This is how much profit a Villa in Bali (2BR) makes: Profitability Calculation
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- Опубліковано 22 сер 2024
- In this video, I analyse an investment proposal of a townhouse / villa in Canggu, Bali. The property comes with a 25 years leasehold, fully furnished and will be ready to host guests on a short-term rental basis.
I compare with similar objects in the area and run some calculations to find out if this is a good investment or not so much.
#balivilla, #villa, #investment, #property, #canggu
I have a few things that your viewers should be aware of.
1. You must look at the sales price more carefully, it is lower outside the peak periods, which is the majority of the year. To maintain the sort of occupancy you are assuming you will have to be constantly adjusting the prices. This means you may not be able to achieve even near $175 pn for most of the year. If the villa is run by a third-party they will likely not put in the effort in to achieve this.
2. The running cost can vary massively depending on who is managing the property and what their role is. From the owner running everything, to full management can change the costs considerably. You will not have costs of 50% if the villa is fully managed for example.
3. One crucial part of costs that is often overlooked and most likely underestimated is maintenance. Building standards in Bali are generally not high and the climate is brutal on buildings, A brand new beautiful villa can be a leaking, moldy and ugly mess in a little as 1 or two years, I have seen this many times, if maintenance is not carried out properly. While labour is cheaper here, this item can turn out to be one of, if not the biggest expense. It is worse as you may have to black out rental for serious problems.
4. In Asia generally if the owner is not around standards will likely slip and dodgy practices take place. If you are in this situation, you must make allowance in your revenue and cost calculations. Having a reputable company or trusted person may help but they will likely be more expensive.
5. Tax on villa sales is I believe 10%, booking company commissions can be 15-20%. To get higher exposure on sites like Booking.com you should budget for the upper end of this. Achieving a 50% cost base is unlikely if you have to pay for villa management and budget for maintenance correctly.
6. There will also be hidden costs, even with the most extensive research. You may well not have permits, rules change and there will be local costs you have to make provision for.
This list is not extensive but covers a few of the more important points. You can have a good business from villa rental in Bali, especially if you plan to stay in your villa during the year. However, for an investor who has no knowledge of this business in Bali, is not planning to run the operation, or oversee it closely, would struggle to maintain the sales and cost levels you are suggesting and reach those levels of occupancy.
I hope this is helpful, my wife and have run a successful villa rental while living onsite for well over a decade in the Canggu area, from a time where Batu Bolong and Echo beach was empty compared to today. So I can comment from experience and from mistakes made and observed.
Buying a leasehold villa vs saving account/bonds: The most important factor is the fact that a villa in Bali is an illiquid asset: cannot be quickly sold, difficult to sell or that cannot be sold without incurring a significant loss in value (ref. covid). Leasehold is another negative factor as owners will miss out on any appreciation in land value.
USD 220,000 invested in liquid assets i.e. mix of stocks, bonds and saving (monthly deposits) would give far better return and money at hand whenever required or a stock buying opportunity arise (after market crashes).
I appreciate the fun of developing and running a villa business for those with big slush funds and time at their hands, but I do not consider it to be an investment.
Best regards long term renter here.
I agree 100%! Investing is not for everyone and it is indeed an illiquid asset. On the other hand, it can be a balancing factor to the volatility of stock market investments as well. But these factors need to be evaluated on an individual basis, what is right for you.
Thank you for the detailed analysis. Great video! Few points though :) 1. Durations sheet- following paying off the loan (year 13) where do the additional 5% (on top of anticipated operating profit of $23,953) come from that are being added year on year? 2. Government bonds sheet- numbers within the sheet represent an estimated interest accrued. However, it seems the 2 investment profitability options are not quite fairly compared- one is the money earned using the loan whilst the other it seems is for the money already owned? Unless I am missing something :)
The first point is explained at 13:30 - it comes from reinvesting it at 5% profit.
The second point I don't understand myself. It looks to me like the fair column in the Compounding Interest sheet would be 5% for the first example (without inflation) and 7% for the inflation example. I counted around 300k worth of interest on the loan.
@villanomics seems to be very knowledgeable, though... what are we missing? :)
Thanks for the indepth analysis. I still can't understand why someone would invest in a property they don't completely own and can pass down to their family.
I understand, emotionally, it is a big step. If you see it as a business instead of a property, it might look different.
@@villanomics It's not emotional at all. I'm a real estate investor and after have bought and sold over 40+ properties in last few years I look at the numbers, my risk tolerance and my patience level. I just don't think it makes logical sense to spend that kind of cash on a leasehold. There are better investments and you always cut off your cash flow whenever you want to stay at the property.
It’s a business. Similar to one pumps in 200k to set up a restaurant, pay rent n run it for 25 good years and his landlord refuse to continue renting to him at the end of it. So this lucky chap keeps all the profits that he manages to safe. But the 200k is almost gone, yes he can sell away the chairs tables and some kitchen tools.
Thanks for video, but no one’s seems to be talking about all the competition, there is insane amounts of construction happening all across bali, all building and developing the same sort of accommodation, villas hotels guest stays, there is going to reach a point where supply severely catches up with demand, and I’m pretty sure this is starting to happen, at that point villas will be competing with villas and that will put massive strain on prices, hot markets pop and bali is certainly on its way there
Thanks, Matt! A very valid and common concern! I will make a video on this topic soon.
@@villanomics legend, thanks mate looking forward to it
@@villanomics hi my friend , when were you going to follow up with your new video regarding the villa competition in Bali, really looking forward to watching that
well spotted
Awesome video loved the charts. Would like to see more like this
Thanks! Will do!
Great thank you for your calculations and the good overview. It would be interesting if there are experience reports from buyers from the last few years.
The last few years in Bali were dominated by the impact of Covid, it has hit the island very hard. The next years will be very different again.
Dear Villanomics
It's very important to consider that in addition to the fact that the villa can pay off itself in 9 years, you still have the villa you can sell.
If you calculate that you will sell it after 9 years (even for the same price you bought it for) then you have a completely different return spread over those 9 years.
I would be really interested to know how the price of the villa changes in the case of this leasehold thing? How much can you sell it for say 10 years later?
Is there a rule of thumb on how to calculate this?
Thanks!
Good point. I am interested in investing myself and I am looking for a property with a 30 year lease with the option to renew. This option alone will be a good selling point when the time comes to divest yourself of the property.
With a freehold contract is it not possible to write into the contract agreement that you can sell the property value onto another leasee which will take over the business for the rest of the leasehold. For example 25yr leasehold with 25yr extension. Sell after say 20 years of leasehold with 30 years still left on the total leasehold contract inc extension. That way you are selling a proven profitabe business.
Selling leasehold properties is a very common occurrence. Typically, the contracts allow for that, the leasehold is not ties to an individual person for the duration of the contract.
Thanks for making this! Where do you borrow at 5%?
From yourself ;-) It is just to support the calculation and show that you are missing out on earned interest on your savings if you invest it in the villa.
Curious what bank would lend you on a foreign property? There is no collateral for them and local banks won't lend to foreigners
Some local bank do lend to foreigners, even non-resident foreigners. But it is indeed difficult to find one that accepts your request.
Hi. What would be good is to review the investment calculation with a self occupancy for 1) 3 months 2) 6 months. Thank you for your video
Thank you for the feedback! Indeed, self occupancy is an important factor when it comes to what you get out of your property. I will take this into account in my next videos.
Appreciate the in-depth analysis, thank you!
Do you think it’s better to up the budget and own a 3-4 bedroom villa given the $400+ ABNB nightly rates ?
I plan to make a video that should answer this question, but the short answer is "probably not". Of course there are many factors to determine the ideal size for you, but when it comes to profitability, a smaller, high quality unit is most likely better.
Thank you ! Really appreciate it. Mind you to share those file in ms.excel / spreadsheet format?
Thank you!
Hi Devi, sure, drop me a mail and I will send it over.
Maybe I did not hear the part that after the 25yr lease that you also have a $200k+ house? I did not see that added into the equation.. or I am blind and deaf.. OR is it that you actually do not own your house?? (Can you not sell it before the lease ends or if you get an extension?)
Correct, the house becomes part of the land and will be handed back to the freehold owner of the land.
@@villanomicsunless you get an extension and then sell the house, or continue your rental..
Thank you for the video. What does a foreigner need in order to run a short term rental biz in Bali? Eg permit, licensing, company registration etc. thanks.
I recommend to talk to several (!) villa management companies in the area of your investment to discuss these questions. You will see that some answers are identical, others differ, so dig deeper into these. The regulations are changing and are different from one area to the other, also the tax setup might be different depending on your personal circumstances.
Thanks a lot for your analysis. Would it be possible to access your excel sheets ?
Hi, I suggest to take the snippets shown in the video as ideas and baseline and create something specific for your property.
Appreciate!
Thanks
villa needs constant meintenance.............apartment better?
Well, when it comes to maintenance, an apartment is certainly easier to maintain, yes. Everything outdoors is a headache. I'm not sure an apartment is overall better though.
Thanks for feedback, i just started Due Diligence. Currency Exchange Risk, Rental Income Tax are something extra I am concerning about Indonesia, but the yield seems to be great.@@villanomics
@@Kinai89 sounds great! I hope my videos help! Let me know how it goes.
put in dubai real estate is better , and forever hold
Interesting, why do you think so?