Property investments with high guaranteed rentals – not a scam

Secured property investments with 10% rental guarantee for 10 years!

Real estate brokering and property developments are in Thailand unregulated businesses. Therefore it is highly appreciated that new investment schemes are leaving the traditional route and an optimized financing structure is developed and marketed. Although 10% rental return for ten years at first glance seems to be pretty ambitious, it would be unfair to condemn this generally as a Ponzi scheme to make the properties on sale more enticing.

How does the buy-rent-rent scheme work?

The property investment itself is carried out as usually: Either the investor acquires legal ownership in a condo or a corporate structure is set-up to hold the property through a Co., Ltd. or the investment is done by a long-term lease agreement. Whether the investment price under the “rental guarantee program” unreasonably differs from the standard market price, should be evaluated on a case-by-case basis.

At the same time, the property is leased back to the developer for 10 years and then aggressively managed and marketed on a short-time basis (serviced apartment, condotel, AirBnB or similar) to maximize the return on investment. The investor gets his share of yearly 10 percent points and [three to four] weeks of free occupation in the unit. The rest of the year unknown subtenants inhabit the villa or condo and the investor (landlord) has no direct legal relationship with them.

The investor might get an extension option for [5] years to benefit from the arrangement for another five years. But eventually, the developer has a buy-back option right for [125%]. All returns are index-linked, depending on inflation or else.

How to do it right as a buy-to-let landlord

Is this guarantee factored into the purchase price of the units, which means that the investor has to pay for his own rental guarantee? Does the developer has the financial resources, or inclination, to back up the guarantee? And is this relevant? Can the foreign investor be stuck with tenants in his property but no rent payments? What are the consequences that the investor as a landlord has no direct relationship with the subtenant? What happens, if the property is overcrowded, not fire safe, or becomes an unlicensed hotel under the Hotel Act? Is the rental guarantee a sign for an oversupplied property market?

Need a broader explanation? Is this a good deal? What are the risks? How to reduce the potential loss exposure? How to avoid that the rooms are excessively worn down and damaged? Is such investment scheme easier in Pattaya or Samui? Which contractual clauses should be negotiated? What is the exit strategy? Does the developer have robust financial health and the correct systems in place? What will happen when the bubble is eventual bursting?

The law firm advises on the general structure, the negotiation of beneficial agreements and the evaluation of risks and opportunities under this and other structured property investment schemes. Buy-to-let structures might soon be replaced by property crowdfunding respectively property crowd investment structures. Contact the law firm for more details.


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