Purchase with a View to Rental Revenue and Capital Appreciation
John contemplating a home purchase in Phuket wrote, "If
I was considering a purchase with a view to say 4 weeks per year personal
use, some rental revenue and some capital appreciation what would you
recommend?" "Which would give most annual occupancy, best
rental stream and prospect for capital appreciation. Are apartments/condos
better than houses for the criteria I've listed above"?
It's quite hard to give a definitive answer to that question. Typically there are trade offs between rental revenue and capital gains, particularly if the rental stream needs to be combined with a degree of personal use.
When considering rental returns, you first you need to distinguish between, managed resort property that has efficient on site management, able to provide short term letting possibilities, which in turn offer the opportunity to flexibly mix personal usage with rental income; and stand alone properties, with no or limited on site (rental) management, where the only sensible letting option is in a long term let (typically annual).
Managed resort property generally has a higher purchase cost per square meter and, higher levels of both services and management fees, which while largely offset by higher rental values, would seem high if it was ever planned to use the property as a permanent residence in the future. Short term rental returns tend to be volatile - good in good years and down to near zero (after management costs) in bad years.
The one scenario in which you can effectively combine rental of properties without on site rental management and making some personal use of the property, is when your intended usage periods will only be in the rainy season. This works because there is a far greater demand for property in the high season and a four months high season let is both easy to secure, even without on site rental management, and will also yield nearly the same income as can be achieved from a full one year tenancy.
Individual homes either in stand alone locations or in residential developments that only offer property (as distinct from rental) management, tend to have lower
capital cost per square meter and more consistent rental returns. The downside is that. a combination of the small size of off site short term rental management organizations, the inefficiency and lost occupancy of letting a one of a kind property and the general difficulty and expense of servicing a stand alone property for short term make it hard to justify short term letting of such a property - or reconcile the more efficient long term letting with making some personal use of the property.
Capital appreciation on the other hand is less directly related to product type than to a combination of location, architectural design, build quality, and the ongoing management of a property. Generally the location and the land component of a property is much more significant in the appreciation equation than the building built upon the land. Prime factors in improvement in land value in a fast developing area such as Phuket, lie in selecting a site that is not just attractive and well protected today, but one that is best protected from the negative impact of future construction on neighboring or potentially view blocking property. Ocean front property and to a lesser degree well protected hillside locations are typically the best in this respect.
With regard to the building value component of a property, the concern here is mainly that the building should not depreciate in value. A building as distinct from it's land, can really appreciate in value no more than any increase in building cost - which is usually offset by age depreciation. A building cheaply constructed or badly maintained, a development badly managed, or even a design which goes out of style or shows it's age prematurely can conversely depreciate a property in value quite significantly.
Houses, largely because they have a greater land component than apartments, have a greater potential for capital gain and are generally more in demand for longer term letting. Apartments and condos, with their smaller size and on site management structure (better suited and more efficient for short term letting) tend to have lower capital appreciation, comparable but less regular rental returns, with the bonus of allowing some personal usage.
I hope this helps to answer your question, or if ,as I realize is likely, it fails to answer it fully, at least starts to help you understand your options a little better and leads you eventually make a choice that is right for you.