A Foreigner’s Guide in Leasing Thai Property

November 26, 2018

A Foreigner’s Guide to Being a Landlord in Thailand (Leasing Property)

Thailand ranks third in the overall Asian rental income table, lower than Indonesia and the Philippines, with an average total return of 6.35%. However, the low rental yield of new development projects pushes Thai landlords to invest in Thai properties from resale homes.

A Foreigner’s Guide in Leasing Thai Property | Yazhou Property

What a Good Landlord needs to know When Leasing a Property in Thailand

Tip #1: Maximising Rental Yield

The strategy of maximising rental yields depends on the location of the Thai property. A combined strategy involving short-term holidays allows for satisfactory results during peak season and mid-term breaks, although short-term rents involve increased administrative costs. If you choose a combination strategy for short-term holidays, the key points to consider include:

  1. Allowing a combination of short-term holiday strategies, except in the peak season and mid-term, to achieve satisfactory returns at a lower rental yield during the rest of the year;
  2. The landlord should consider the increase in administrative costs involved in short-term leasing, such as the balance between leasing and advertising costs;
  3. If you purchased a Thai property in the case of a mortgage, you need to set the interest rate at a level that can be repaid on time;
  4. Maintaining a high standard and making more facilities available will make your Thai property attract more customers, hence, making your rental business last in Thailand’s competitive leasing industry;
  5. You can obtain stable housing rental income by targeting Thailand’s international labour market. This will allow you to avoid fluctuations in income due to the unfavourable exchange rate, among others;
  6. Check out other developments in your chosen area to understand the average rent and facilities and overall condition. After that, plan for an average monthly rent for your Thai property;
  7. If you plan to enter the residential and retiree rental market, your best choice is to focus on long-term foreigner residents situated in popular areas;
  8. To have a nine-month annual occupancy rate, you should ensure that your income covers all costs (if applicable, including collateral) and provides a reasonable profit forecast for your Thai property investment.

Tip #2: Choose a Rental Agent

Due to the steady growth in demand for leased properties in Thailand, the country’s main destinations offer a large number of experienced leasing institutions. Bangkok is the centre of rental properties and currently has a high demand for luxury rentals, such as high-end apartments on Sukhumvit Road. The key points to consider when choosing a rental agent include:

  1. The best place to find a leasing institution to be rented by a foreigner is in a foreign residential area or downtown;
  2. Comprehensive agency services, such as fluency in the English language, legal advice, well-constructed websites and offline marketing programs, and an extensive client list, all help maximise your Thai property leasing potential;
  3. The ideal leasing management company will provide all services from the beginning to the end of each lease, including drafting lease contracts, the regular checking and recording property status, arranging repairs, maintenance and rental collections, tenant review and liaison, and providing monthly reports.

Maximising returns while minimising risk will be a priority for truly reliable Thai leasing agents.

Tip #3: Signing a Thai Property Lease Contract

A Foreigner’s Guide in Leasing Thai Property | Yazhou Property

The rental management company prepares the lease, which includes your own terms, once your rental management company finds the right tenant for your Thai property. The registration procedures for your tenants are as follows:

  1. The lease is signed by yourself or your agent and tenant;
  2. Your tenant pays the deposit specified in the lease and the rent for the first month;
  3. Unless the rent includes all utilities and services, your tenant will need to sign a telephone, internet, and TV contract with the local service provider. Your Thai property leasing management company may advise tenants on the best price.
  4. As stated in the Thai Property leasing contract, tenants must keep your Thai property in good condition.  Your chosen leasing management company may periodically check its condition as part of its monthly report.

Tip #4: Termination of the Lease

Your Thai property management company will be responsible for the termination of the lease process, including the following:

  1. The deposit will be refunded in full if 1) the lease has been fully operational, 2) tenant has notified the termination agreement 60 days in advance, and 3) the property is in good condition.
  2. If the tenant does not notify 60 days in advance, the deposit is usually forfeited;
  3. The rental management company will retain some or all of the deposit f the inspection reveals excessive wear or damage to the house or its fixtures and accessories.
  4. If the lessee has signed a utility contract, it will need to be cancelled or transferred to another person;
  5. The lessee needs to sign any management contract that was part of the lease. After that, you need to sign the lease agreement and state that all rent has been paid.

Tip #5: Legal and Paperwork

Your Thai property leasing agent will handle all rental paperwork, including lease contracts and lease end paperwork. This is to ensure that it meets your obligations under Thai law. Most Thai property leasing agencies will also process your tax transactions and provide a record of income and expenses. These agents usually have a law firm that they often work with or hire legally from qualified employees.

Tip #6: Cost and Budget for Agency Fees and Taxes

The cost of using a Thai property leasing agency is entirely reasonable. Experienced professionals are sure to supervise all aspects of leasing properties. As for the agency fee, it varies according to the institution selected and the service provided in different regions. Most agents even offer multiple options.

As a general rule, agents will charge a half-month to one-month rent as a commission. This will include finding suitable tenants, setting up leases and other related paperwork, such as checking tenants’ references. If repairs or updates are required, a quote will be provided and supervision of the work performed will be included.

Based on the advice of your tax attorney, you can calculate the average cost for a year and set it based on your net profit. The tax payable on rental income will depend on whether the property is in the name of an individual or a company.

  1. If the Thai property is held in the name of an individual, a 15% withholding tax will be deducted from the rental income of non-tax residents in Thailand. If an individual chooses to file a Thai personal income tax return and declare rental income, the withholding tax paid can offset the tax payable on the tax refund.
  2. Due to the Thai tax system, filing a personal income tax return can save money. Individual income of fewer than 50,000 baht per year is not taxed, and income of 15,000 to 500,000 baht per year is taxed, and 10% is deducted after deducting expenses and allowances.
  3. If the Thai property is held under the name of a foreign company, a 15% withholding tax is payable but not refundable. Your accountant will handle the company’s tax allowance on your behalf.

Tip #7: The Advantage of Leasing Thai Property

Leasing a property is a practical way to earn interest from your capital. By doing this, you can avoid the unprecedented low-interest rates offered by current banks. The demand for leased properties in Thailand has never been higher. Take for instance Bangkok, seaside resorts, and the northern city of Chiang Mai. This means that the rental industry will not go out of business anytime.

Moreover, establishing cooperation with a reliable Thai property leasing agency does more benefits than harm. It further provides more guarantees in your Thai real estate investments.

4 Thai Laws that Every Thai Landlord Needs to Know

A Foreigner’s Guide in Leasing Thai Property | Yazhou Property

1) If your tenant has a “reasonable reason,” you can cancel the lease at any time

The most important change in the new Thai leasing law is the implementation of the right to interrupt the lease. If tenants are notified 30 days in advance and there is a reason to move, they have the right to interrupt the lease. This means they no longer have the obligation to find someone to take over their lease. Work transfer and moving are several reasons why Thai landlords must accept the lease. However, it remains to be seen whether the “reasonable reasons” of the tenant will be accepted.

2) Setting the Rent

The landlord in Thailand can only request a one-month rent in advance. Furthermore, the tenant is entitled to a deposit of no more than one month’s rent at the beginning of the lease.

3) Margin change

The new Thai leasing law also addresses two major issues for many tenants regarding margin. First, the deposit must be refunded within seven days, a significant reduction from the current 30-day period. Second, the landlord must not withhold the general loss of the deposit. The landlord is responsible for routine maintenance. However, the tenant must notify the landlord of any problems.

4) The new Thai Lease Law does not affect all Thai landlords

Only owners who supervise 5 or more properties will implement the new regulations. Other owners are not obligated to comply with this new policy, but they are encouraged.

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