Is a Bali villa a good investment property?

If you’re looking to buy a villa in Bali as an investment property, you’ll want to know what ROI is achievable. There are a lot of headlines promising yield figures of 15 percent or more, for example. Some of these are real. Others are just optimism in a brochure.

ZAC QURESHI works with international buyers at Ayla Property, an independent Bali property research platform that publishes market data and free tools for buyers. Here, he explains that the simplest way to tell if an investment property in Bali will make a good return is to run the villa listing through six basic numbers.

Why you should be cautious of headline yields

At Ayla Property, we built a free Bali villa ROI calculator that uses six numbers to show you the real net yield of a Bali villa, and how many years it might take to get your money back.

A condo in Singapore earns about 2.8 percent a year in rent. A villa in Bali can look very different. Across the 511 listings we track, the average is 10.6 percent, and in Canggu the best villas get close to 15.

Those figures are what get people in Singapore excited. They are also why so many of them feel let down later. A listing’s yield is based on six assumptions, and if you change any one of them, the answer changes.

Forget the headline yield and check these 6 numbers instead:

1. What you pay
2. The nightly rate
3. How often it is booked
4. The management fee
5. The fixed monthly costs
6. Tax

Here’s a snapshot of the example investment property in Bali we will follow through the article:

• Price: US$290,000
• Nightly rate: US$250
• Booked: 72 percent of the year
• Management fee: 20 percent of rent
• Fixed running costs: US$450 a month
• Tax: 10 percent

That villa brings in about US$65,700 a year in rent. After management, running costs and tax, the owner keeps about US$40,600. That is a net yield of roughly 14 percent, and the purchase price comes back in about seven years.

More about the 6 key numbers

#1 What you’re paying for your investment property

Too many buyers treat the asking price as fixed and then fiddle with everything else. It should be the other way round. Take 10 percent off the example villa and the net yield goes from 14.0 to 15.6 percent.

To get the same result after you buy, you would have to charge an extra US$25 a night, every night, for as long as you hold the lease. A discount does the same job, and it doesn’t depend on guests paying more.

Developers do negotiate. They don’t do it for someone who has flown in for a long weekend with one villa in mind. They do it for a buyer who knows what similar villas actually sold for, and what the developer needs (a quick deposit, a sale in a slow phase, a reference buyer). That is hard to do from Singapore, and it is most of what we do for our clients.

A few more things belong in this number:

First, make sure you are comparing the all-in price. VAT, notary fees and a furniture pack are sometimes quoted separately. Second, look at the lease. A villa that pays for itself in seven years gives you about 18 years of profit on a 25-year lease, and about 38 on a 45-year lease. A longer lease also makes resale easier.

#2 The nightly rate of the Bali villa

This is where the hot tubs come in. Who is staying makes a huge difference. Holidaymakers pay the highest nightly rates, but they come in peaks (July and August, then Christmas). Plus, every stay means cleaning, laundry and a booking fee. Digital nomads stay for weeks or months at a lower nightly rate, and they keep a villa booked through the quiet months. The best Bali villas often do both: holiday lets in peak season and monthly stays the rest of the year.

Match the build to the guest. Nomads want a proper desk and chair, fast internet with a backup line, and a washing machine. A villa that loses its connection gets bad reviews fast. Holidaymakers want a living area that opens onto the pool, and their own bathroom. A group of six won’t pay a three-bedroom rate for a villa with two bathrooms.

A few features lift the rate by themselves. A hot tub or heated plunge pool is a search filter on the booking sites, so it puts your villa in front of guests who would otherwise never find it. A projector pointed across the pool at a white wall turns it into an outdoor cinema, and that is the photo guests post. On the west coast, guests pay more for a deck that catches the sunset, and sometimes it’s just a question of where the stairs go.

Every feature should pay for itself. If a US$12,000 upgrade adds US$20 a night at 70 percent occupancy, you keep about US$3,600 a year after management and tax. So, it pays for itself in roughly three and a half years. Put the new nightly rate into the calculator before you spend the money.

#3 How often it is booked

Occupancy is mostly decided by location. Canggu and Pererenan get the most demand from both holidaymakers and nomads, with gross yields of around 14.8 and 13.9 percent. Uluwatu earns a little less but holds its value well. Sanur is quieter and steadier, with families and longer stays. Kedungu is the cheapest way in, but expect 12 to 18 months before bookings catch up.

On the ground, check two things the listing won’t tell you. Can guests walk to a café and the beach? And is the rice field view protected, or is it a building plot that just hasn’t been developed yet?

Singapore owners in particular should allow for their own stays. Bali is only two and a half hours away, and most owners use the villa. Every four weeks you keep for yourself takes almost eight points off your annual occupancy; at our example rate, that’s about US$4,900 a year. Visit in February, March or November and you give up much less than at Christmas.

#4 The property management fee

Operators usually charge between 15 and 25 percent of the rent. The cheaper ones look tempting, but a lower percentage doesn’t help if the villa is half empty. Ask any operator for twelve months of real booking data from villas like yours: occupancy, average nightly rate, and how much of the business comes direct rather than through the booking sites. Ask how they price the low season. And notice how quickly they answer.

#5 The fixed monthly running costs of the Bali villa

Management and tax scale with your rent. These bills don’t. They come every month whether anyone is staying or not, and they are the costs developer projections most often underplay.

For a typical two- or three-bedroom villa:

• Housekeeping: US$80 to 150, usually a freelancer who works across several villas
  for a flat monthly fee
• Pool and garden: US$30 to 60, also freelance
• Electricity: US$100 to 200, mostly air-conditioning and the pool pump
• Internet: US$30 to 60, including a backup line
• Water, gas and rubbish: US$20 to 40
• Pool chemicals: US$15 to 30
• Banjar (village) fee: US$10 to 20
• Land and building tax: US$15 to 50 a month, paid once a year

That is US$300 to 600 a month, or up to US$7,200 a year, before a single guest arrives. Ask to see the villa’s actual bills, and check whether the booking site’s commission is taken before or after the management fee. See the full list on our calculator page, where you can also enter your own monthly figure.

#6 Tax

Short-term rentals in Badung, which covers Canggu, Seminyak and Uluwatu, pay a 10 percent regional hotel tax on room revenue. Most foreign owners also need to rent through a PT PMA, a foreign-owned Indonesian company, with the right business and tourism licences.

That sounds like a cost, and it is. It is also protection. Unlicensed villas are being taken off the booking sites, so there are fewer villas competing for your guests. A licensed villa can’t be switched off overnight.

Putting the 6 numbers together

Once you have a villa in mind, enter the developer’s figures into the calculator and check that you get their headline yield. Then change the assumptions. Drop occupancy to 60 percent and raise the management fee to 25 percent. Our example villa still makes just over 10 percent net at those numbers. If a villa survives that, it’s a strong one. If the yield collapses, it was built on the assumptions, not the property.

Do this for three or four villas before you book a flight to look at properties. It takes about five minutes each, and your shortlist will probably look very different afterwards.

Want a second opinion?

Run your shortlist of Bali villas through the calculator, then book a free call from the same page. I will go through the villas with you personally and tell you whether the numbers stack up, and which assumptions to push harder.

Find out more at Ayla Property. This article was produced in partnership with Expat Living.