More and more people don’t only seek high price appreciations when buying property overseas.
The fact is: having the feeling of ownership, especially in a country that offers a great quality of life, and where you can get decent cash flow from rental incomes, is often fulfilling the needs for many buyers.
This is especially true for people living in cities like Shenzhen, Shanghai, Beijing, Taipei, and in Hong Kong, where the price to income ratios have gone crazy.
So: I was a bit surprised when I previously heard that buyers can secure fixed rental incomes through so-called ‘guaranteed rental income investments’.
To me, it sounded too good to be true…
Therefore, I’ve decided to invite Nick Stuart for an interview, to let him explain how guaranteed rental income investments work, mainly in Thailand, where he’s actively working with real estate.
Nick is the Managing Director of Exclusive Hot Properties, it’s a reputable company that offers guaranteed rental income investments to foreigners.
Let’s see what he has to say.
Nick, you have a long experience in real estate, not only in Asia but also in Europe and South America. Can you tell us a bit about yourself, your experience and how you started your current company?
Sure, I moved to Spain and started Spanish Hot Properties in 2007, a specialist expat real estate agency helping people to buy, who never bought in Spain before.
At that point, we also had International Hot Property and we sold products back in 2008 in Brazil which was much more interesting back then than it is now.
In 2014 I decided to start the process to try another country (the Philippines) so I set up Philippines Exclusive under the same business model as Spanish Hot Properties.
Whilst doing this, I was turned onto Thailand property by a friend, so rather than keep setting up individual websites for individual countries it made sense to rebrand the business under the Exclusive Hot Properties brand and parent company.
Thailand and the Philippines offer investors and lifestyle buyers different things so it’s really good to have both options available to clients depending on their requirements.
My personal guess is that many foreigners aren’t aware of the opportunities to buy properties with a guaranteed rental income. Can you explain how it works?
It’s a very simple business transaction, you buy a condo for say USD 100,000 and the Developer pays you a fixed net income of let’s say 7%, i.e 7000 per year, normally guaranteed for 10 years or so.
Some developers will also offer a guaranteed buy-back of the property after the rental guarantee period. Some developers will give the owners 4 weeks free usage of their unit each year so they get to actually stay in what they have bought
Is this a new trend, or for how long has guaranteed rental income property existed? Except for Thailand, in which countries can foreigners find this kind of property?
Generally, there are not many of these products around and especially not linked to Condos.
In the UK, you have developers of commercial projects such as Student accommodation offering similar returns, but questions as to what happens with the asset after 10 years spring to mind.
Also, you will see Hotels fund their operation by offering rental guarantee schemes on Hotel Rooms.
Thailand is one of the few countries where developers can offer the rental guarantee and then actually market the property to cover the rental guarantee payments. There are one or two of these in Bali and Cambodia for example but our expertise is very much in Thailand.
Why has it become increasingly popular among developers to offer guaranteed rental income? Is it due to competition? Many probably wonder what incentives a developer has to offer this.
Competition in a very competitive market place which is Thailand. Also in reality, paying 7% to 10% rental Guarantee per year is relatively cheap money, especially when a developer is probably making 60% profit on each development they build.
So, for every unit they sell that they give a rental guarantee allows them to build 3 more.
As with any investments, I assume there can’t only be upsides to buy a property with guaranteed rental income. Can you explain more about both the upsides and downsides when buying this kind of property?
If you’re buying for income other than the developer going, but there really isn’t a downside. You’re basically getting a better rate of interest on your money than you would in the bank, it’s a bit like buying a bond or a gilt.
If you’re buying for income and growth, it may take a while for the property to grow in value and maybe you will get better growth in the property price in cities like Bangkok, which don’t offer rental Guarantees.
The upside is straight forward, you get the income and an asset that should increase in value over a 5 to 10 years period.
Is it safe to buy a guaranteed rental income property? Do you have any experience where buyers haven’t received the rental incomes promised?
Personally, we haven’t had that experience, but that’s because we do our due diligence on the developer and see what they’ve done in the past, and if they’re up to date with the payment of their rental guarantees.
However I am sure you could find some people that had a bad experience, but most sensible, investors will check out the developer before parting with their money.
Who is most suitable to buy this kind of property and why?
The perfect buyers are those who want income from their investment rather than capital growth.
Very simply, it’s very hard to get this return from any financial instrument and you get some growth as well. The reverse being if your looking for capital growth then there are better investments that would suit you better.
So, it’s important to find a reputable developer and to include the “right things” in the sales contract. What should be checked before I decide to buy a guaranteed rental income property? When should I reject a deal and walk away?
Simple things. How many developments has the developer completed, what is the quality of the project, what is the location of the project and how many units have they sold to date.
As long as the Developer is around to pay the rental guarantee and that the project will still be standing after the rental guaranteed period, that is all that really matters.
Thanks Nick. Finally, is there anything you want to tell our readers?
Not really, just make sure you use a reputable international agent who understands your needs, but most importantly, has a track record of looking after international clients, rather than an agent that does not have your interest at heart.
Finally, that agent should have done its due diligence and satisfy you with the answers they give you.