Guaranteed Rentals & Rental Pool. Income from real estate in Phuket. Which option is better?
Most of the people who buy or plan to buy property in Thailand today do so for the purpose of making a profit by renting out. But with so many projects available that offer guaranteed returns or rental pool income, how do you know which option will actually generate the higher returns each year?
In this article, we'll explore both options so you have all the information you need to help you decide when buying your next property.
For those unfamiliar with the term “Rental Guarantee,” this means the stated income earned each year, calculated as a percentage of the price agreed upon after the sale is completed. Typically, the Rental Guarantee can range from 6 to 10%, offered for 5-10 years, in some very special cases it can be up to 15 years, depending on the current promotion. For example, this project.
On the other hand, the “rental pool” option is not a guaranteed income and the amount received each year is not known at the end of the sale.
The "rental pool" option is that the owner enters into an agreement with the lease management company and is paid a management fee. This fee is usually paid quarterly, and in turn, the owner receives a portion of the rental income during the period in which the property was rented out. In most cases, the profit is divided 60/40 or 70/30, where you, as the owner, get the most.
The Rental Pool option also implies that it is a pool and therefore you are entitled to receive a portion of the total rental income generated from all other properties in this pool, even if your property was not rented out on certain / days. / weeks / etc. It is believed that this is the fairest way of calculating. After deducting all commissions and expenses, the owner receives a net income.
When making a decision, the following points should be considered:
Location
When considering rental income, it is always important to consider location as it naturally affects the profitability of a property. There is no point in buying in an area that is not known to tourists or residents looking to rent on a permanent basis.
It would be wise to consider an area that has a proven permanent lease list. If the area is relatively new, you need to make sure that it has all the prerequisites for development and check what plans are in place for future developments, such as any infrastructure changes, large hotel chains, and any other form of investment. This will attract people who want to stay there for a long time.
As you know, Thailand has a developed tourism industry and many people come to the Kingdom every year to rest or live for a long period of time. With so many islands, many people love the idea of being close to the beach and therefore it will also have an impact and determine the profitability of your property.
Another important factor, especially if you want to attract long-term tenants, is their location to the nearest hospitals, schools, shopping centers, and other necessary facilities. You should consider that those looking to rent a home for a longer period need to feel comfortable knowing that their basic amenities allow for a comfortable lifestyle and are easily accessible. For example, this project.
Management company
Since many foreigners buying a property in Thailand do not live here, they need to rely on the support of a well-established rental company and also know that the property will be kept in good condition during the rental period.
Therefore, it is very important to consider who the Rental Management company is and what its proven track record is. They will most likely offer some kind of rental forecast to show potential buyers how much profit to expect.
You will need to make sure that what is forecast is realistic in terms of average returns. If the company is unknown, you need them to explain in detail how they came up with such numbers, and also survey the area to see what other people are getting. In this case, it may also be prudent to opt for a rental guarantee first until you see additional evidence that the property can indeed generate the same returns as originally anticipated.
In the past few years, we have seen an increase in the number of development construction projects that enter into management contracts with well-known hotels. This is a new trend that is taking shape throughout Thailand. What's especially interesting about this concept is that you can rent out your property under their brand. Having such a name in support of the project means that they have a solid reputation in the rental market and are therefore known both nationally and internationally. This will give buyers more confidence in the projected rent estimates as they are likely to have a long-standing proven track record of past yields.
After reading the above information, it is easy to get confused without knowing the intricacies of the market. Therefore, let's look at an example:
Let's say you bought an apartment with a rental guarantee of 7% for 5 years, the cost of an apartment is 4 million baht. This means that for five years, annually, you will receive 7% of 4 million baht, that is, your annual income will be 280,000 baht, minus taxes. In five years, you will have several options for dealing with your apartment, this is a buyback by the developer, personal use, or a continuation with the rental pool program. All of these options will depend on the developer.
If you initially take an apartment with a rental pool program, then your income will depend on the occupancy of the complex and on the prices set by the management company, that is, you can get either much more than with a guaranteed rental or receive a minimum income.
What to choose, everyone decides for himself, we offer only proven projects if you want to get a free selection, leave your request at the link.
