Rental guarantees in Thailand are currently trending. This is due to many factors including foreign investors and a change in rental laws. In this article, we look at what Thai rental guarantees usually consist of, and why they are popular:
Rental guarantee – a short definition
A rental agreement is essentially a contract between a property developer/owner and an investor. This contract agrees on a percentage of rental income for the investor for a set term. In essence, as a property investor, you are purchasing a development that you know will earn you a fixed income for the foreseeable future – this is obviously a very attractive deal and it is easy to see why so many investors choose this path.
How is a rental guarantee in Thailand usually formulated?
So we have defined what a rental guarantee is, but how do these guarantees usually work in Thailand? For the most part, rental guarantees in Thailand are centred on condominium developments and apartments. In cities such as Bangkok, Phuket and Chiang Mai, condos and apartments are in abundance and investors can struggle to find tenants. This is why rental guarantees are so attractive and potentially lucrative in Thailand.
The following are some terms that are common in Thai rental guarantees:
– A fixed rental income of between 5-7% annually
– Option (sometimes required) to purchase a furniture package to fully furnish your property
– Maximum personal usage of 14 days per year- Buy back agreement at the end of the guarantee term
Obviously, this can vary depending on the individual developer but this is what you can generally expect. The below explains some things to watch out for and consider when looking at a rental guarantee contract in Thailand:
Income percentage – Sometimes the rental income you are guaranteed is gross or net. If it is gross, then you need to ask what other costs are involved such as maintenance – only then can you formulate a true net rental income percentage.
Furniture packages – Some Thai developers will insist that you purchase a furniture package. If so, this is something you must factor into your budget and overall costings. Alternatively, if you wish to furnish the property yourself, this must also be accounted for in your budget.
Maximum personal usage – 14 days is standard, but most Thai developers offering rental guarantees will allow you to go over this. The main point to remember if you wish to use more than your allotted allowance is how this will reduce your potential rental income for the year.
Ownership and management – In Thailand, most rental guarantees will usually involve the developer retaining ownership of the property during the agreed timeframe. Moreover, they will generally take care of everything such as finances and tenant management.
Why the increased interest in rental guarantees?
Firstly Thailand continues to receive an influx of expats and foreign business types – property investment is a prime target for their enterprise. Some entrepreneurs will purchase a handful of properties and create a property management business. Alternatively, some foreigners will purchase a property, live in it during vacations, and rent it out during the rest of the year.
Secondly and less tangibly, rental laws in Thailand have recently changed. New laws will be released that give increased power and rights to tenants. This means that renting is becoming more secure, and developers can guarantee rental income easier than years past.
Why purchase a rental guarantee?
Who wouldn’t want to purchase a property/condo and have a guaranteed rental income for 2 years for example? The main factor of property investment downfall is a failure to actually rent or sell a property – a rental guarantee provides some safeguards against this.
Imagine if you have purchased a 1.5 million Baht condo to rent and you can’t find a tenant for over a year? You would be throwing money away on a mortgage and expenses hand over fist. A rental guarantee takes away this uncertainty and can help investors immediately start to recoup their expenditure. The developer will take care of the rental process, therefore, you do not have to spend time advertising and vetting potential candidates yourself.
Some negatives to consider
If you are considering a rental guarantee contract. you must always do your research beforehand. Is this a viable long-term financial investment? Is the development company reliable? Is the guarantee even worth the paper it is written on? A reputable real estate agency in Thailand will help alleviate the risk.
There has been cases of rogue developers simply using rental guarantees to attract custom, only to take your money and go bust – you could then be left with a potential money pit and financial instability. Check out the reputation and length of trading for both the developer and real estate agency. Any genuine reviews online and suchlike will assist your decisions.
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