Thailand ranks third below Indonesia and the Philippines in the Global Property Guide’s rental yield tables covering the whole of Asia, with average gross yields standing at 6.35 per cent. As gross yields are lower for new-build developments, potential landlords are advised to build their portfolios from resale homes.
Maximizing your rental yield
Strategies for maximizing rental yields depend on the location of the properties, with short-term holiday lets in resort towns and Bangkok realising higher rents than long-term lets in less popular tourist destinations. A combination strategy involving short-term holiday lets in the high season and medium-term lets during the rest of the year can give satisfactory results, although short-term rentals involve increased overheads. Points to consider include:
- A combination letting strategy involving short-term holiday lets in the high season and medium-term lets at lower rental rates during the rest of the year can give satisfactory results
- Landlords should make allowances for the increased overheads involved in short-term letting, such as maintenance between lets and advertising costs
- If your buy-to-let portfolio was purchased with the aid of mortgages, it’s important to set rates at a level which covers repayments and allows for periods of non-occupancy
- Maintaining your properties to a higher standard and with more facilities than most of the competition will attract more business in this competitive field
- For a stable income free from fluctuations due to poor weather, unfavorable exchange rates and other issues, aiming your business at Thailand’s international workforce is the best idea
- Check other developments in your chosen area for average rental costs versus facilities and overall condition, and investigate the location itself for trends before setting an achievable average monthly rent for your property
- If you’re aiming to tap into the residential and retiree expat rental market, choose a property located in a popular area for long-term foreign residents
- Aim for an occupation rate of nine months per year, which should ensure coverage of all expenses (including a mortgage if applicable) and provide a reasonable profit on your investment
Selecting a rental agency
Due to the steady increase in demand for rental properties in Thailand, the country’s major destinations offer a good number of experienced rental agencies.
Bangkok is a hub for rental properties, with high demand at present for luxury rentals, such as upscale condos on Sukhumvit Road. Points to consider when selecting a rental agency include:
- The best locations for rental agencies dealing with expat rentals are in expat residential areas or city centres
- Comprehensive agency services such as fluent English, provision of legal advice, a well-constructed website and offline marketing programme and an extensive client list all help maximise your properties’ rental potential
- The ideal rental management company will offer all services from start to finish of each let, including drawing up rental contracts, regularly checking and recording the condition of the property, arranging for repairs, maintenance and rent collection, tenant vetting and liaison and the provision of a monthly report.
Maximizing returns whilst minimizing risks will be the right agency’s priority.
Checking in
Once your rental management company has found a suitable tenant for your property, a lease will be prepared according to your requirements. The checking- in procedure for your tenant is as follows:
- The lease is signed by yourself or your agent and the tenant
- Your tenant pays the security deposit stated in the lease, and the first month’s rent in advance
- Unless all utilities and services are included in the rent, your tenant will need to sign a contract for telephone, internet and TV with local service providers. Your rental management company may be able to advise the tenant on the best deals.
- As stated in the rental contract, the tenant is required to keep the property in good order, and your rental management company may perform regular checks on its condition as part of its monthly report to you.
Checking out
Your management company will take care of the procedure for ending the tenancy, covering the points below:
- If the tenancy has run its full course or the tenant has given the required 60 days’ notice to end the agreement and the property is in good order, the security deposit will be returned in full
- Should the tenant not have given 60 days’ notice, the security deposit is normally forfeit
- If an inspection shows excessive wear and tear or damage to the property or its fixtures and fittings, the rental management company will retain part or all of the security deposit
- If the tenant has taken on utility contracts, he or she will need to cancel or transfer them
- The tenant will need to sign any management contract entered into as part of the tenancy, and you will need to sign off on the tenancy agreement, stating that all rent has been paid.
Legal and paperwork
Your rental agency will deal with all rental paperwork including the rental contract and lease end paperwork, ensuring it complies with your liabilities under Thai law. Most agencies will also deal with instructions from your accountant as regards your tax liabilities as well as offering dispute and emergency management and computerized records of income and expenditure. The majority of agents have a law firm with which they work on a regular basis or employ legally qualified staff.
Costs and Budgeting for Agency Fees and Taxes
The cost of using a tenancy management agency is fully justified by the convenience of having experienced professionals overseeing every aspect of renting out your property. Charges vary according to location, the agency chosen and serviced provided, with many offering several options.
As a general rule, agencies will charge commission on the rental of between half a month and a month’s rent. This will include finding a suitable tenant, the setting up of the lease and other relevant paperwork such as checking the tenant’s references. Should repairs or renewals be necessary, quotations will be provided and include supervision of the work done.
Average charges over a year can be calculated and set against your net profit as advised by your tax lawyer. Taxes due on rental income will depend on whether the property is in an individual or company name.
- If the property is held in an individual name, 15 per cent withholding tax will be deducted from rental income paid to non-tax residents in Thailand. If the individual elects to make a Thai personal income tax return and declare the rental income, the withholding tax paid can offset the tax due on the return.
- Filing a personal income tax return can save money due to Thailand’s tax system. Personal incomes of less than 150,000 THB a year are not taxable, with between 150,000 and 500,000 THB income per year taxed after expenses and allowances have been deducted at 10 per cent.
- For example, on a rental income of one million baht with deductions for standard rental expenses at 300,000 and personal allowances at 30,000, the net income would be 670,000 THB, attracting a tax bill of 69,000 THB, set against the already paid withholding tax on total income of 150,000 THB. A tax refund of 81,000 THB would be made.
- If the property is held in a foreign company name, withholding tax of 15 per cent is due, but is not refundable. Your accountant will deal with company tax allowances, etc on your behalf.
Buy to let advice
Investing in buy-to-let properties in Thailand is a practical means of earning interest from your capital and avoiding the all-time low interest rates offered by the banks at the present time. Demand for rental properties is at an all-time high, as is construction of suitable developments in Bangkok, the coastal resorts and the northern city of Chiang Mai. A partnership with a reliable rental management agency can prove lucrative, along with the additional bricks-and-mortar security offered by real estate investments.