Sunday, August 24, 2008

A guide to condominium rentals

Investing in real estate

A guide to condominium rentals


What are you going to do when the inflation reached 8.9 per cent and still keeps rising? This means that your real income diminishes if it doesn't increase at the same rate or even outstrip the inflation.

Meanwhile, during current economic turmoil, most people are now experiencing a major reduction in their real income and also purchasing power.

Since it's impossible to count on employers to compensate for the loss of our income, looking for ways to increase the income will be a smart choice.

Take Amara Saengdao, an accountant at a financial company. She is now enjoying her promising additional income apart from her monthly salary. A year ago, she started to rent out her 80m2 condominium in the Sukhumvit area to a client.

Pumipat Sinacharoen, an executive of a real estate company Bangkok Citismart, agrees with Amara that investing in a good location condominium usually generates healthy returns to investors, beating interest rates and inflation.

"Renting out a condo is a good answer for those who own condos but don't actually live in or those who intentionally buy a condo just to let it out. You can earn between 30,000 to 40,000 baht a month from your one-bedroom condo if it is located on main Sukhumvit Road," he explains.

Sukhumvit is top of the list for condominiums rentals in Bangkok and the reason is because foreigners or expatriates like to live close to the central business district where there are a wide range of facilities ensuring their convenience.

If a condo is near the BTS or MRT, it is priced even higher.

Pumipat, who is also senior vice-president of Asian Property Development, says if the condo is inside the soi, rents are usually lower than those on the main road.

"A supply of condos inside the sois remains high, while demand for these units are low. Thus, the rents are not that expensive. The other areas such as Narathiwat or Ratchadaphisek roads cannot compete with Sukhumvit," he explains.

The returns of this sort of investment is about eight to 10 per cent per year, particularly for the units on the main Sukhumvit Road. "The yields of eight to 10 per cent is considered very good when compared to the saving account, which is currently around 0.75 per cent and one-year fixed-account of 3.75 per cent," he adds.

Typically it is a worthwhile investment, he adds. The investors or owners normally take 10 years for their investments to break-even. Moreover, they are very likely to have upside gains when they sell their units in the future as the property prices always appreciate overtime.

Visit Kunathornkul, managing director of Realty World Alliance, says the CBD area is the first-tier market for expats while Thais prefer other areas and the rents are cheaper.

"The rental market for foreigners has fewer problems than the market for Thais. Foreign customers prefer trust and honesty and they will do everything based on the contract," he explains.

In fact, renting out a condo is easier than a house as you will need lesser time to take care and maintain the condo unit.

However, there is high demand for houses in some specific locations close to international schools. The rule of thumb to rent a house is not so different from a condo.

To prevent any future problem with tenants, Visit says, you should screen them through an interview about family background and work. You should also ask for advanced deposits and prepare a thorough contract that covers all damages and other necessary issues.

"From my experience, most frequently-found problems between owners and tenants are damages occurred with furniture and electrical equipment and nobody wants to take responsibility for it," Visit adds.

Another problem is that some tenants tend to ignore the rental payment and silently move out of the place without informing the owner or settling the overdue payment.


Factors to be considered before renting out a condominium

- Location

You have to see whether there is any demand for rental condos in the location you are in. If you are in Sukhumvit or sub-locations, which still locate along mass transit routes, you still have opportunity to rent out your condo. Anyway, rents are likely to depend on locations.

- Room condition

You should decorate your condo with sufficient facilities and furniture for daily living and make sure the equipment works properly and living atmosphere is nice. The decoration doesn't have to be premium or too luxury yet the rooms should function properly and look neat and clean.

- Your expected yield and cost

You should consider the expected yield by comparing it to the market rate and the cost you have to bear.

On an average, if your condo is bought two years ago and is located on the main Sukhumvit Road, you can enjoy the yield of around 10 per cent. If your unit is bought four or five years ago, your cost is absolutely lower as the prices at that time were cheaper. However, if the yield is below five per cent, it might not be worthwhile to rent out the condo.

- Tenant screening

This is considered crucial. If you have a good tenant, everything will be much easier with less work and headache. You should question the prospective tenants about their family and career background, current jobs, lifestyle and, most importantly, financial status. These are important issues you must first find out before making any decisions as that determine the tenant's payment ability.

- Contract making

You have to be careful when making a contract with your tenant. The contract should cover important issues such as a required deposit (normally two to three months), charges or compensations when furniture and electrical appliances are damaged, responsibility for common asset fees, period of prior notice when the tenant wants to leave and the like.

You should make a list of furniture and electrical appliances, take a photo and keep them well.

Later you need to present those lists to the tenants and ask them to check everything before signing all the papers.

or the common asset fee, normally, the owner should include it in the rent. If the fee is excluded, you have to agree who will pay for it.

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