The first, and possibly most significant factor to take into consideration when investing in leasehold property in Bali is how quickly can you get your initial investment back.
A number of different aspects will impact this. Possibly the most significant is how long is left on the lease as this has the most immediate impact on how long it takes to get the expected returns.
So what to expect?
It’s been my experience that most investors are looking to get around 10% ROI annually. This is feasible if the length of the lease is good (20+ years) so there’s enough time to get your initial investment back and also enough time to make a decent profit.
Getting those returns can be achieved through short-term holiday rental villas and long-term rental villas.
But there are important differences to be aware of.
Holiday rental villas in Bali must have the proper operating licenses. Long-term rentals villas don’t.
Short-term holiday rentals
There are two operating licenses available for short-term holiday rental villas:
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Pondok Wisata
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Hotel Melati
The difference between them is based around the size of your operation. If you have a property with more than 5 bedrooms you have to have a Hotel Melati license. Anything smaller will be covered by a Pondok Wisata license.
In order to get either license, your villa must be located within a Tourism Zone and be approximately within 500 meters of the beach. These villas generally command higher prices as land in these sorts of prime location will usually be more expensive.
All that being said, a property in the right zone and with the right licensing in place can be a very good investment if you put the time into running the business.
Short-term holiday rental villas can often achieve more than 10% ROI. We’ve actually seen some go over 15%, but they’re not common. They’re able to get this sort of return if they’re committed to marketing, managing and maintaining their villa (or villas.)
This however, can easily turn into a full-time job, either for the owner/investor or dedicated teams employed to run things efficiently (and profitably.) But many investors who live abroad find it difficult to do this when they’re not living in Bali full-time.
Our research shows that short-term holiday rental villas that average between 70% and 80% occupancy per year are more likely to hit between 10% to 15% ROI.
Those are high occupancy numbers and they come at a price. Maintenance, repairs, salaries and commissions to OTA’s such as Booking.Com, Agoda and Airbnb need to be considered. They add up and cut into your profit.
Long-term rental villas
Anything renting for over 6 months is usually considered to be long-term. Villas in this space also have very good potential and can provide a good solid passive income with much less hassle.
Long-term rental villas in Bali are usually paid for upfront. Tenants usually cover costs including staff, electricity, garbage and security fees.
Long-term rentals do not need operating licenses. They also don’t need to be in dedicated tourism zones. This has two significant affects:
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Your villa can be located in a residential zone, which means a much wider and varied choice of properties.
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Your choice of villas is very likely to be better quality for the same price as a short-term holiday rental property.
In my experience, long-term rental villas can easily achieve around 10% ROI annually. Most leases are at least 25 years long and that gives you enough time to get your initial investment back and still have time to make a solid profit.
