If you’re looking for a place to start, property investment in Asia is a good idea. The Thailand property investment market has been a solid performer for years now and it must be high on the list of considerations. Property investment in Thailand particularly, income property investment, is one the rise, owing to a record-breaking 32.59 million foreign visitors in 2016, representing an increase of 11% over the last year, and this trend is expected to continue into 2017. These foreign visitors are a key market for rental properties. Income properties in tourist-dense destinations generate increased profits, especially over long periods of time, so Koh Samui property investments and income properties are especially well-positioned to take advantage of these conditions.
There are several reasons why one would invest in an income property – let’s take a look at three reasons and how they could factor into your decision:
1. Investing to Gain Rental Income
One obvious purpose of income property is to serve as a source of revenue. Given a hypothetical property, with a monthly mortgage payment of, for example, $600, any rent you charge over $600 is instant income. For instance, charging your tenants $1000 on this property will give you $400 in income.
That said, you will also need to take property maintenance costs into consideration. It’s vital to carry out adequate research into how much your monthly or yearly maintenance charges will be. On top of that, there’s the potential for revenue loss, when tenants move out and the property is vacant for a time, or due to non-payment of rent. Include these losses and costs into your calculations when deciding how much rent to charge your tenants. A good, approximate number for maintenance and vacancy costs is 10% of your total rental income.
If you play your cards right, your rental revenue won’t just result in net profit, but will also represent your mortgage payments over time. The longer you rent out your property, the more wealth you’ll generate because you’re paying less in interest and more towards your principal, as time passes. Eventually, you can sell your property and recover your wealth, or at some point take out another mortgage at a lower rate.
2. Investing to Reduce Your Tax Liability
In Thailand and many other countries, rental property owners can claim a reduced income tax. A lot of costs and fees associated with your property can be written off as tax deductions. Many investors use this to help out with their property taxes, credit card payments and even their travel expenses.
In addition, there is a tactic known as “negative gearing,” in which you purchase a property on a loan, and the interest you pay on the loan exceeds the rent you’ll charge tenants, thus incurring a net loss of income. When you sell the property, later on, the profit you make will be taxed at the marginal rate appropriate for your net income loss. This results in a huge reduction in the income tax you’ll pay. While risky, negative gearing will provide you with excellent gains if your property sufficiently appreciates in value by the time you sell it.
3. Investing to Increase Capital
According to Derek Muhs of Global Edge Investment, the Thai real estate market is growing at a stunning rate, seeing 8-10% returns on rental income for holiday homes, which are often rented by tourists, and with some tourist-heavy areas experiencing capital gains of 15% year over year. “People love Thailand, the beaches, the diving, the food and of course the kindness of the people – it sells itself,” Muhs said.
With such rapid growth, it makes perfect sense to make property investments in Koh Samui, a leading destination for tourists in the country. This can actually be combined with any of the two above reasons to further improve income. For example, you can purchase a property to get rental income and pay off the mortgage over time, then when the market peaks, you sell for maximum returns. Alternatively, you can commit to negative gearing and maximize your profits from the sale of the property.
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