Calculating ROI: Making Your Phuket Property Work for You

Let’s dive into the heart of real estate investing: ROI, or Return on Investment. This magical little figure, usually represented as a percentage, tells you how well your property investment is performing—whether you’re a property investing guru or you just picked up a nice holiday home for yourself. Understanding how to calculate ROI will help you make informed decisions and maximize your investment potential. So lets get down to it. 

The Basics of ROI: How to calculate property rental yield

First things first, let’s break down the formula:

Return on Investment (ROI) = (Annual Net Profit / Total Investment) x 100

If math isn’t your thing, then think of ROI as the percentage of your initial investment that you get back as profit. 

Annual Net Profit is your revenue minus all those pesky expenses (think maintenance, property management fees, insurance, taxes, etc.). 

Total Investment includes what you paid for the property plus any additional costs (like renovations or closing fees etc). [We’re not going deep into these costs within this article. However stay tuned via our newsletter or socials for more.] 

Now, let’s look at how this formula plays out in different rental strategies: long-term, short-term, and the ever-exciting and high yielding holiday rental market that Phuket if famous for.

PLUS make sure to check out the second last paragraph where we give you an example of a fixed income program from one our favorite developers. A juicy 7% fixed for 5 years, seems just too good to be true.   

Ok, into it. 

Long-Term Rentals: Slow and Steady Wins the Race

If you’re looking for a steady, reliable source of rental income, without the hassles of managing bookings then long term rental properties might be for you. Long term rentals in Phuket are usually 12 to 36 month contracts. You will rarely see one over 3 years, and they are usually 12 months. With long-term rentals, your ROI is built on consistent rental income over time, plus a bit of appreciation if you’re lucky and picked well in the first place. Despite what some say, capital appreciate in Phuket is possible if you do your research. 

But we’re talking rental ROI, so back on track…

So what are the benefits of long term rental properties? 

• Consistent Cash Flow: With long-term rentals, you get a steady, fixed stream of income each month. Tenants typically sign leases for 12 months or more, ensuring you have a reliable rent check coming in monthly. Less surprises. 
• Easy Yearly Budgeting: Knowing how much you’ll earn each month makes it easier to plan your finances, cover expenses, and even save for future investments. 
• Reduced Vacancy Rates: Long-term tenants mean fewer gaps between rental periods, so your property is less likely to sit vacant, which can be costly.
• Lower Marketing Costs: With less frequent tenant turnover, you spend less on marketing and advertising to find new renters, reducing your overall expenses. 
• Property Longevity: Tenants who stay longer tend to treat the property as their home, leading to less wear and tear compared to short-term or holiday rentals where frequent turnover can result in more damage. 
• Lower Maintenance Costs: With fewer tenants moving in and out, there’s less need for frequent cleaning, repairs, or renovations, which can help keep your maintenance costs down.
• Simplified Management: Long-term rentals typically require less hands-on management. You (or your property manager) won’t need to worry about frequent check-ins, check-outs, or coordinating with cleaning services as often as you would with short-term or holiday rentals.
• Attractive to Property Managers: Property managers often prefer long-term rentals because they’re easier to manage. This could lead to lower management fees or better service agreements. 
• Utilities and Upkeep: In many long-term rental agreements, tenants are responsible for their own utilities and sometimes even minor property upkeep. This can reduce your overall operating expenses.
• Less Micro-Management: Since long-term tenants settle in, they often take care of small issues themselves rather than calling you or the property manager for every minor inconvenience.
• Better Tenant Selection: With long-term rentals, you have the luxury of taking your time to screen potential tenants more thoroughly. You can check references, verify income, and ensure they’re a good fit for your property, leading to fewer issues down the road.
• Resilient Income: Long-term rentals are less sensitive to fluctuations in the tourist market or seasonal changes, providing a more stable investment even during off-peak times or economic downturns.

Wow that list was exhaustive! Long term rentals seem to be the frontrunner from the very start. However they often do lose when it comes to overall profitability. Long term rentals provide less headaches, but leaves less money in your pocket. 

In summary long-term rentals offer a stable and predictable source of income with less turnover and easier management making them a solid choice for investors seeking a lower-risk, steady investment in Phuket’s real estate market.

Lets see how we calculate ROI. 

Step-by-Step ROI Calculation for Long-Term Rentals in Phuket:

We’re using a real world example here with one of our development partners.
Monetaria Villas in Rawai, Phuket comprise 35 new 3 and 4 bedroom pool villas only a few mins from Rawai Beach on nice sized blocks. Lets do the math! 

1. Monthly Rent:

• Current rental appraisal for Monetaria Villas 3-bedroom & 4-bathroom is 120,000 THB ($3,400) per month on a 12 month contract. 

2. Annual Rental Income:

• Multiply that monthly rent by 12 months:
  120,000 THB x 12 = 1,440,000 THB ($40,800) for the year. 

3. Annual Expenses:

• Now, subtract annual expenses—maintenance, property management, insurance etc. These expenses are extremely variable and we would need to write a whole other article on this topic alone and we might just so subscribe to our newsletter to make sure you don’t miss it! 

Lets keep it simple for this article and just include the agent commission for finding a tenant.
1 month is average in Phuket so 120,000THB. 

Utilities and common area fees are passed onto the tenant. 

120,000 THB ($3,420 USD) costs. Now you could save this by finding a tenant yourself by using a property portal or facebook marketplace is also popular in Phuket. But there also could be some other costs, so let’s just leave it at 120k for now. 

4. Net Profit:

• Your net profit is what’s left after expenses:
  1,440,000 THB – 120,000 THB = 1,320,000 THB ($37,650)

5. Total Investment:

• Let’s assume you bought the property for 17,900,000 THB ($507,100).

6. Calculate ROI:

• ROI = (1,320,000 THB / 17,900,000 THB) x 100 = 7.37%

So, with a purchase price of 17,900,000 THB and monthly rent of 120,000 THB, your annual ROI would be approximately 7.37%. This represents an average rental return for long term rentals. Lets see how long term rentals stack up against short term, keep reading. 

Short-Term Rentals: A Little More Action

Short-term rentals give you a bit more flexibility and potentially higher returns compared to long-term rentals. Think of them as the middle ground—your property is rented out for a few months at a time, often to expats or digital nomad professionals on workcations etc. 

Here are some key advantages of short term rentals in Phuket: 

• Premium Rates: Short-term rentals often allow you to charge higher rates compared to long-term leases. Especially in a popular destination like Phuket.
• Seasonal Pricing: You can adjust your rates based on demand, charging more during peak tourist seasons and holidays. This can significantly boost your income during high-demand periods.
• Personal Use: With short-term rentals, you can block off periods for personal use, allowing you to enjoy your property when it’s not rented out. This is great if you want a vacation home that also generates income when you’re not using it. This is big if you plan on using your island home from time to time. 
• Adaptability: You can adjust your rental strategy quickly in response to market changes or personal circumstances. If the market slows, you can switch to longer rentals or vice versa.
• Tenant Flexibility: Short-term rentals don’t lock you into long-term contracts, allowing you to avoid potentially troublesome tenants. If you encounter a problematic guest, they’ll be gone in a matter of weeks or months. 
• Expense Deductions: Many expenses related to maintaining and managing short-term rentals, such as cleaning, repairs, and advertising, can be deducted from your taxable income. This can reduce your overall tax burden, especially if operating under a Thai company model.
• High-Quality Maintenance: Regular turnovers give you the opportunity to maintain the property at a high standard, which can lead to better guest reviews and higher future bookings.

Overall, short-term rentals provide a more lucrative and flexible investment opportunity, particularly in a vibrant market like Phuket. The potential for higher income, combined with the ability to adapt quickly to changing circumstances, makes short-term rentals an appealing option for investors looking to maximize their returns.

Step-by-Step ROI Calculation for Short-Term Rentals:

We will use another real world example from one of our partner developers Phuket 9.  Let’s say you picked up a 2 bedroom Rawayana South Apartments on Rawai Beach. These condos are right across the road from Rawai Beachfront making them extremely well positioned, especially for short term rentals. On top of that the developer is completely revitalizing the whole area with a new shopping complex and Tops gourmet grocery store, even a Starbucks! 

For short term rentals we will price the property according to the season and also make some occupancy assumptions according to average yearly rates. Please remember these are just averages and a properties occupancy and the price it commands has so many factors. This is just an example, a pretty accurate one but still just an educated guess. 

Off-Peak or Green Season is May to September (5 months)

High Season is Feb to April and October to November (5 months)

Peak Season is the madness in December & January (2 months)

1. Monthly Rent:
   • Let’s assume we can get the following rates in each season.
     Off-Peak = 80,000 THB
     High Season = 100,000 THB
     Peak Season = 140,000 THB
     
2. Occupancy Rate:
   • Unlike long-term rentals, occupancy isn’t guaranteed year-round.
     So again lets assume some conservative numbers. 
     Off-Peak = 60%
     High Season = 80%
     Peak Season = 100% (everything is booked)
     
3. Annual Rental Income:
   • Ok now lets put this all together buy taking the monthly rent by number of months then divide by occupancy.
     Off-Peak = 240,000 THB
     High Season = 400,000 THB
     Peak Season = 280,000THB 
     
     With a grand total of 920,000 THB ($26,000USD) for the year. 

Make a mental note of when you should book your holiday and make use of your property.
Hint…don’t pick Dec & Jan. 

4. Annual Expenses:
   • Short-term rentals often come with higher expenses than long term due to more frequent turnover—cleaning and maintenance. However you can often pass on the utilities bills if on a month to month rental agreement. So lets say your management fees are at 25% (for argument’s sake, yes this can go up and down) Plus yearly property fees that include common area maintenance etc at 44,600 THB for the 62m2 apartment. (calculated at 60THB a m2 monthly paid 12 months ahead) 
5. Net Profit:
   • Net profit after expenses 644,900 THB ($18,350 USD)
6. Total Investment:
   • Assuming you bought off the plan at 8,874,000 for the 62.6m2 two bedroom in building 3 of Rawayana South. Plus 2.25% freehold registration fee for transfer and some other fees like water meter installation and sinking fund 46,000THB.
     So total all in for 9,141,850 ($260,000 USD)
7. Calculate ROI:
   • ROI = (644,928 / 9,141,850) x 100 = 7.05%.

This option may require more effort, but if you (or your management company) manage it well, short-term rentals can offer a nice balance of higher returns with moderate risk. Please also note in this example we used a completely different property. That is why the NET ROI % is slightly lower. On average the shorter term rental strategy will NET a slightly higher return. But it’s not a sure thing. Every property, location and manager has some effect on the outcome. 

Holiday Rentals: The Big Kahuna

Now we’re talking about holiday rentals, where the real action is. Phuket is a top tourist destination, and if you position your property right, it can bring in some serious cash. However, success here hinges on two main factors: the rent you can charge and your occupancy rate.

Targeting these vacationers for short stays (ranging from a few days to a few weeks), offer several distinct benefits. Here’s why investing in holiday rentals can be particularly advantageous:

• Premium Rates: Holiday rentals typically command higher nightly rates compared to long-term rentals, especially in popular tourist destinations like Phuket. During peak seasons, you can significantly increase your rental income.
• Occupancy Flexibility: You can maximize your earnings by adjusting rates based on demand, such as during festivals, holidays, and peak tourist seasons.
• Dual Use: One of the most appealing aspects of holiday rentals is the ability to use the property yourself. When you’re not renting it out, you can enjoy it as a vacation home, giving you the best of both worlds.
• Owner Priority: You can block off dates for personal use whenever you like, allowing you to enjoy your property during your preferred travel times.
• High Standards: The need to impress guests often leads to maintaining the property at a higher standard, which can increase its long-term value and appeal.
• Online Platforms: The rise of platforms like Airbnb, Booking.com, and Vrbo has made it easier than ever to market holiday rentals to a global audience. You can reach a vast pool of potential guests with minimal effort.
• Meeting People: Hosting holiday rentals allows you to meet people from all over the world, which can be a rewarding experience. Some investors enjoy the social aspect of interacting with guests.
• Flexible Pricing: You have complete control over your pricing strategy, allowing you to adjust rates based on demand, special events, or even last-minute availability.
• Additional Services: Holiday rentals offer opportunities to upsell additional services, such as guided tours, car rentals, or exclusive dining experiences. These extras can further enhance your income and guest satisfaction.

In summary, holiday rentals provide a high-income potential with the added flexibility of personal use, regular maintenance, and a diversified income stream. The ability to capitalize on seasonal demand makes holiday rentals an attractive investment option in Phuket’s real estate market.

When comparing investment properties in Phuket make sure to understand the ROI calculations made by the agent or developers. Do your homework and make sure you are playing with the real figures. 

Step-by-Step ROI Calculation for Holiday Rentals:

We’re going to calculate this one alittle differently to keep it as simple as possible. You could use a similar model to above but make sure you bulk up the expenses especially if you are going to fit the bill for utilities, people on holiday can take certain liberties with power and linen that long and short term renters don’t. For these reasons we are going to use a calculation based on a fixed management fee directly from the developer. We’re going back to the Monetaria Villas for this example. 

Monetaria Villas with a 20% plus variable expenses or flat 40% management fee

Holiday Rental Income:

• Assuming a 9,000 in low season and up to 25,000 in peak season nightly room charge. With 60% to 100% occupancy like in the above example. Gives a 4,110,000 THB ($116,880 USD) yearly average rental income.   

Annual Expenses & Management Fees

• The developer in this case offers two options. Either a 60:40 split with the management company where management is responsible for all operating costs including pool, gardening, utilities, laundry and amenities.
• 80:20 split where the management team is only responsible for marketing and providing check in and check out services. All the additional costs are passed to the owner. (the property manager can provide these services, however you will be charged adhoc)  

• 40% Fixed set and forget model works out to be 1,644,000THB ($46,740 USD)
• 20% With variable maintenance costs works out to be 822,000THB ($23,370)
  Less the variables like utilities, cleaning and maintenance. So be warned.  

Net Profit:

• 40% Fixed set and forget 2,466,000THB NET profit is THB ($70,100 USD)
• 20% With variable maintenance costs works out to be 3,288,000THB NET profit ($93,482 USD) 

So I guess the big question here is…..does utilities, cleaning and maintenance cost more
than 822,000THB ($23,370 USD)?

Total Investment:

• Assuming you bought off the plan at 22.9 million Thai baht for a 4 bedroom & 5 bathroom pool villa. Plus approx another 3% freehold registration fee for transfer and some other fees like water meter installation and sinking fund 100,000THB. So total all in for 23,687,000THB ($675,700 USD)

Calculate ROI:

Option 1 (40% management) ROI = (2,466,000 / 23,687,000) x 100 = 10.41%.
Option 2 (20% management) ROI = (3,288,000 + variable / 23,687,000) x 100 = 13.88%
(without variable costs)

Now, this is where the big money can come in—if you manage to keep those occupancy rates high. The potential ROI for holiday rentals can be quite attractive, but it’s not without its challenges. The spreadsheet provides a clear breakdown, helping you see how occupancy and seasonal rates affect your bottom line. However also remember this was provided by the developer with a 20% or 40% management fee, you may find more attractive management deals out there, or you may be able to maximize returns if managed yourself. 

Off-Plan Developments: The “Fixed Income” or “Guaranteed Returns” Wild Card

Investing in off-plan developments is like getting in on the ground floor—literally. You’re buying before the property is even built, which can mean lower prices and the potential for high returns if the market value increases by the time it’s finished. It also comes with its risks, especially when picking the right developer. But that’s what you got us for, we make it our mission to find the best development partners. So let’s break down these too good to be true fixed and guaranteed income programs offered by developers. 

Step-by-Step ROI Calculation for “Fixed Income” program offered by Phuket 9 for Rawayana South Apartments on Rawai Beach

1. Purchase Price:
   • Suppose you buy a 2 bedroom condo off the plan in Rawayana South for 8,874,000THB ($252,400 USD)
2. Expected Market Value After Completion:
   • By the time it’s completed, let’s say the market value is 10,600,000THB ($301,500). That’s a 20% increase right off the bat.
3. Fixed Income Program:
   • Phuket 9 offers a 7% for 5 years fixed income program with up to 30 days of personal use. If payment is received 100% upfront. 
4. Calculate ROI:
   • 8,874,000THB ($252,400 USD) x 7% = 621,180THB ($17,660 USD)

This is fixed for 5 years so you will receive a total of 3,105,900 THB ($88,320 USD) over the 5 years. Once completed you can either move to the rental pool program offered by the developer or find your own rental manager to take over. It’s not hard to see the value in some of these special programs offered by reputable developers. 

Final Thoughts on calculating ROI for Phuket Property Investments 

Calculating ROI is about more than just crunching numbers—it’s about understanding your investment strategy, your market, and your goals. Whether you’re in it for steady long-term gains, looking to maximize short-term returns with some personal use flexibility, or playing the high-stakes game of holiday rentals, Phuket property investing has it all. But you need to know what game you want to be playing. 

The spreadsheets we’ve included will help you visualize your potential returns and make informed decisions. Remember to keep it fun, keep it smart, and always keep an eye on the bottom line. Investing in Phuket real estate isn’t just about owning a piece of paradise—it’s about making that paradise work for you. See you on the beach!