Blake Sibbitt

Is your rent too high?

Do the maths and work it out yourself


We've all seen the "condo for rent" posts on Facebook where, regardless of the price, someone in the comments section is always raving about how it's too expensive.

I find that people tend to use their own financial situations and what they would spend for their basis of these comments when, in truth, there's a huge amount of factors that determines a rental price. Most of all, the owner's purchase price but more specifically, the condo's current value. But what determines that?

Location, location

Of course, the closer you get to central Bangkok, the more expensive your condo will be. This is because of land value. It costs the developer more to build there, resulting in a high price per square meter.

How close was that land to high-value commercial zoning? How about the distance to BTS/public transport? Who was the developer (brand pricing)? Is it a high or low rise? What amenities or facilities are included in the building? You also have to consider the age of the condo and any other development in the area.

These are just a small selection of points that determine value but the question we're trying to answer is, is YOUR rent too high? Here's how you find out....

1. Visit any of Bangkok's property websites. Hipflat, DDProperty, FindYourSpace, etc.
2. Find your building and find the listings of your condo's layout for sale.
3. Gather 5 units and get an average current sale price for your unit

Now, here's your maths:

(condo value) divided by 12 (months). Multiply that result by 0.04 then 0.05 then 0.06 until you get a number that's the same as your rent.

What you've just calculated is your landlord's "Rental Yield" on their investment. 0.04 = 4% yearly return, 0.08 = 8% yearly return.

If they bought the condo cash outright, that's their profit. In the above example at "The Link Sukhumvit 50", 42 sqm 1 bedroom condos typically rent for 15,000 THB per month, giving us a 4.616% Rental Yield.

But even investors forget about one very important factor.

INFLATION! 

Inflation rate in Thailand has averaged 4.28% per year from 1977 to 2017. So, if the number you used was lower than 0.04 (4%), you're costing your landlord money.

Inflation is eating up 100% of their return. They make nothing. Anything over 0.08 (8%) is too high, in my personal opinion.

0.06 (6%) is what I recommend to owners who contact me asking what they should rent their condo for.

Room for negotiation

Listing at 6%, their potential tenant can negotiate a little and they don't lose money on their investment. The owner maintains a fair rate of return and the renter isn't being gouged in the process. To put that in perspective, that's 15,000 THB per month rent for every 3,000,000 THB of property value.

Go ahead and use this calculation for the condo you're renting right now. Feel free to use it in your next condo hunt to ensure you're being charged a fair amount.

Maybe you're being overcharged and you can now prevent it from happening again in the future or maybe you have an absolute steal of a deal. Most of all, be sure to use this before commenting on a Facebook property post! Maybe that condo's rent that you think is too expensive is, in reality, very well priced. Let me know your result.




Comments

Hang on a minute. Looking at your numbers, you're assuming that the condo is always resellable at the exact same price that it was bought for. The rent covers inflation and the owner could in theory take the rent plus the resale value of the condo and buy one that is exactly the same. Do condo's get more or less expensive as they get older? I can't imagine that they'd stay the same. You've also got mortgage interest to think about as many landlords will be doing it on credit, which makes good sense in the UK. Not sure about Thailand though. The number you get as a result seems OK, but I don't think that the reasons behind it can be so simple.

By John, Bangkok (13th March 2017)

Let me know your results in a comment or feel free to email me at blake@bkkbestlife.com

By Blake, Bangkok (12th February 2017)

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