All Topics / Help Needed! / Off the Plan purchases with 10 yr rent guarantees?

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  • Profile photo of jacqui_03jacqui_03
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    @jacqui_03
    Join Date: 2010
    Post Count: 142

    Hey everyone.

    Just interested to find out what experienced investors opinions are with buying off the plan and with 10 yr rent guarantees? I dont understand how a company can guarantee your rent for 10 years? I asked if they add this to the purchase price and they said no. I enquired on some new properties which I liked the look of in VIC and they were being offered through 'Property Planet' and they use 'Metro Property Management' for the guarantee. In the fact sheet it said you can use another company however the guarantee becomes void. The reason I was interested in building an IP was the savings in stamp duty, depreciation benefits and minimised repairs/maintenance. Is it better to just by a newly constructed place? I would be interested to hear if anyone has dealt with this company or if there are any reputable ones to deal with? It doesnt have to be in VIC, I am interested in investing in all states.

    Appreciate everyones opinions.

    Thanks,

    Jacqui

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
    Join Date: 2009
    Post Count: 2,539

    If the company goes bust, the "guarantee" is worth squat.

    Be careful of these rent guarantees.  Often the rent money is already built into the purchase price.

    What sort of property is it?  A regular residential?  Or one of those serviced apartments?

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of jacqui_03jacqui_03
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    @jacqui_03
    Join Date: 2010
    Post Count: 142

    Just a normal residential house. I would arrange for my own valuation etc to assess before I bought. Are u better just to by one off the plan without the guarantee?

    Profile photo of Dazz_996Dazz_996
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    @dazz_996
    Join Date: 2010
    Post Count: 13

    Jacqui,
    I have invested in property with both garaunteed rent and  with out. I found it quite good as a starting point to get into property investing. The biggest thing is wheather they are a reputable company or not, this is where you need to do a lot of research, do you know anyone else who has invested with them and what has thier experiance been like? Do they just want you to sign up or do they provide guidance?

    Some of the advantages of companies offering garaunteed rent are;
    – companies who offer guarantee rent have done their research into areas that they know will have a demand for rent and potential growth. This is how they can up hold the garauntee.
    – Because they offer the garauntee they tend to look after the property, tennants and yourself a bit better.
    – Some agents offer cheap deals off the plan as they need pre sales prior to construction, they are not in the business of flipping properties they make their money on the management of them, this is how they justify the cheap price, also if they are acting on behalf  of a builder their profit comes from a finders fee. ( be sure to get your own valuation though)
    – If you build a house there is a huge benifit from depreciation etc.

    Some of the negatives are:
    – Some companies will ask for an addition fee on top of the management fees, this additional payment goes into a pool and is used to pay out if the property is vacant for a period of time.
    – You may be required to up keep the house to a higher standard than normal ie, replace carpet every 5 years or so, repaint walls, or replace fixtures. Although these can be claimed on tax you will still be paying out more and be making a loss.
    – You will find that they will not offer any other service or garantee that you will not be able to achive yourself, if you are prepared to do your research for high demand or growth areas and find a good agent.

    In short if you are just starting it can eliminate a bit of risk and work, however I would thoroughly look over the fine print.
    Hope this helps
    Dazz

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    guarantees don't mean much. Pretend it doesn't exist when you do your calculations.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of jacqui_03jacqui_03
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    @jacqui_03
    Join Date: 2010
    Post Count: 142

    Thanks for all the helpful advice.

    I will do my due diligence when it comes to researching reputable companies and ensuring I get independent rental appraisals/valuations also.

    Dazz do you mind telling me which company you used and are you happy with the end result?

    Profile photo of trusteetrustee
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    @trustee
    Join Date: 2010
    Post Count: 27

    Hi Jaqui,

    Whilst i don't have any experience with buying off the plan I would suggest that there are many other ways to invest and reap rewards.  Simply saving on stamp duty is not the only way to make a dollar.  I like to buy undervalued property in good areas that have been overlooked.  More research for sure but in the long term you have a good quality property giving high capital gains and you make those higher gains every time the property market goes up in value.  This is where you will make good money holding a property long term.   Another way may be to buy a house and land package where you do not have to pay stamp duty on house and land but just the land.  Development is another area to look at, however you do need access to a fair amount of equity or high income to do this.  As they say you make your money when you buy !  Buy right in a good area or an area going thru regenification and then be patient.   Remember it also has to do with time in the market.

    Profile photo of SambosaSambosa
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    @sambosa
    Join Date: 2008
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    Hi there,

    I thought I would put in my two cents on this topic given a recent experience a good friend of mine had looking at a similar proposal from Devine homes in the Holmview area, Logan (just south of Brisbane).

    In this scenario, she was asked to purchase a single duplex unit, 3 bed, 1 bath, 1 car for $377k, with a 10 year rental guarantee, and they provided a depreciation schedule so you could claim your negative gearing losses weekly, ensuring you 'saved' money straight away.  These schedules normally cost around $1-$2k to have done if you build a new home, how nice of them to include it.

    Of course they had they own valuers, they knew you had 20% deposit to put in (this is how they pre-qualify you for a phone call about the project in the first place), their own property managers (charged around 15% management fees, a standard agency is around 7-9% +GST) and their own brokers to do the finance.

    When she asked me about it, and I saw the plans/finance setup, I immediately suggested getting her own independant valuation done.  This sorted out most of the issue as the valuation came in close to $150k below what Devine's valuers had come up with.   Outside of this, as previously suggested, the management fee was close to double a normal agency, allowing them room for vacancies to be paid for.

    So not only were they taking the profit from the development, also from the property management and the broker upfront charges, and quite possibly the ongoing trail commissions also. 

    If you ask me, it's a total crock.  Hopefully they're not all the same, because I feel sick in the stomach for the people who bought into this development.

    Hope that gives you another view on the topic.

    Cheers

    Sam

    Profile photo of j900j900
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    @j900
    Join Date: 2008
    Post Count: 56

    Totally agree with Sam.

    If it comes with rental guarantee, I assure you the price is already inflated to include the rent, and then some.

    Profile photo of susie843susie843
    Member
    @susie843
    Join Date: 2010
    Post Count: 16

    http://www.propertyportfoliospecialist.com/2010/09/guaranteed-rental-income/

    nstead of giving a discount, many developers nowadays choose to provide a guaranteed rental scheme to prospective investors. The idea is that when you settle a property, you don’t worry about finding tenants to help you pay the mortgage, as the developer will cover the rent for a period of one year (or up to a few years) should your property becomes vacant. The most popular offer seems to be a ‘first tenant guarantee’ where the developer is obligated to pay you weekly rent at market value if your property is still not tenanted a few weeks after the settlement.

    Sounds like a fantastic deal but you need to be mindful. With every property investment, remember to always look at the big picture than the small incentives. In many cases, the developer may have simply increased the price of the property to cover the cost of guaranteed rental payments. So when you’re offered such guarantee, make sure that you’re not buying an overpriced property in the first instance. Before you get too excited and start to have a false sense of security, make some enquires first with your local estate agents and letting agents. You need to find out A). what type of property is selling well in the area and at what price, and B). what kind of property is in demand from potential tenants and how much they’re willing to pay. Internet research and the service of a chartered surveyor may be beneficial as well. However, bear in mind that survey values are not always accurate and that you will only know the true value of your property when you try to sell it…

    Full article at: http://www.propertyportfoliospecialist.com/2010/09/guaranteed-rental-income/

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