Making the case for NOT buying a Condo

[Shilo 371]

I got to thinking about this and decided to put pen to paper and crunch the numbers. What I learned is that there seems to be a good case for not buying a Condo in Pattaya. I'd be interested in getting a few comments.

 

Assumptions:

 

My numbers are based on an exchange of 40 baht to the US dollar. Partly because that's been the average for the past several years even though it's somewhat lower at the moment. And it makes for easier math.

 

A decent double unit will sell for about 3.6 million baht.

 

The rent on a comparable property would be about 20K baht per month.

 

The money that would be spent to buy the Condo could be invested with a 7% average annual return.

 

And the tax rate on the invested money would be 15% (again, used this amount just to have a rate to work with).

 

I didn't include inflation because as best I could tell there hasn't been a lot of inflation in the rental prices and becaused it's assumed that in a higher inflation period interest rates would rise to offset the higher prices and there would be more earnings on the invested dollars.

 

Now I know that we can argue that these assumptions have weaknesses but I have to start somewhere and from what I can tell these assumptions are as good as any to work out the options.

 

 

So we start with $90,000 (3.6 mill baht), invested it with a 7% return , pay the 15% tax, and start taking out $500 (20K baht) per month.

 

Using one of my favorite web sites: http://www.fincalc.com/ and putting the numbers into the "How long will my money last" program, I learned that after 30 years I'd still have $36,500 of my orginal $90,000 left. Or in other words, I couldn't outlive the investment...

 

So that leaves me with two options, pay the $90K for the property or invest it and rent a place for the rest of my life...

 

Personally, I think that I would rather pay the rent. If I own the condo then I'm pretty much stuck in one place. Selling the property to move to another part of the city (or country) would mean having to put myself at the risk of the real estate market. While renting means that I could pack up and move on at a whim.

 

Am I missing something here?

 

.

[MrMango 655]

The thing I missed is I had a untruthful landlord that misrepresented the property, and the lease was so Draconian, I had to walk away form the lease

[kdc1899 1]

" Am I missing something here? "

 

Probably not.

 

Your fuzzy assumptions would not hold water in a first world country real estate transaction. At best Thailand is a second world country with very vague and fluid property ownership laws. So assuming a 7% return and excluding the fact that while the $90,000 is invested you would still have to pay rent somewhere for 30 years and account for that expenditure in your figures..... etc, etc;

" Am I missing something here? "

 

Probably not.

 

[Owen` 2]

The assumptions are all very fuzzy, but you know that and they may need to be.

What they say is that even if the assumptions are wrong, you have a lot of

cushion in your conclusion -- meaning they will have to be wrong a LOT to reverse

the conclusion. (It is pretty shaky tho to do your calculation for 30 yrs and

presume no rental inflation. Thirty years is one helluva long time for nothing

to happen inflation-wise.)

 

How about this factor. If you make a mistake renting, you can fix it by moving. If you make a mistake buying, it will require a lot more effort and time to "fix it" by selling.

 

I would suggest you have to spend a couple of years onsite before you really need to make a call on this, and during that time you will rent. If you're not at year 2 yet, this evaluation is probably premature. But pat yourself on the back. You do understand

all the factors and you are smart enough to realize just how many parameters are

not known.

[Zeus 56]

I agree with your conclusion, and if I end up in the LOS long term - I will be a renter. The flexibility would be the thing that does it for me.

 

However, the main arguement is that there is some inherent value in owning vs renting. The place you own could go up in value and in a market like Pattaya, should be worth at least what you paid for it. So the value of the rent is keeping yourself flexible.

 

If after a while renting (1-2 yrs), you know the area(s) and the fact that you can live comfortably on whatever budget you set - then it might be a decent decision to buy. But I would always opt for renting for a LONG period first!

 

Just my humble opinion,

 

Zeus

[lemons 0]

" Am I missing something here? "

 

Probably not.

 

Your fuzzy assumptions would not hold water in a first world country real estate transaction. At best Thailand is a second world country with very vague and fluid property ownership laws. So assuming a 7% return and excluding the fact that while the $90,000 is invested you would still have to pay rent somewhere for 30 years and account for that expenditure in your figures..... etc, etc;

" Am I missing something here? "

 

Probably not.

 

Mate, I think Shilo factored the rental in:

 

"So we start with $90,000 (3.6 mill baht), invested it with a 7% return , pay the 15% tax, and start taking out $500 (20K baht) per month."

 

Shilo, I'd agree with your assumptions. The only other factor that'd influence me is that on death, the owning option gives your estate a property asset in a popular part of Thailand - to be either sold, long term or holiday let, or occupied by a benefactor. Of course this assumes the property was well chosen with a good location and wasn't a hovel in 30 years.

 

The rental option gives increased cash; but accompanying increased taxes when the estate is distributed.

 

(We Aussies have a well known fixation with property ownership, which also skews my thinking).

[halfaboy 31]

Calculation wise you may be right. I think however that besides inflation and changing interest rates you also should include (one way or the other) uncertainties associated with owning properties in Thailand.

 

Amongst others these could include: political (in-)stability, diseases as bird flue, dengue, etc, changing laws w.r.t. owning properties by non-Thai, changing tax regimes, what will happen to the country in the era after the King (he is now 78 years). Increasing prices for flights to- / from Thailand.

 

Another risk is that you might get ‘nasty neighbours’ (i.e. door bangers, party animals). I suggest you should also take these points into consideration.

[Bazle 1,357]

I would disagree, in a UK scenario, with some of the figures attached to the various factors - in particular a 7% return on investment and a 15% tax rate - but as Owen has pointed out, it probably doesn't matter much.

 

There are some things you cannot measure in monetary terms - the flexibility that renting gives, the thought that if you have a problem neighbour you can walk away relatively easily if you are renting, etc.. Retirement should be as hassle-free as possible, so renting sounds better to me.

 

Having said that, there is something that nags me about all the threads about retirement expenditure. I'm not sure if it is accepted wisdom or not, but I recall an investment adviser telling me many years ago that you should have the majority of your investments in the country/currency of that in which you expect to retire. So that would suggest a retiree to LOS should have most of his money tied up in Thailand.

 

Most people would say that that would be too big a gamble to take, but I wonder if more consideration should be given to holding some investments in Baht. If you think that way, a condo seems as sensible an investment as anything.

[Eneukman 1]

I've just been in to see the agent for my landlord to tell him that I want to renew my lease for another year.

 

I have a number of reasons for continuing to rent rather than buying, the main one being that I don't know for definite where I want to settle down in the long term. It may be Pattaya but it could equally be Korat, Buriram, Surin, Udon Thani, Chiang Mai, Chiang Rai or any number of places in between.

 

Renting also gives me the advantage that when something goes wrong - which it does a bit too often for my liking - all I need do is phone the agent and they send someone out to carry out the necessary repairs. For example, the electric shower has failed 3 times forcing me to shower in cold water! If I owned the condo, I would have to organise someone to come and carry out the repairs and pay for them myself.

 

The downside is that once I've signed the lease, I'm stuck there for the duration that would only become a problem if I decided I wanted to go and live elsewhere in Thailand half way through the lease.

 

Alan

[halfaboy 31]

The downside is that once I've signed the lease, I'm stuck there for the duration that would only become a problem if I decided I wanted to go and live elsewhere in Thailand half way through the lease.

 

Alan

 

The cost of this downside can be calculated using the formula: (12 months – months actually lived in the rented condo) * monthly rent

 

So money wise the total risk can be calculated in advance and it will reduce every month you have lived in your place.

[kdc1899 1]

Mate, I think Shilo factored the rental in:

 

"So we start with $90,000 (3.6 mill baht), invested it with a 7% return , pay the 15% tax, and start taking out $500 (20K baht) per month."

 

Shilo, I'd agree with your assumptions. The only other factor that'd influence me is that on death, the owning option gives your estate a property asset in a popular part of Thailand - to be either sold, long term or holiday let, or occupied by a benefactor. Of course this assumes the property was well chosen with a good location and wasn't a hovel in 30 years.

 

The rental option gives increased cash; but accompanying increased taxes when the estate is distributed.

 

(We Aussies have a well known fixation with property ownership, which also skews my thinking).

I was thinking he was going to wait 30 years B4 withdrawing.

Oops

[jonny_two_combs 3]

why not rent your place out in your home country

safer bet all round

 

if you ever go back you'll have a roof over your head aswell

[The Mook 105]

The only thing I believe you left out is this: If you buy a condo, you own it, and that means you would sell it at a higher price down the road, too. You'd have to look at the average rate of price increase over the last 5 or 10 years to see if ownership makes sense. You could also price your condo with a 10 or 15 year mortgage, then determine your monthly payment. You do not need to pay cash up front. All of this assumes you have the legalities in order, no small feat.

[Rex7777 0]

I'm not so sure I'd assume any kind of price appreciation on any Thai condo. More like the other way around.

 

Up until recently, I thought I'd want to buy a condo. But then I had second thoughts when I heard a rumor about a change in the retirement visa requirements. Why invest money when they can change the rules of the game at a whim? I think I'll keep my money in the USA, spending only what I need in Thailand. Rent is cheap, and when I want to leave, I'll do just that.

 

Rex

[Shilo 371]

Thanks for all of the comments and thanks again for not dwelling on the "assumptions", as I said the assumptions are just a starting point and as Owen mentioned the numbers crunched out so that if there is an error in judgement then there is enough play (read: excess) to allow for a miscalulation.

 

Some mentioned that I (we) should consider the issue of leaving the property to my love ones after I die... I guess that this is valid but for (in my case) two possible problems. First, I simply don't give much of a rats ass to what I leave behind. My parents left me some old photos and little else. To be honest, I had no problem with that. They worked hard all of there lives and had little left over at the end of each week to save. I learned from their mistake and have made sure that I save what I needed to allow me to retire. Hopefully, my kids have learned the same habit. And secondly, it has taken me hours on the computer, several trips, and a couple of years to start to get the feeling that I know a little about what I'm doing while in Thailand... I can't begin to think of what my son or daughter would have to deal with if I left then a condo in Pattaya as part of my legacy

 

And I think Eneukman made an excellant point about the difference between getting repairs done on a rental vs on my own home... We all spend a fair amount of time trying to figure out a workable budget and to do so we have to research a little about the prices of condos or rental rates. But where do we start to a grip on all of the other issues that we will have to face...

 

Consider:

 

One day I decide that I have had enough of my current home and decide to sell my house and move to another part of the states. I've done it before... I once ended up in Southern Calif, sitting on the beach, with all of my belongings in the back of my car and some cash in the bank.

 

Within a day or two, I had found an apartment (by looking in the paper), made a few calls to get the telephone, electric, cable turned on. A few trips around town and I had my drivers license changed, a new library card, a bank account, and a new insurance agent to cover my car and home, ...

 

But from what little I have found on the subject over the web... I somehow don't see it being that easy in Pattaya. Maybe I'm wrong but at the very least there seems to be a crapload of paperwork to get anything done in Pattaya. And while here in the states everything seems to be cut and dry, I get the impression that in Pattaya part of getting things done in a matter of knowing if, when or how much to slip someone under the table.

 

Don't get me wrong, I have every intention of one day calling Pattaya my home. But part of it's appeal is that going there can be an adventure. And living there will be a matter to managing the "learning curve". At the very least as some guys have suggested, it make sense to live there for a min of 6 months and I would argue 2 years before making a purchase of something as expensive as a home.

 

 

.

[short 215]

Have you considered renting your house in the states out and using the proceeds to rent a place in LOS?

[The Mook 105]

How could you assume prices would go down if they've gone every year since the Asian Tiger crisis passed? They have increased steadily, by the way; I did not make that up. You think there might be a change in retirement law? What is the basis for that statement? That seems preposterous to me.

[sinkorswim 80]

rent prices increase.

 

 

do you think the same condo would have cost 20000baht per month to rent 30 years ago?.........I think not.

[pattayachip 0]

i too have thought long and hard about buying vs renting,so far i am leaning towards renting for a year first,it does not make much sence to buy if you are not going to be there more than 6 months a year,it also helps if you know other farags in the complex,and last but not least,only spend what you could afford to walk away from,just in case

[short 215]

rent prices increase.

 

 

do you think the same condo would have cost 20000baht per month to rent 30 years ago?.........I think not.

If you keep your house and rent it out, then as your rental cost increases in Pattaya, the revenue from your home in your homeland should rise accordingly

[iono 0]

and last but not least,only spend what you could afford to walk away from,just in case

You make a very good point

[torrenova 644]

I think the arguments are simpler and I'm not even going to go into the maths here as the figures for various places in Pattaya are so different as are investment returns.

 

If you rent, you can walk away. You will lose only your deposit and any advance rent paid. Problems are sorted out by the agent / landlord and small problems shoulc allow you to repasir and claim back the expense.

 

You do not know where you want to live and the costs of moving may mean that you have to trade down if you sell and buy another property. You may want to leave Pattaya altogether. I have a friend who lives upcountry but comes down to Pattaya once or twice a month and stays a few days in an hotel.

 

One disadvantage of renting is the agents. Most try to rip you off with ridiculous rents. I know my rent would be more than 2/3rds more if through some agents in Pattaya. The upside is that there are loads of condos for rent and more being built every year. Remember if you can to arrange for your lease to end in low season. take a 6 month one if you have to and then an annual lease as your negotiating power is much stronger.

 

As for what to do if you have the funds to buy. Well, invest in secure assets if you cannot afford to lose it. Something easy to get out of and totally secure. Work out what you will need for capital purchases (car, computer etc.) Do not underestimate inflation and foreign exchange rate movements.

 

Overall, even if you have lots of time here on vacation, check into an hotel for a month. Then rent somewhere for a few months. Then decide what you want to do for the medium term (3-5 years). Check out tax positions etc. Don't rush into anything.

[Gary 4,066]

It all depends on your circumstances. Buying a condo with the idea of making money is NOT a good idea. Buying a pre-construction condo is a WORSE idea. If you plan to retire and stay in Thailand it is hard to justify renting rather than buying. Yes, I rented and it was a pain in the ass even though I had a good landlord. The utilities are inflated by probably at least 25 percent and if you want to make any changes to your apartment it will also be difficult. You MUST have the landlords permission. I couldn't even put a nail in the wall to hang a clock.

 

My friends told me that I was paying too much for my unit but it was what I wanted. I wanted a one bedroom corner unit in a nice complex so when I found one I bought it. It has appreciated more than 50 percent and is still going up. You cannot own anything EXCEPT a condo in Thailand and all the guys with the bogus house companies could VERY easily get burned badly. If you plan to live in your condo what difference does it make how much you paid for it or what the value does? I viewed rent as my biggest variable so I eliminated that variable. Maintenance is cheap at 10 baht per square meter. That's 600 baht a month for mine. That includes building insurance as well as trash pickup, great security, a beautiful Olympic size pool, exercise area and a very clean walled and gated complex. The Lalana condo asociation has so much money in the general fund that we got back 2,000 baht a year for the past two years.

 

I'm now living with my Thai wife in her house up country so I rent out the unit and get about a five percent return on investment. That's not great but I consider the condo as my security blanket.

[touristman 1]

I think that if you're American or a US Dollar user then probably better to buy a condo (while your dollar is still worth something internationally) than long-term rent.

 

 

I thought Shilo's comment on not giving a rat's ass on what he left behind for his kids was a little harsh.I thought that he was going to follow up by saying that he had no kids and thats why he didn't care............apparently not.....lol

I guess i'll never understand the mindset of many Americans that i encounter on this board.

[Owen` 2]

1) Gary, is trash pickup normally part of a condo owners' association/maintenance fee? Was that a special deal or a normal part of your 600b/month ante.

 

2) Bill Gates has said he doesn't plan to leave much money to his kids. He does not think it would be good for them. He may be right.