Hey guys,
Need a bit of advice please –
Im looking at a unit for around the 95k mark, which is currently leased by a Lodge – and as such the ad claims “a guaranteed” 525 rent return p/month until at least dec 2006.
So the Lodge leases the unit out on a short term basis to its customers.
Has anyone had a similar experience?
This will be my first IP, so I need some help!!!
Thanks,
Cherub [biggrin]
Hi Cherub,
While there is a degree of attraction in rental guarantees you will need to ensure that the sale prices reflects the wider market. It is not unusual for rental guarantees to be funded by a higher sale price and as such you could well be funding yourself.
You will also need to find out who provides the guarantee – I have seen guarantees provided by insurance companies (HIH in one case) and by $2 shelf companies. Don’t let the ‘security’ of the guarantee seduce you.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thank for the reply Derek,
I went to see the place this afternoon. Basically the complex is a budget motel – and each of the units/flats are individually owned. A national motel chain leases them from the owners. Its just off the Great Eastern Highway, which is the main route from the Airport (not far away) to Perth city.
I dont see much capital growth though, and borrowing 80% of the purchase price @ 90k, its not +ve geared, so Im starting to think its not such a great idea.
As I have touched on in earlier posts, “guarantees” are generally nothing more than a marketing ploy.
You are likely to find there is no solid “guarantee” due to the developer/lessor/guarantor having an out-clause or contingency to protect their interest.
If there is no out-clause or otherwise, then I would avoid the deal because the party promoting the guarantee is open to debt/liability issues which may lead to their downfall and any guarantee becoming null and void.
— Michael
Cherub,
The way rent guarantees can be guaranteed is by increasing the purchase price.
So you are paying for the property PLUS the rental.
Generally short-term rental properties have higher management fees & costs (more management required). Vacancy rates can be significantly higher & more dependent on the business or tourism cycle than standard rentals. Granted rentals are generally higher while the place is tenanted.
Read all the fine print before you make a decision!
Cheers,
Aceyducey
In theory, there is no difference between theory and practice. But, in practice, there is.– Jan L.A. van de Snepscheut
these sorts of places are very hard to get finance too and this will hinder resales and effect values. I would not consider one of these deals myself.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You must be logged in to reply to this topic. If you don't have an account, you can register here.
