Which rental property to invest in with $410,000?

Question from reader David Truong:

After many years working abroad, I now own a luxury apartment in Ho Chi Minh City and have VND10 billion (US$410,425) in savings. I want to use this money to invest in real estate, hoping for both an increase in land value and a steady inflow of passive income from rental. I am looking for segments that can create over VND30 million per month. I am currently considering renting out a townhouse or shophouse or starting and running a guesthouse.

I hope experts and experienced readers can advise me in this case!

Advice from real estate consultant Le Quoc Kien:

When choosing rental properties, it is important to note that the type with a faster appreciation rate often yields lower rental income.

Properties that might appreciate significantly usually have the potential for future infrastructure, transportation, and amenity development.

Conversely, properties with already high rental income tend to appreciate more slowly because they are located in stable areas with established infrastructure, amenities, and high population density.

Your goal of a property worth VND10 billion generating at least VND30 million per month implies an annual return of about 3.6%.

Guesthouse for rent by the hour or day

Considering only the rental price, this type of property can bring a good cash inflow with an annual profit rate of 7.2%.

For example, if you invest in a house with 15 rooms, with a price of VND300,000 per night per room and an average occupancy rate of about 70%, your monthly revenue would be over VND90 million.

Subtracting management, operational and staff costs, which usually account for about 30-35% of revenue, your profit would be around VND60 million.

The advantage of this model is that you can invest less capital than buying a townhouse, as a guesthouse can be located in an alley big enough for cars to access.

The rental yield is relatively good compared to other types of properties.

The drawback is that guesthouse is a complex rental property for its security and order, which is not suitable for inexperienced people.

Management and operation require considerable effort and time, so landlords often lease out the entire property per month, for example, VND30-40 million per month, to third parties who specialize in operating this type of business.

Therefore, the actual effectiveness for the investor is only around 3.6% per year.

House for rent on a monthly basis

The revenue from renting out a house is usually only 50-60% of the revenue from a guesthouse business, but the profit can be equivalent to that of guesthouse owners.

For example, with a house of 15 rooms as mentioned, renting out each room for an average of VND3.5 million per month, the revenue would be about VND53 million, depending on the location.

Management and operation of this type are relatively simple, primarily involving advertising and brokerage costs, which account for 20-25% of the revenue.

So the profit from the rental would be about VND40-42 million per month.

If you have the skills and free time, you can manage the house yourself to maximize profits, but it will require more effort and time.

The disadvantage when investing in a house for rent is that not all locations are equally profitable.

If you buy property in densely populated areas, near universities or industrial zones, the initial investment is usually quite high even without the costs for renovation and redesign.

Townhouse

Owners of townhouses usually prioritize stability, aiming to boost their status rather than optimizing cash flow as the profit rate of townhouses is usually around 2% per year.

The advantage of investing in these properties is the ability to lease them to various types of businesses, not just a few specific industries.

In the long term, buying a townhouse is a good way to preserve capital and see fairly stable price growth.

The biggest disadvantage is that a townhouse requires a very high investment.

With a budget of VND10 billion, it will be challenging to buy property on a busy main street in the center of the city.

You are more likely to find a house measured under 40 square meters in an alley, which is not ideal for commercial use.

To buy a townhouse with more space, you would need to look at districts like Tan Phu, Binh Tan, District 12, Hoc Mon, Nha Be, or Binh Chanh.

However, the demand for rental space in these areas is not as high as in more downtown locations, so rental prices will also be lower.

For example, a townhouse in Tan Phu priced at VND10 billion could be rented out for VND18 million per month, yielding a return of 2.16%.

Shophouse project

The advantage of shophouses, like townhouses, is their ability to be leased to various business types, enhancing the owner’s stature compared to other properties in the same area.

Buying a shophouse during its initial sales as a project can offer good potential for price growth.

However, purchasing a secondary market product when the price has increased by 50-100% compared to the primary market will result in a decreased profit rate.

The main challenge in investing in shophouses is assessing the actual property value, which is dependent on the project’s development potential and ability to attract residents.

Unlike townhouses, shophouses can be difficult to lease, even at reduced prices, if they cannot be used for commercial purposes effectively.

Moreover, your rent must compete with others that are similar in design and location.

If a project is delayed or fails to complete, your investment could be frozen for an extended period.

Apartments for rent also fit the profit rate you are targeting.

However, the long-term appreciation potential of apartments is not as good as townhouses, and they might even lose value as the building ages.

Therefore, you should refer to the information I provided and consider your personal preferences when choosing the type of rental property to invest in.

*The question and answer were translated into English by AI.