contrast to earlier times when prices were more affordable. For this reason, good quality “Resale Condos” have now come into high demand. In the same locality, Resale Condos can be up to 20-50 percent cheaper than new condominiums.
This enables new and veteran investors to purchase easy-to-rent-out condominiums in excellent locations without having to pay the astronomical prices fetched by newer projects.
Four Factors to Consider in Choosing a “Resale Condo” for Investment
- A good location close to transportation routes, such as commuter train lines and other forms of public transport.
- A locale in the vicinity of popular areas, such as office buildings and shopping centres.
- The unit should be in good condition and well-maintained, allowing the value of the project to continue to rise over time.
- Price per square metre should be significantly lower than that of a new project.
Lastly, a word to the wise: “Being the owner of a mid-town condominium unit is a dream for many. Do not let the opportunity pass you by, as prices will continue to rise until they are out of reach.”
Explore how PLUS can help manage your property, Property Management, Condo & Apartment for rent Bangkok, Condo Juristic Person
02.688.7555