Benchmark Returns for Investment Villas

TBuskens

New Member
Aug 24, 2017
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I am seeking advice on what levels of returns one should reasonable expect from investment in a short stay holiday villa in Bali. There is a lot out there to choose from with different occupancy levels, nightly rates and expenses. once put all together what is a reasonable return?

thanks in advance.
 

Harry08

Member
Dec 5, 2017
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In how many years do you expect to earn back your investment? 3? 5? Anything more and I ask: why bother.

Remember, every number you are told is probably fiction detached from reality. They ask 100, you can probably get it for 30.
If they cant/wont produce PL statements filed with gov, you know it's all BS. Every time I asked for balance sheet an PL.... crickets

Who is going to supervise your property and staff, accountant etc?

Build your own Balinese style villa, away form over crowded south Bali (Kuta, Canggu, Ubud etc).
 

TBuskens

New Member
Aug 24, 2017
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thanks Harry, yes I am learning that on the P&L statements. I can't believe how many do have this basic information!

I am looking into established villas with leaseholds of around 30 year.

My working assumption is money back in less than 7 years with benchmark returns of +10% pa. However I am asking myself weather that is realistic in this market?

My plan is to rent out on short term holiday accomodation basis.
 

tel522

Active Member
Oct 30, 2015
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Room rates and villa rentals , have very low rates currently on this island , and if the volcano goes bang , what do you think ?
 

davita

Well-Known Member
Mar 13, 2012
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Room rates and villa rentals , have very low rates currently on this island , and if the volcano goes bang , what do you think ?

I agree...I know lots of villas empty and looking for tenants. The downtown Kuta/Legian/Sanur doesn't seem too empty but out of town....very slow.
 

kabouter

Member
Feb 16, 2011
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thanks Harry, yes I am learning that on the P&L statements. I can't believe how many do have this basic information!

I am looking into established villas with leaseholds of around 30 year.

My working assumption is money back in less than 7 years with benchmark returns of +10% pa. However I am asking myself weather that is realistic in this market?

My plan is to rent out on short term holiday accomodation basis.
Highly unlikely. First of all it will be hard to find established villas with still 30 years left on the leasehold. Secondly everyone here seems so bad at math (or just set on getting a holiday home) that most villas are horrible investments and 10% pa is just far fetched (unless you don't pay taxes and you don't take into consideration the fact that the value depreciates yearly, something a lot of real estate agents seem to be unaware of)
 

TBuskens

New Member
Aug 24, 2017
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Highly unlikely. First of all it will be hard to find established villas with still 30 years left on the leasehold. Secondly everyone here seems so bad at math (or just set on getting a holiday home) that most villas are horrible investments and 10% pa is just far fetched (unless you don't pay taxes and you don't take into consideration the fact that the value depreciates yearly, something a lot of real estate agents seem to be unaware of)

Thanks kabouter I am quickly learning that.

It raises another question what depreciation rate do people use for for investment villas?

Also I understand the taxes should be 10% on revenues and 1.5% on net profit, correct?
 

davita

Well-Known Member
Mar 13, 2012
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Hi TBuskens and a belated welcome.
I can understand your questions but I suggest you have to know that Bali is unlike other countries where there are methods to determine value, ROI. lease titles, taxation...etc.
I suggest you advise the forum of your knowledge/visits of/to Bali so far... so the answers you request are more reflective of a realistic experience....otherwise, basically, we are 'whistlin' dixie.'
 

TBuskens

New Member
Aug 24, 2017
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Thanks davita for the belated welcome. Yes I have been a long time viewer short time contributor.

by way of context I am a relative late arrival to Bali, only started visiting a few years ago in my early 40s, Bali was the kind of place I never wanted to visit but when I eventually did its was, WOW. Since then I have travelled back a couple of times a year and been thinking and passively looking for investment.

Started looking in Ubud then quickly moved to looking in Seminyak which evolved to looking in Canggu. After considering 30+ villas over the last year we think we may possibly of found one. There is a Villa in Umalas with a +30 year lease, designed in a Traditional Balinese style, with 3 bedrooms, open living, large pool and garden, peaceful rural feel but close enough to Seminyak and Canggu (with traffic) not to be isolating.

In terms of the numbers (all in USD) asking price is around $180K, nightly rental around $150 (booking history shows around 60% occupancy) and annual expense circa $10,000 (excluding tax, depreciation) also the owner currently does their own booking and advertising (i.e. no management company expenses) but pays staff onsite to deal with villa management issues. Using traditional sources of return on investment I am calculating around 7% before tax. It has all the required licenses to be compliant. The primary aim of this villa is for short term holiday rental and to provide investment return.

So my question is what benchmarks make sense to use for this investment? I am also open to any other insights or advice from experienced investors.
 

davita

Well-Known Member
Mar 13, 2012
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I'm not sure if 60% occupancy can be sustained and that's the critical factor. I read that most hotels are less full than that.
I do know of many rental villas that are empty 90-100%. There are a lot of budget-style villas co-rented by surfers but not sure of ROI.... nor condition.

I also read that Sinermas bank offer 7% annual return on IDR fixed deposits but the Gov't will take 20% tax on interest.
 

kabouter

Member
Feb 16, 2011
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60% is definitely possible, but from my experience the average nightly rate of $150 (assuming USD) seems high for a villa with an asking price of $180k.

7% before tax seems like a normal rate, but keep in mind that you'll have to deal with check ins/outs/repairs/etc... It definitely won't be hands off, if it will be you'll have to pay a management company 15%+ (and you'll end up in negative ROI most likely).

One more thing to keep in mind is that even if you do the rentals yourself, you'll still have to pay booking, expedia, airbnb 15%.

Some more things:
- Does the villa have a pondok wisata? It will be hard to get one for a villa in Umalas if it doesn't already have one.
- Annual expenses of $10k seem high since he is doing everything himself?
- I'm not sure but I reckon occupancy rates in Canggu, Seminyak and even Pererenan are going to be higher because they are closer to the beach than Umalas.

Regarding your question for depreciation. For leasehold I would put down yearly maintenance expenses and on top of that just spread out the complete investment over the leasehold term. In your case 180k/30 years = $6000 year. Yes even the value of a leasehold property can go up, but I just like to be on the conservative side.
 

Teddybear

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Mar 5, 2017
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Hey all, no one has mentioned what happens if it burns down, i know noone thinks about some form of landlord insurance but can one get it to cover themselves, scary thought. People visit Bali to party and some party very hard , anything is possible, lease to a group of schoolies or a sports club, yes only 4 will be living in it, yeh right , next another 40 show up after the club closes, just a thought. T.
 

davita

Well-Known Member
Mar 13, 2012
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Hey all, no one has mentioned what happens if it burns down, i know noone thinks about some form of landlord insurance but can one get it to cover themselves, scary thought. People visit Bali to party and some party very hard , anything is possible, lease to a group of schoolies or a sports club, yes only 4 will be living in it, yeh right , next another 40 show up after the club closes, just a thought. T.
Insurance in Bali is available for any situation.
 

mugwump

Well-Known Member
Mar 15, 2011
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seattle pekutatan
Sorry, insurance for a house with an alang alang roof was rejected for home insurance by Allianz. My experience.
My thoughts are also that as an owner you must establish some pretty strict rules of prospective tenants. Those rules wouldn't be permitted in Western countries having laws against what would be construed as discriminatory, but would be no problem here and with a pembantu observing each day that that the rules were adhered to.
 

spicyayam

Well-Known Member
Jan 12, 2009
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Hey all, no one has mentioned what happens if it burns down, i know noone thinks about some form of landlord insurance but can one get it to cover themselves, scary thought. People visit Bali to party and some party very hard , anything is possible, lease to a group of schoolies or a sports club, yes only 4 will be living in it, yeh right , next another 40 show up after the club closes, just a thought. T.

It is a good point. Buildings frequently burn down here. Those 'alang alang' roofs are especially vulnerable.

I would say the leasee needs to take out insurance. The owner may not have insurance for the property.
 

Beck

New Member
Sep 3, 2014
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Old thread but here is my take. Investing in a rental villa without being on site to keep an eye on things in bound to go south. In Ubud where I am. The supply side is expanding faster than demand. Come low season and there are for rent signs everywhere.


Also the locals don’t bother with taxes pondok wisata or imb. You will never beat them on price. Add to that all the red tape and license rai.

Your villa management might also open up their own business inside your business because you are not there to supervise.

One thing to keep in mind when you these fantastic ROI being advertised is that“villas” or apartments in Bali is not seldom built with cheap materials with corners cut everywhere. Add to that tropical climate and moisture. A villa that is three years old looks like it has been neglected for ten years.

Few things are harder to sell than leasehold with just a few years left.

So there is no free lunch in my opinion. I am sure a capable person can be sucesdfulo and make money but you need to get actively involved on site.

For me there is elsewhere to invest.
 
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