Connect with us

Property

Phuket Property: To raise one’s roof or not to

Legacy Phuket Gazette

Published 

 on 

PHUKET: I am often asked how much one should spend on a primary residence, and while this is an area open for debate, my answer usually surprises people.

I have always been baffled by arguments about mortgage interest being tax deductible and many other reasons to sink way too much into one’s primary residence. This doesn’t mean I don’t think a good portion of one’s assets ought to be in real estate; however, many people place too high an emphasis on expectation of capital appreciation from their residence and not enough on short term cash flow.

I think my beliefs are best summed up by Ed Kiyosaki, the famous author of “Rich Dad, Poor Dad’. He says that if your home is your biggest investment you have serious trouble. His argument is that contrary to modern accrual-based accounting methods, one should look at things from a pure cash flow perspective and try to accumulate cash flow-positive investments.

Your primary residence is cash flow negative usually; you need to sink money into it to maintain it and you only unlock cash when you finally sell it (but then have to replace it and thus use some/all of that cash). A rental property on the other hand, is usually cash flow positive, assuming you price it so that it doesn’t sit empty.

So basically, from a financial planning perspective, a mistake I think many people make is allocating all or too much of their real estate investments in their own home. To make the concept simple, let’s depart from reality for a moment and assume square meters are a commodity and each one costs the same amount. If you can afford 500 square meters of living space, this is usually what most people sink into their own home.

Of course, they may only really need about 200 square meters to live comfortably, but most people take a lot of pride in showing their friends what a nice big house they live in. They don’t realize the opportunity cost of all those unneeded square meters. If they bought two properties of 250 square meters each, they could rent one out and have a significant positive cash flow investment. Again I am assuming the rental yield makes sense, while in reality sometimes it doesn’t.

If you have a 10 million Baht budget, you could realistically end up better off in the long run by splitting that money across two properties as opposed to sinking it all into one. Both would appreciate if the local market keeps going up, but one would be generating some positive cash flow in the meantime.

Warren Buffet is famous for saying that his favorite holding period is forever. Of course if you get a chance to cash out large gains after a market has run up this doesn’t mean that you shouldn’t do so. Yet if you continuously accumulate cash flow generating properties and especially if you diversify geographically, eventually you will build up an equivalent to an annuity that has a natural inflation hedge built in, assuming you have a long term investment horizon.

David Mayes MBA resides in Phuket and provides wealth management services to expats around the globe, focusing on UK pension transfers. Email david.m@faramond.com or call 085-335-8573.

This article appears in the current issue (Jul 27-Aug 2) of the hard-copy Phuket Gazette newspaper, now on sale at newsstands throughout the island. Digital subscribers may download the full issue, this week and every week, by clicking here.

Keep checking our online Phuket Property pages for local and national property updates, alternatively ‘Like’ us on our Facebook fan page or follow us on Twitter.

— David Mayes

 

Want more from the Thaiger family?

📱 Download our app on Android or iOS for instant updates on your mobile
📝️ Join the conversation on Thaiger Talk - discuss news & life in our Thailand forums
📧 Subscribe to our daily email newsletter
👍 Like/Follow us on Facebook
🔔 Subscribe to or Join our YouTube channel for daily video updates

image

Join the conversation and have your say on Thailand news published on The Thaiger.

Thaiger Talk is our new Thaiger Community where you can join the discussion on everything happening in Thailand right now.

Please note that articles are not posted to the forum instantly and can take up to 20 min before being visible. Click for more information and the Thaiger Talk Guidelines.



Interested in more property news or buying property in Thailand - check out FazWaz today!

Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Follow Thaiger by email:

Thailand16 mins ago

Dogs from Thailand and more than 100 countries banned from US due to risk of rabies

Coronavirus (Covid-19)1 hour ago

Bangkok elderly can register for vaccine

Thailand1 hour ago

“Bubble and seal” method to contain outbreaks at factories, keep business afloat

Phuket Sandbox July 1st

days
hours
minutes
seconds

Thaiger is getting behind local businesses for the restart of tourism in July - up to 50% discounts across all advertising packages in June!

Sponsored by image

Thailand2 hours ago

Good Morning Thailand | Samui quiet/flights/reopening, Thailand’s botched vaccine roll out

Coronavirus (Covid-19)2 hours ago

Thai government says vaccine rollout is going “according to plan”

Thailand2 hours ago

Taxi driver attacks woman at bus stop, has a history of violence

Coronavirus (Covid-19)3 hours ago

Vaccine registration website for expats back up after data leak

Politics3 hours ago

Thai PM ignores demands to step down, insists he’s going nowhere

Coronavirus (Covid-19)3 hours ago

First Thai Covid-19 vaccine proceeds to human trials

Crime3 hours ago

Police officers, prosecutors may be investigated over acquittal of Red Bull heir

Coronavirus (Covid-19)4 hours ago

Tuesday Covid Update: 3,000 new cases and 19 deaths

Pattaya4 hours ago

Pattaya tourism operators not getting their hopes up over foreign arrivals

Tourism5 hours ago

Airlines look to vaccine rollout to restore demand and boost economy

Myanmar17 hours ago

Burmese military media outlets say ethnic army killed 25 workers

Thailand19 hours ago

PM Prayut Chan-o-cha says drug suppression should to be a national priority

Thailand3 months ago

Thailand News Today | Thai Airways in rehab, All go for Songkran | March 4

Tourism3 months ago

Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO

Phuket3 months ago

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2

Tourism4 months ago

Phuket Thai food treats you need to try | VIDEO

Thailand4 months ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

Tourism4 months ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand5 months ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand5 months ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand5 months ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand5 months ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand5 months ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand5 months ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand5 months ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand5 months ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Thailand5 months ago

Thailand News Today | Southern floods, Face mask fines, Thai Air Asia woes | January 8

Trending