Cost of living in Hua Hin

[hhfarang]

Adjustable rate mortgages can be a good thing in times of recession when bank rates are falling so that your rate adjusts downwards instead of upwards, but the ones I mentioned were special adjustable rate mortgages with a "teaser" rate for the first one to three years that was way below the current bank rate allowing for much lower payments during that teaser period and easier qualifying... (because qualifying was based on the starting monthly payment) a recipe for disaster when the teaser period ends.

I always had a fixed rate mortgage because I like to know exactly what my payment will be during the life of the loan with no surprises, until we made plans to move here. Two years before the move when we were certain we were going to sell out and leave I looked around and found the company with the lowest teaser rate for three years and no pre-payment penalty and then refinanced my mortgage lowering my monthly payment by several hundred dollars during my last two years in the U.S. Lucky for me the housing bubble didn't burst until about a year after I moved here.

But... we are straying a bit off the topic of the cost of living in Hua Hin so before someone else says it...

[Whaler]

Has anyone done some numbers on buying 2 modest properties with the view to rent one and live in the other instead of getting one big one. Would this work or be better in HH than having one in HH and a rented one back in homeland ?, to offset costs.

[hhfarang]

Good question Whaler. I'd be interested in that answer too and think Super Joe touched on the subject in one of his earlier posts. I had rental properties before that were not located where I lived and it can be a nightmare unless you have a really trustworthy management company looking after them. I think if I ever did that again I would want the rental property as close to my home as possible so I could keep an eye on it personally.

[STEVE G]

Yes, it's something I've been looking into and as far as I see, there are two sides to it.
Having rented property near you obviously makes it easier to look after but it also exposes you to more risk in Thailand.
At the moment with falling property prices and increasing rents in Europe, I'm starting to think that investment there might have its advantages, the biggest being that if things go completely pear shaped in Thailand, you still have something elsewhere.
The management is a problem as HH points out; it's very easy for a management company to rip you off if they're that way inclined.

[Whaler]

Yes but to buy back in to the UK/Europe market is a lot more than HH and it's at a low prices wise already with only more potential for tourism

Let’s say it's going to cost 200K UKP to get maybe a 1000 UKP/month rental, so with 10M Bhts what can we buy/build and get a return of ?

I know of one chap who has built on 1200M2 plot a purpose custom twin villa with 4 double rooms plus helper room specifically for handicap guests to a very high standard. Of course this has cost nearer 20M bht, but he thinks there’s a good chance of a return and was way out of his range in Europe

So should we self build say 4 small villas, live in one and rent out the other 3 or ?

Once we have some numbers and Ideas we can look at risk scenarios etc and overheads

[Super Joe]

SuperJoe - I think you are wrong. Sorry darl - but certainly in the UK there are many people who have rented all of their lives and are still very content to carry on doing so.
Buying homes costs. Not just the initial outlay and mortgage - but the ongoing maintainance. Those ongoing costs are impossible to quantify because who knows how long a roof or boiler will last?

Hi Mags, I'm not suggesting people don't do it, or prefer it, I'm trying to get to the bottom of why people consider it a financially better option. I'm only interested in the purely financial aspect where it's an option people consider taking. Sure many people like to rent in the UK for all manner of reasons, I did even when I was staunch anti-renting, it was the best option for work in Cheltenham, but not many rent when retired do they, they can't if average pension incomes in UK are £1,500/mnth, and ave. house rentals £1,200/month. Maintenance isn't particularly an issue here cost wise, houses do not have expensive equipment/services like boilers, or expensive roof systems, the common roof tiles are 15 Baht, if 20 blow off in the night it's 300 Baht plus the same in wages, it's not a small fortune like back home. Thai landlords don't fix many problems anyway, they consider it our responsibility, non-return of 'deposits' probably costs as much as maintenance.

But to re-itterate this is purely about a straight financial choice between renting or buying when people move out here, ie: those that 'sell up', or otherwise have the means, you hear/read a lot people saying they're better off financially renting and putting the capital in a savings account back home, but that's a million miles from the reality of it. At the moment inflation rates have crept up, 5.2% in the UK (RPI), which means you need to be earning an interest rate of 6.5% just to break even and not lose money... there's tons of article on this at the moment, here's some quotes from what I read last night...
From January 2007 to January 2011, the Retail Price Index RPI (the Government’s measure for Inflation since 2003), rose to 15% - wages though, in that period, only rose by 7.6%, almost exactly half the rate of inflation. At present, interest rates are at a 50-year record low, with the Bank of England rate at 0.5%. Moneyfacts said no savings accounts were available that pay rates which overcome the RPI (inflation), while the average savings interest rate payable to a basic rate tax payer was, in effect, being eroded by 3.34% per year, the group said.

Your Pension Fund Suffering from 3.5% Inflation Erosion:
3.34% might not sound like much, I would have laughed at someone asking me to worry about 3.34% inflation while I was still working, but it equates to the following...
- Means that 3.5% inflation will erode your savings by 30% every 10 years
- Means 4m Baht in a saving account will only pay enough interest at the end of it's first (and fullest) year... to cover half the years rent.
- Means the 2nd year is exponentially worse because in addition to 3.5% rental inflation, you're starting the year with a smaller savings pot.
- Means the 5m Baht in savings account (incl. all interest payments) will have all been used up after just 14 years of renting.
- Means if you rent that same 4m Baht house for 30 years you would have paid out, in real terms (ie: the equivalent of today's money) 13million Baht.

And crucially for retirees dependant upon income from saving, investments & pensions, it will have this affect on our retirement plan if renting...
As of Today: 20k/month rent = 22% of total 90k/month expenses. No ploblem.
In 15 years: 32k/month rent = 35% of total 90k/month expenses. A 62% increase in 'real terms/today's money'
In 25 years: 46k/month rent = 50% of total 90k/month expenses. A doubling (2x) in 'real terms/today's money'
In 33 years: 60k/month rent = 66% of total 90k/month expenses. A tripling (3x) in 'real terms/today's money'

And for anyone who thinks this is just fear-mongering, and that property prices/rentals won’t exceed inflation/retirement fund growth by 3.34% over the long-term, that’s exactly what has happened in the UK over the past 50 years... 3.5%.


Your Pension Fund Suffering NO Erosion from Inflation (0%):
Even in perfect conditions renting is more expensive, if you assumed property prices do not grow in excess of the 40 year average UK/Thai inflation rate of 3.8%, and your savings/pension was increasing each year in-line with inflation (UK Gov. recently announced changing state pension index linking from higher RPI fugire to the lower CPI figure), and everything remained equal... the purchase capital cost of a property and it’s interest accruements in line with inflation will still only cover rental payments for 19 years!!


Your Pension Fund Suffering from 2% Inflation 'Erosion':
Knocked this up last night based on a 4m Baht property with a 7% rental yield (based on actuals in Hua Hin I’ve worked with), assuming 4% inflation (UK/Thai average for past 30 years) and that your savings/pension fund achieves this 4% growth, and with a property price growth of 2% in excess of inflation (UK average last 50 years was 3.5%).

I personally would not plan to this for Hua Hin, not even close, imo Hua Hin is a fast-developing, immensely popular resort that has been 'put on hold' because of the recession's affect on our finances. This applies to both the property market and 'general' cost of living inflation ... groceries, food/drink, entertainment etc. We’ve all seen Hua Hin suffer/benefit from property increases & inflation out of proportion to the rest of the country, as much as I don’t believe anywhere near the same 'frenzy-level' will return, I equally don't believe HH will somehow not experience growth above average inflation levels. Phuket last year, after a 6 month bounce from tourism returning, suffered inflation at 8.5% compared to national average of 2.8%. Apologies if I have any figures/understanding of economic principles wrong, let me know and I’ll correct it...

I can't see any real benefits to unneccesarily exposing yourself to this level of volatile factors, that can really affect retirement plans, and this is without even mentioning other factors like... 25% 'losses' from exchange rates, relying on the actions of one government/economy for growth of income and rely on another totally removed government/economy for the other side of the equation, inflation related to living costs.

SJ

[margaretcarnes]

All interesting and of course relevant stuff HHF. I guess you are right in that Thai landlords can't in the main be held to be as responsible for repairs etc as those in, for example, the UK, where tenants have legal rights.
Whalers thoughts about buying more than one property are also interesting and in particular the info on the guy who has adapted accommodation for disabled holiday letting - I do think that is one shortfall in the HH letting market and one which, marketed correctly, could prove successful.

Mind you I'm still grappling with your average figures for UK pensions and rents! South of Watford prices?
Seriously though thats where the 2 countries differ again rental wise, because many low income people in the UK will get some help with rent anyway, and if in Social Housing they will often have their rent paid in full. That safety net doesn't exist in the LOS as we all know.

Good points made earlier as well about 'distance' letting - ie letting a property back home while living in HH. Lomu is best placed to comment on this. From what I've seen personally it's a catch 22 minefield even when living very close to the property you are letting. Much depends on the attitude of the tenant which can be very much pot luck. My present landlords have their own company with over 30 properties, and it's a full time job for them to run it. But using an agent in the UK these days will cost around a sixth or more of the gross rental value (in the North of England.) Plus agents take a percentage of the value of any improvements carried out by the owner - one to watch.

[hhfarang]

All interesting and of course relevant stuff HHF

It is interesting stuff, but I can't take credit for it... that post was by SJ.

[Whaler]

Good points made earlier as well about 'distance' letting - ie letting a property back home while living in HH. Lomu is best placed to comment on this. From what I've seen personally it's a catch 22 minefield even when living very close to the property you are letting. Much depends on the attitude of the tenant which can be very much pot luck. My present landlords have their own company with over 30 properties, and it's a full time job for them to run it. But using an agent in the UK these days will cost around a sixth or more of the gross rental value (in the North of England.) Plus agents take a percentage of the value of any improvements carried out by the owner - one to watch.

Margaret we have let our house in the NW of England for over ten years now I would say we have had occpancy for 9 years as you loose some time between tennants ( we also had a burst pipe and lost 4 months) and have averaged over 825UKP income post fees and maybe you can deduct an average of 10% of this for maintenance/replacement etc for some good vs bad years.

Not sure who you use, but our agents fees are under 10% and we have found it's not the tennants it's the agents attitude and thier vetting policy thats important plus the ability to handle the little problems. I don't understand your comment on improvements, our agents certainly dont take any percentage other than based on the rent value (eg if you add a 4th bedroom and the rent value goes up)

I agree if you buy to rent especially to DHS then this is a can of worms. I think SJ's pension numbers are not to bad if you consider them as average joint pension.

If you also buy new or nearly new properties the likely maintance costs should be less, certainly for the first 10-15 years.

[lomuamart]

Although we're wandering slightly off topic, I'd agree with Whaler regarding renting back in the UK. I've been doing so with my property for the past 13 years and it's good income - central London, with three bedrooms and a garden.
However, the agents are the key. I've had excellent Property Managers over the years and some who'd have been shot if I'd met them. Not all news is good news, but answers to emails etc should be forthcoming, not ignored.
The current tenants' lease expires in early August and that is always a tense time for me. If they leave, how long will the void period be and what special conditions of maintenance/furniture etc will new ones want?
But the rental market is very bouyant, at least in central London, and my agents are suggesting that I could achieve about a 9% increase in rent which surprised me as I would have been happy with about 4%. I probably won't get the 9% unless new tenants move in. I can't see the current ones paying that. But, over a year it's probably best to take a lower amount as the tenants are good payers and taking care of the place. It would cost me more to get new people in. Another year's steady income and my reserves will be back to a level I feel comfortable with.
The property has got to be maintained and last year, for instance, I forked out over 300,000 THB on it - new kitchen and overhaul of the bathroom.
So, if I was able to spend all the money I get, less agent's fees which are 16% letting and management + VAT. I know, I know but it's central London - I'd be out on the golf courses every day. But life dosn't work like that and I have to save a significant proportion of my net income every month.
Another good position is that I was lucky enough to be able to pay off large amounts of the capital mortgage debt whilst working in the UK. Without going into figures, I pay less than half the amount I rent for here in HH - and our rent is not high. Three years to go on the small mortgage, a maturing endowment policy (that hasn't performed as well as it should have but should leave me a half-decent lump sum) and a property that isn't really losing much value and maybe, just maybe, the future looks a bit more promising than it has over the past 5 years - with exchange rate collapses and so on. Hey, I'll be wearing shades soon and the golf courses may see me a bit more regularly. At least I'm an optimist!!
To bring things back on topic, I'm mindful of the rising cost of living over here. Our household expenses are significantly up on 3-4 years ago but that's as a %age so 20% of not a lot isn't much either. We get on well with our landlord and he hasn't raised the rent for the 7 years we've been here. I help out occasionally with air-con maintenance and other small bits and pieces to help him and that's mainly why the rent hasn't been raised - yet.
The killer is the exchange rate, but as long as we have a reasonable life over here and I can save to maintain my property back home then I'm happy. Not exactly a millionaire, but anything's got to be better than driving up to 3 hours a day in and out of work to a job that was boring me to death.

[chopsticks]

Another advantage that renting has is the flexibility it gives you.

If circumstances change you can always quickly downsize to something cheaper or move to a different area.

There's the very real possibility of waiting for many months trying to sell a multi- million Baht property that's now become devalued by 33% or more and this needs to be factored into any sales pitch.

[Whaler]

Another advantage that renting has is the flexibility it gives you.

If circumstances change you can always quickly downsize to something cheaper or move to a different area.

There's the very real possibility of waiting for many months trying to sell a multi- million Baht property that's now become devalued by 33% or more and this needs to be factored into any sales pitch.

I presume your 33% devaluation is based on what it was worth at maximum vs now and including exchange rates

Yes you do have flexablty to easily move but it's equally likely your invested savings instead of house purchase have also devalued by large ammounts over the last couple of years so you would have too move

You can always rent out your multi- million Baht property and move in to cheap rented accomodation as a short term solution, so it's not quite as inflexable as you make out

As always it's about having a spread of investments on both sides of the pond, over a long term view, otherwise you will always have a large exposure to exchange rates, house and stock market fluctations in the short term.

Personally I don't think I have the experiance to truly manage a diverse portfolio that plays with the stock market to get the the good returns. Like most I understand property, renting and normal savings. Your pot needs to have enough to survive the 3-5 year peaks and troughs so you can optimise buying and selling etc.

So

Did someone have some numbers on possible rental income with the view to build 4 small vilas and rent out 3 to offset your living costs ?

[Korkenzieher]

Super Joe's spreadsheet is fine, but ultimately all it does is prove that 6% is greater than 4% is greater than 2% - which is obvious - and documents the effects. In itself, quite nice. But it is also important to note that the cost of owning property isn't limited to the purchase price of the property. So there needs to be adjustments to that return, based on everything from land taxes to repairs to gardening costs and so on - everything that you pick a bill up for which your landlord otherwise would. Perhaps even furnishings, Cable (and the TV itself) and wireless internet as is the case for me with my current landlord.

The only way you can decide which is the right path is to work out opportunity cost. In essence, if you can't get more by investing the capital value than the comparitive rental value of an equivalent property, then property is the best investment! It provides the greater return. You always need to make allowances for the risks of ownership (currency movements, illiquidity and so on) but if you can't make more than the value of the rent of the property you own / seek to own then you should probably not try - whether you live in that property or not. And not forgetting that personal ideas of security might well be worth a small hit to the maximum possible return.

In my own case, I have 2 properties rented out in the UK. However, as a result of a lot of costs (agency fees, service charges to a leasehold property, bad tenants, renovations and decorations etc.) the return on the property recently is below what a simple portfolio of dividend paying stock will return, net of tax. That already degraded income has also been affected by adverse currency movements. Any interest rate rise would just make this situation worse. So my own position is fairly clear - I can cut out the agency, dead-beat tenants, service charges, property taxes and the mortgage by selling. Doing nothing more than buying a couple of market tracker and dividend ETF's takes care of the other side of it.

One thing to remember is that it can be the case that the more equity you have in a property, the less efficiently it is using that equity because you are reducing the leveraging effect of any mortgage. Like any business, borrowing at 5 to lend at 10 applies to the property market. Of course, a cost neutral to positive situation where you have a renter paying off the purchase value of the property, including mortgage, to build up equity for you is a fairly compelling outcome.

The only possible downside to selling would be losing out on some capital appreciation in the near future. It doesn't really matter where that capital appreciation happens. I am optimistic that housing in the UK will hold up fairly well, but I'm not expecting stellar returns. In Thailand, I am quite concerned at the risk to capital. The US too still has some downside I feel. But that is a personal view.

[Super Joe]

....so if you can [secure a land plot with space for a future small unit] by simply buying the smallest or least expensive home you can afford (and be happy with) without breaking the bank, I think that is a better option than renting.

That's the conclusion I've come to; I've been renting a house in Hua Hin for eight years and I've now decided to build a home of my own but it's a very modest two bedroom bungalow and is costing less than some of my colleagues spend on cars in Europe.

Agree, but would include the part I've added in red, which could be a retirement 'lifesaver'. More people are considering this from what I've seen, and not just a separate building but how they can adapt/extend to provide a self-contained unit for the MIL, or two friends considering buying together. IMO, a plot with enough land to build a small (could be very small) place to rent, sell or move into if push comes to shove, wouldn't be the worst thing you could do. We've already done it by accident rather than design, and adapted a games/pool/maids quarters (that was never actually used for anything bar a few games of pool) into a 1 bed batchelor-pad type place (tiny in other words ), and a friend of crazy88's has rented it long term. Far easier to rent or sell off if a small, inexpensive affair.

Has anyone done some numbers on buying 2 modest properties with the view to rent one and live in the other instead of getting one big one. Would this work or be better in HH than having one in HH and a rented one back in homeland ?, to offset costs. Let's say it's going to cost 200K UKP to get maybe a 1000 UKP/month rental, so with 10M Bhts what can we buy/build and get a return of ? So should we self build say 4 small villas, live in one and rent out the other 3 or ?

The 4 small villas type thing is what we've actually been working on next to our house since market died, also two previous customers, totally unrelated from each other, got us to build another one each next to where they live. These were for rental income reasons and because they knew they could get good deals in the recession, so in-line with yours and my thinking. They can get a 7% yield (gross) 'if' it was rented all year (so you need to take a view on that), so if you built yourself a 9-10% yield (gross, but on your costs not market value). Above average size/quality 3bed, furnished, pool-villas, 5-6kms from town (4m-4.5m market value, 23k-28k/mth rent), you should be able to do four on 1.5rai for 12m total, depending greatly on land/infrastructure reqd. etc.

Now that might sound a high % yield compared to 4-5% in London, but we have 2-3 months empty here (prefer tourists rather than long-termers, they leave more underwear ), compared to 1 month in 5 years in the UK, but the key thing is it's only 4-5% back home because of their value growth, so I'd say allround the UK was a better, safer deal if prices take off again. I think it would be bad advice to suggest selling a property in UK to build here with the proceeds, who knows what's around the corner here, but I like the buzz of 'is that land they're clearing over there really for the indoor ski park'... or is it the new prison There's so many pro's & con's, if's and but's with this, it's all down to the individual's personal circumstances, and you might not get a proper feel for that until being here a year or so full-time... and that usually long enough for most of us to have done our money, and cleverly withdrawn ourselves from decision making process

IMO, Hua Hin has more opportunities for growth/gains over the medium term 5, 10, 15 years, but higher risks. Personally I don't have any doubts that HH will see widespread investment again once the recession has lifted, nowhere near previous levels of course, but when you consider the sheer work and new projects launched during this recession, by big multi/international firms, there can't be too many other places around the world doing similar in the middle of one of the biggest financial crises in 100 years... (a ton of condominium resorts, 3-4no. major shopping/entertainment complexes, wakeboard/waterpark, new golf courses, high-end (a mega-rich Asian's style) -- beachfront villa resorts, international hotels & hospital groups), floating martkets etc.


Although inter-related, this may be a bit too far 'off-topic'!?, so if a mod feels it neccessary to split it or if anyone wants to discuss it in more detail, maybe we should start another thread, I don't know!?!?


SJ

[Super Joe]

's spreadsheet is fine, but ultimately all it does is prove that 6% is greater than 4% is greater than 2% - which is obvious

Is it obvious though?, that just 2% property inflation eroding away income will make as big of a difference as spending 9.7m Baht just to rent a 4m Baht property for 30 years. An effective 16.8m Baht difference with the 7.1m Baht asset you could own if bought outright. I don't know if people believe it or not from what I've read, focussing more on relatively insignificant maintenance costs, which are on the other side of the equation, so not under financial pressure at all. I do them things all the time now without really thinking about it because it just part of the business to have everything ship-shape, so the tenants return.

There's a whole nest of vipers here that can affect us all on pensions, savings, investments and no actual salaries...
a) UK inflation (RPI)@5.2%, but income having an issue with that as... pension increases@3% & savings increases@3.5%
b) Them exposing themselves to 30-40 years of exchange rate risk by transferring in their rent money each month.
c) Thai inflation out-stripping income growth that's being subjected to fiscal dynamics of a.n.other government, with potentially opposing fiscal objectives.
d) Hua Hin inflation out-stripping the nationalaverage by going into overdrive again if things pick up again.
e) Hua Hin property market ditto, replicating the previous 50% increases over 3 years, with only a 10-20% correction during downturn.

The only way you can decide which is the right path is to work out opportunity cost. In essence, if you can't get more by investing the capital value than the comparitive rental value of an equivalent property, then property is the best investment! It provides the greater return. You always need to make allowances for the risks of ownership (currency movements, illiquidity and so on) but if you can't make more than the value of the rent of the property you own / seek to own then you should probably not try

So, you've now got the initial 4m Baht to work with in order to turn around this 'deal', 4m Baht into 16.8m Baht (on house 1) in 30 years...That's an average annual growth of 5% in excess of inflation, inflation 4.2%, +tax = 10-12% per year, I thought the stock market's average was only 9.75%, which is not repeatable in near future. Seems a lot of unneccessary hassle working the house money for the next 30 years just to pay for the house


SJ