Condominiums are a popular investment property as urbanization has expanded very quickly. In addition, more and more people are moving into the city to seek a better quality of life cause a rise in demand for residences.
Because property value in the city has gone up considerably, condominiums have become the ultimate choice for hopeful home-owners. It is much more economical to own a condominium in a prime location than to find a detached house.
For people who are looking to investment properties, there are many reasons to consider ‘second-hand condos’.
Second-hand condos allow us to see tenants
The first reason as to why second-hand condos are attractive is that we get to see our potential tenants. Are they students, office workers, or expats on short-term contracts? We can also see that there are real tenants here. Many times investors assume that a condo near a university would automatically be occupied by students, but often times competition or some uncontrollable factors may present challenges we could not foresee.
Often times, the property you are about to invest in, even new condos, face many problems. Tenants that you had expected may never come. In the end, you may have to change your target tenants, which may become a problem if the new target customer does not have the same purchasing power as your original target customers. You may struggle to find a tenant or you may end up not renting it out if the rent is too low.
Second-hand condos are much cheaper than new condos
When we’re looking for investment properties, of course we are thinking of ‘return on investments’ as the first priority. The price at which we buy the property has a huge impact on our return. Let’s say we rent for 10,000 baht per month, earning 120,000 baht per year. If we purchase the property for 2.4 million baht, the return is 5% per year. However, if we had purchased the property for 2 million baht, the return would increase to 6%.
If you survey investment properties, you would find that second-hand condos are typically 10-30% cheaper than new condos in the same location, depending on negotiation skills and the seller’s financial needs. We can see actual ‘rent’ that we will be able to expect, which allows us to determine whether the appropriate price of the condo. On the other hand, you would have to rely on a little luck with new condos to find tenants and hope that the price at which you had purchased the property is suitable. This certainly makes second-hand condos more attractive.
Nevertheless, there is a downside to second-hand condos. Interest rates are generally higher and banks typically approve less loan value for second-hand properties because of depreciation. However, this can be managed by increasing the down payment to manage interest rates. Generally, when purchasing investment properties, you should not be financing the entire property through bank loans because the interest rates will make it nearly impossible to profit from rent.