Off the Plan purchases with 10 yr rent guarantees?

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,
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

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

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 . 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/