Rental Guarantee in Thailand
How it works
Rental guarantee is becoming an increasingly popular type of investment for buyers in Thailand. Rent guaranteed properties, in theory, allow the buyer to make a safe and effortless investment while he or she waits for their property to appreciate. It’s safe in the sense that during the length of the contract the buyer will receive regular and stable rental returns, and effortless in the sense that the development’s management company assumes all maintenance and occupancy responsibilities. This is an especially useful method of investing for the expat and foreign investor market, which tends to consist of very transient people who are thus not able to easily manage their properties.
In rent guaranteed investments, the buyer simply hands the keys back to the developer for a set number of years and in turn receives regular rental income paychecks; the amount of which is typically a percentage of the property’s purchase price. For example, if you were to purchase a property for 2,400,000 THB and agree to 7% rental guarantee, you will receive 168,000 THB of rental income for each year of your five-year, renewable contract.
Companies that offer rental guarantees factor in the cost of returning their buyers a fixed percentage of the purchase into the initial sale. This means that the developer should be prepared with the proper funding, so even if the season is low or the market is unstable the buyer will still receive the same rental income each month, quarter, or year, depending on the contract. Contracts can be anywhere from two years, to ten or more.
Most investors use their money in real estate figuring in averaging monthly rental rates and calculating it on a yearly basis to see the maximum value of their investment, then subtract all the other expenses to find the ROI, that is possible from their initial input. The issue is the failure to see the work and experience it takes to have the property managed efficiently to ensure complete occupancy, because every month without a renter becomes a lost opportunity and income. There are risks in getting a profitable return which can be controlled by proper management and appropriately directed work. The rental guarantee, for an agreed period, allows property investment to become painless, as there will be stable cash flow and an ability to maintain liquidity of assets during said time period. After the rental guarantee expires, you can either manage the property yourself, resell, or have another agent take over.
Certain things that a savvy buyer should be aware
First of all, the literal word “guarantee” is a tricky one because, of course, nothing in life can truly be guaranteed, can it? It is entirely possible for a developer to get hit by a market decline, or run out of money for some other reason before the contract ends. As part of a development that does offer rental guarantee investments, it would be disingenuous to write this off as a complete impossibility.
What one should consider when making this type of investment is how the development’s management company will influence the likelihood of the guarantee.
Consider this: Renting out a large number of properties on a daily, weekly or even monthly basis is both a professional and laborious business. The developer will essentially need to act as a hotel manager; responsible for continuously negotiating agreements with travel agencies and marketing companies to keep occupancy rates up, while also managing the project’s cleaning and maintenance. Even if the project is in the most perfect beachfront location, if it’s not marketed or maintained well, the probability of it making that target rental return will be low.
How we can help you
For a rental guarantee investment that has a very high probability of achieving its target returns, buyers should stick to purchasing within developments that are managed by well-known and established hotel groups. In other words, the merit of the guarantee will depend upon the experience and marketing network of the guarantor. This is precisely why choose us as your assistant and let us guide you through booming market of rental guarantee properties in Thailand.
Please contact us for more information.