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What to do with 5,000,000 Baht?


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i have lived about five years like that, from the rent of an apartment i am having back home. i kept myself busy with backpacking all over asia.

 

but if you think just to relax in thailand, that can easily mush your brain. 30 000 baht gives you a simple life here, basic accomodation, good food, no real luxury.

 

the main question is how you keep yourself busy, doing nothing all day is not very inspiring.

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Buying to rent, especially when you will be in another country, can have its problems.

 

 

 

I had some experience of renting commercial property in the UK while I was in LOS. Using a reputable property agent and solicitor I set up a two year lease and set off to enjoy the sunshine. The tenant company never paid any of the rental owed, other than an initial $1400 payment to get the keys.

 

 

 

I spent many happy hours in internet cafes emailing the MD of the property agents and the solicitor who handled the lease, never got a reply. After three months I came back to the UK and tried to pursue the matter, learned a lot about the legal system frown.gif, discovered I could do nothing "legally". After a year of this I broke into the vandalised property and changed the locks.

 

 

 

The property agent has now invoked a clause in their contract to the effect that as the tenant has not paid them their fees for "attempting to collect the rent" my company is liable for them, so they are pursuing me.

 

 

 

I'm now in the position where I have some residential property that I am considering renting, but after the above experience I will consider my options very carefully.

 

 

 

Given the currently low levels of interest payable on bank deposits, and what economic terrorism has done to the stock market, it's not surprising that people are looking at property investment. Looking at house prices in London you would think that a good return is a cert, but as more properties become available rentals are already dropping. Bubbles always burst. People need to be reminded that property investment is speculation.

 

 

 

I met a farang upcountry who was living off rent from a loft apartment he owned in New York. But he said his brother (who was an attorney) was handling it for him, and I gathered that this had the advantages that he could trust him and it was free. I also noted that he was living in an affordable rural context.

 

 

 

Different countries have different laws regarding landlords etc. but the bottom line is that if a tenant doesn't pay it isn't always easy to get on a plane and fly back to ask him nicely for the rent. And if it is your main income, what option do you have ?

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Were you advised about the clause in the agreement between your company and the letting agents by your solicitor? If not then you may have redress against your solicitor if you were badly advised.

 

 

 

Yeah, you can have a problem when "good" tenants go bad. The law protects the rights of tenants against Rachman-like landlords but in the reverse situation it can be hellishly expensive and lengthy to get someone out. Your actions could have constituted Illegal Eviction and you could have been sued for damages if you were dealing with residential property. Dunno whether the same would apply for commercial letting.

 

 

 

The thing is, property prices have been consistently rising in the right areas in the UK for the past 5 years or so. Okay we may have an repeat of the late 80's slump but provided borrowing against the property isn't too high then potentially buying to let is still a viable propostition. Been thinking about the same thing myself for the past few years but tenants need to be chosen carefully. They can really naff you off.

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I'd argue that is the REAL rate you receive. That's the compounded rate of your investment over a one year timefram. This is my preferred measuring stick if I didn't have NPV when doing valuations. When comparing different pieces of paper, they will have different payment periods, but almost all paper falls into paying atleast once per year, thus the yardstick for comparison should be yearly.

 

 

 

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You are correct in regards to a 1yr investment that pays annually. I am referring to the idea presented in the thread of laddering your cd's in 1, 3, 6 ,9 month investments. You don't get the stated APR or APY in cash at the end of your term because of the way the interest is calculated. True for a one year CD the APY or effective yield is accurate but that is assuming you buy a one year term. I have noticed that banks will give you a misleading rate on your less than one year investment by quoting annualized rates instead of telling you what you will actually receive in cash.

 

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JJSushi, you additional comment about payouts for cash and your comment of "think Time Value of Money" is very deceptive. It all depends on the person's need for cash, specifically investment income. If you look at returns on an annually basis over significant periods of time you have to take into account re-investment, thus payments per year becomes specious. Additionally, when you measure the worth of constant payments (concrete investment income via bond stubs or what not) you have to take into account it's value to the owner and that indeed may be worth significant basis points, even triple digits, with regards to long term return on investment.

 

 

 

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There is nothing deceptive in my TVM statement given the context of the original post. We are assuming that the poster wants to live in Thailand and is going to live off of his income today, hence the importance of TVM. I honestly doubt that he wants to receive his income once a year. That is why he would be interested in investments that pay him cash on monthly, quarterly and semi-annual frequency.

 

 

 

I am not talking about constructing a portfolio for use 20yrs from now and concerned with getting a true yield and certain number of basis points through re-investing bond/div payments at the current rate. We are talking about the cash he will receive and can live off of without having to re-invest or touch his principal.

 

 

 

Let me give you an example if the guy buys a an 8% $25 par quarterly paying preferred he will receive in cash $.50 a share per quarter. Equate that to a $100 par that is $8 a year in cash for the term of that investment. We are not interested in future re-investment risk of principal and payments we are talking about disposable cashflow today.

 

Finance 101 tells you that a $1 today is more valuable than a dollar tomorrow.

 

I would think to a current retiree in LOS he is more concerned about his dollar of income today than his investment return 20 years from now.

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jjsushi:

 

 

 

You need a basis for comparison. Okay, you were replying to the ladder scheme under a 1-year time frame. If a person so chooses, then he/she has a need for that many on short notice and as I stated, if they need current income this is indeed worth lots of basis points to the individual.

 

 

 

If you still want to compare it to other investments you have to have some basis of comparison. Equalizing all instruments to reflect the simple annual interest is a concept that's easy to grasp and understand. Apples to apples comparison that allows you to rate investments.

 

 

 

Your argument that you buy a 6-month security and the bank quotes you an annual percentage rate is not right is a bad argument. The whole system is based on annualized rates. Either compounded or simple interest equivalent. What they show you is based on what they are selling. But if you read the fine print, understand and then make sure your instrument comparisons are being compared for the same compounding interval then that's apples to apples. General investment advisory practice is SIMPLE ANNUAL INTEREST.

 

 

 

Your TVM statement seems deceptive as you prefer quarterly payments and you state think TIME VALUE OF MONEY. You were implying that getting quarterly payments gives you an inherently greater value when this is not the case. If you got the same payout but over semi-annual then you wouldn't have the same IRR, albeit the annual cashflow would be the same. Not an apple to apple comparison.

 

 

 

There is nothing wrong with me stating that for any basis of comparison you have to compare apples to apples, that means converting everything to the same measuring stick. Even if you buy a six month security else there is no way you can campare it to one of a longer maturity (not even to say duration which would really be the finer argument). I also stated that constant payments or a specific payout scheme can be worth significant basis points to the owner.

 

 

 

If you are going to give advice it needs to be sound. Saying, "I have noticed that banks will give you a misleading rate on your less than one year investment by quoting annualized rates instead of telling you what you will actually receive in cash." isn't sound. They tell you the annualized rate which you can convert to compounding if you want so you can compare instruments.

 

 

 

You mention about the length of planning the portfolio. That's exactly what people should be planning for (unless they are 80 smile.gif. People don't look into personal financial planning usually until it's to late to make a serious impact.

 

 

 

Re-investment rate is valid in my opinion because you can buy into re-investment funds that allow drawdowns over time.

 

 

 

<<burp>>

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I read the clause in the agreement I signed with the agent. It was the fraud perpetrated by the tenant that took me by surprise.

 

 

 

I subsequently found a good commercial solicitor (hideously expensive). I went to the Law Society (fuckers).

 

I was told to take counsel's advice @ £500 but warned that I would never get any money back either from the tenant, his solicitors (who were party to fraud) or my solicitor (who was a wanker).

 

 

 

The tenant was a successful businessman and still owns other property in the area. I later learned this from "my" solicitor, who said that he had done business with him in the past... Charming.

 

 

 

No problems with breaking in as the tenant had vacated the property by then, stripping the fixtures etc.

 

 

 

For residential property in England, local councils are currently offering a great deal. They will rent from you, then sublet to actual tenants. They guarantee your rent every month regardless of what happens with the occupier.

 

 

 

Buying to rent is still good, so long as you can buy outright or can easily make the mortgage payments from another income. The people who will get burned are those who are relying on the cashflow of good rental incomes to pay off the mortgage, or to pay essentials like their mia noi. Otherwise under-occupancy isn't a problem as long as you know the rules regarding council tax and insuring empty properties.

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You and I are looking at this from different platforms and investment criteria we are going to have to agree to disagree. I think you are making it way too complicated for the original poster who wants to live off of his money today. I really don't want to get into a technical debate on Bond math, portfolio management theory, duration, convexity, DV01's, delta hedging,yield curve analysis, etc. Next we will be quoting Fabozzi, Homer and Leibowitz and talking about TIS(Truth in Savings) as it applies to APR vs. APY.

 

 

 

My advice was for the layman not the finace professional.

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FPDSavills is an international realtor which publishes some useful reports on property. A recent, June 2002, report dealt with buy to rent in the UK. Seems there has been a boom in this and prospects are not looking too good for the immediate future, and certainly the returns they quote look unattractive.

 

 

 

The main conclusions are below and you can download the full report from http://www.fpdsavills.co.uk/research.asp?content=%5Cuber%5Fresearch%5C1922%2Ehtm&subcategory=none&contenttype=research&category=

 

 

 

June 2002

 

Market Comment : Buy-to-let

 

DON'T OVER-GEAR IN A WEAKENING RENTAL MARKET

 

 

 

The boom in the take-up of buy to let mortgages has created a new breed of residential landlord. Rising house prices will attract more investors into the market but they need to proceed with caution. There are clear signs of weakness in some parts of the rental market and investors should resist the temptation to over-stretch themselves and think very carefully about what and where they should buy.

 

 

 

Rising house prices, poor returns from other asset classes, cheap finance, thousands of column inches in the personal finance pages have been behind the recent boom in buy-to-let mortgages. Last year we estimate that buy-to-let investors accounted for over 1 in every 20 residential transactions in England and Wales. In Greater London the ratio was more than 1 in 10. This surge of investment activity has resulted in a rapid expansion in the supply of property available for rent. Whilst this is not bad news in itself, the small size of the UK?s private rented sector (only 5% of stock is available on open market tenancies) makes it particularly sensitive to changing levels of supply.

 

 

 

The result of rising rental supply has been an increase in void periods and static, or in some areas, falling rents. The problems are most pronounced in areas which have seen a concentration of investor buying. Whilst our Corporate Residential Management team report that average rents were up slightly on this time a year ago, the rate of rental growth has slowed. In central London, the rental market for property between £300pw and £500pw has been particularly weak for the last 5 years as a result of the steady growth in rental supply each year. Cost cutting measures in the City and the impact of September 11th have been behind a 12% fall in prime residential rents over the last 6 months.

 

 

 

Sluggish, or negative, rental growth, at a time when house prices have been rising rapidly, means that yields have been falling. At a national level, the average net yield (net rental income after all ongoing costs as a percentage of capital value) currently stands at 6.2%. Yields are lowest where average residential values are highest. In Greater London, the average net yield is currently 5.5% whilst in Prime Central London it is just 3.1%.

 

 

 

Evidence of a weakening rental market and falling residential yields should signal a note of caution for investors considering potential purchases. Despite the often quoted view that many people are investing to support their long term pension provision we believe that a significant proportion of recent purchasing has been more speculative with investors looking for geared capital gains over the short to medium term. The problem is that a highly geared investor?s cashflow can turn pretty sour if they cannot let their properties. For example, an investor with an 80% mortgage on an averagely priced £120,000 property will be out of pocket by a few hundred pounds if there was a 3 month void period and they had to cut the rent by 10% to get the property let. By taking less gearing, e.g. a 70% mortgage, the investor?s cashflow would be more insulated from a weak rental market and, in this example, stay in the black.

 

 

 

In areas with low or below average yields, the weak rental market increases the risks for new, highly geared purchases. An investor faced with a potential void period would, in most cases, limit the impact on their cashflow by cutting the rent in order to get the property let. In London, for example, an investor with an 80% mortgage on a £250,000 property would be several thousand pounds worse off if there was a 3 month void and the rent needed to be cut by 10% to get the property let. Simply cutting the rent by 10% and having no void period would, in this example, leave the cashflow just in the black.

 

 

 

At present there is little sign of house price growth easing off and this is likely to encourage more investors into the market. Those who are thinking of investing for the first time need to consider their motives carefully. Residential investment should not be seen as a short term, capital growth play and investors need to be able to lock their capital away for at least 7 to 10 years. The key to sensible investment revolves around consideration of issues such as who is going to occupy the property, what rent they can afford to pay and are there lots of other investors buying similar property in the same area. Would-be investors also need to consider the level of gearing they will take and how they would cope if the rental market weakens in the local area. Can I afford to cut the rent by 10% ? or how would I cover a 3 month void period ? are other questions that they need to think about.

 

 

 

From the examples above it is clear that by taking lower levels of gearing, i.e. 70%, investors will limit the exposure of their cashflow to a weak rental market. Unfortunately, lenders offering buy-to-let loans have been steadily increasing loan to value ratios. They currently average 80%, up from 75% a few years ago. Loans of up to 85% of the property value are increasingly available.

 

 

 

If investors buy the right property in the right locations (which many aren?t), take conservative levels of gearing and can afford to play a long (7+ year) game then they are likely to make reasonable returns from the residential sector. Those that find they have over-stretched themselves, have property they cannot let and who need to sell their investment, may be saved if the housing market remains buoyant. However, if last night?s dinner party got you all revved up to join the buy-to-let boom we suggest you proceed with care. Either take advice or think very carefully before you leap in order to avoid a potentially nasty hangover.

 

 

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Wowzer: Thank you for that excellent excerpt.

 

 

 

JJSushi:

 

 

 

I edited my previous message as it was a little to hot.

 

 

 

It's all actually very simple and there doesn't need to be a big mystery or to hide the topic in mystical finance terms.

 

 

 

Simply it's that you need to have a common basis for comparison to compare different investments. Converting everything to the equivalent yield of simple annually compounding interest allows that basis of comparison. It's also an easily understood calculation. Take into account the individuals drawdown requirement over time as the constraint then the goal is to choose vehicles to maximize the individuals return.

 

 

 

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I am a bit surprised by the focus of the discussion in this thread with its emphasis on bonds, though there has been some discussion of property. (Though not the usual ?investing in a bar in Thailand option? which attracts the usual torrent of horror stories and emphatic advice to avoid it like the plague!)

 

 

 

If we look to the routine investment classes of equities, bonds and property it seems to me that the options are very limited ? though I stress, and stress again, that I am no expert so do not rely on my views!

 

 

 

Bonds are incredibly expensive with yields at 40(?) year lows. Whilst yields might decline a bit further in the short term if the US economy weakens further (which does not seem likely as the economy seems to be picking up albeit at a slower rate than expected, and it is the stock market that remains weak) the highest probability is that rates will rise over the next few years and bond prices will decline thus wiping out large parts of any capital invested in bonds right now ? not a great prospect for Elius.

 

 

 

There is certainly a property boom in the US and its seems in the UK too, and the knowledgeable seem to be saying, though not surprisingly in somewhat muted terms as they are brokers and make their money from investors in the buy to rent market, that now is not the time to be taking the risk of investing in property to rent out when the bubble could probably burst in the foreseeable future.

 

 

 

That leaves equities. After a really bad two years (at least for those who remained long) it now looks as though the US equity markets are bumping along the bottom and the likelihood is that they will rise over the next few years. The returns, at least according to Warren Buffet who has a track record of knowing what he is talking about, will be much more modest than in the boom of the 90s but still in the 6% to 10% range a year.

 

 

 

So it seems to me that the best thing that Elius can do at the moment is to invest in a mutual fund and he could expect that the total return of dividends and capital growth would give him a better return than the alternatives and preserve his capital.

 

 

 

But then again, wadda I know!

 

 

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