Guaranteed Income from Real Estate: How It Works and Is It Profitable?
Thailand has long been a leader in tourism revenue in Southeast Asia, with last year’s income reaching an impressive $66 billion. Recently, hotel chains have been actively leveraging this tourism boom by managing apartment complexes and renting them out. Property owners, in turn, receive guaranteed annual income through contractual agreements.
Let’s dive deeper into what a guaranteed income program entails, who it suits, and how realistic it is to achieve the income promised by developers.
What is “Guaranteed Income”?
A guaranteed income program ensures that property owners receive a fixed sum annually, regardless of whether their apartment is rented out. Developers or hotel operators commit to paying a percentage of the property's purchase price, typically between 5-10% annually. Any income above this amount remains with the hotel or management company.
For example, if you purchase an apartment for $100,000, your guaranteed annual income would be around $7,000. The process is simple: you buy the property and hand it over to the developer or hotel for long-term management. The management company rents it out at daily rates, generating income.
Advantages and Risks of the Program
Guaranteed income is an excellent option for those seeking passive income without the hassle of managing a property. Compared to traditional bank deposits, the returns from such programs are significantly higher. However, it is crucial to understand that some programs may be marketing tactics aimed at attracting more buyers. Therefore, it’s essential to carefully review the terms and the developer’s reputation before signing a contract.
Examples of Guaranteed Income Programs
There are various types of guaranteed income programs with different terms and conditions:
- Short-term programs. For example, a project in Phuket between the beaches of Rawai and Nai Harn offers guaranteed income for a few years, with an option to extend.
- Long-term contracts. Some developers offer programs lasting 10 to 15 years, where the owner receives a fixed 7% annual return.
- Combined programs. These offer guaranteed income for the first few years, followed by a switch to a Rental Pool scheme, where income depends on actual occupancy rates.
These programs ensure stable income for owners in the early stages while the property gains popularity and matures.
Key Considerations
When choosing a guaranteed income program, it’s important to evaluate the management company’s reputation and experience in the hotel industry. This directly impacts the stability and realism of the promised income in the future. Make sure the company has a proven track record and offers transparent terms of cooperation.
Conclusion
Guaranteed income from real estate in Thailand is an attractive option for those looking to receive a stable passive income from property investments. However, like any investment project, it’s essential to carefully examine all aspects of the deal to avoid unforeseen risks and maximize returns.