Hi everyone
There are a couple of properties that I'm looking at which have guaranteed rental returns for 2 years thrown in… I read in a Jamie McIntyre book recently (can't find it now) that you should approach these deals with severe caution.
What are your opinions? It would be nice knowing that the rent will be sorted for 2 years!!!
Thanks in advance,
Dave.
Dave
I think it depends on many things.
If a $2 Company was providing the Guarantee then I would be a wee bit nervous about buying the property as you will probably find that the valuation on the property factors in the increased rent and the price is inflated accordingly.
If however a rental assessment from a couple of local managing agents confirm that the rent being guaranteed is about right then perhaps there are other considerations.
Look at the area the price being paid and the demand for tenants. You dont want to find after 2 Years there is No demand and you cant rent the place for love nor money.
Who is providing the Guarantee ? Is it the vendor or is merely a lease in place for 2 years from the current tenants.
Remember if it is a 2 Year lease you may not be able to increase the rent for the next 24 months if the area is moving along nicely.
All i would say is go in with your eyes open do your due diligence and then make up your own mind.
Richard Taylor | Australia's leading private lender
You would generally be better off negotiating a lower price based on no rental guarantee (equivalent value to PV of 2 years rent) but you will need to do your due diligence to confirm rentals and demand.
It works like this.
You pay say $50,000 too much based on incorrect rate of return, caused by rent guarantee,. Say true rent is $15k pa, they put the guarantee at $20k pa. They get a tennant for you at $15k and use $10k of the extra sale price to top up the rent for two years.
Reality is when they stop using your money to top up the rent the prices slump,
You must be logged in to reply to this topic. If you don't have an account, you can register here.
