Guaranteed Rental Income Schemes - The Facts

What to Avoid

Guaranteed Rental Income schemes have increased in popularity over the past few years as developers continue to create new incentives to attract buyers and on paper they look very good. The developer undertakes to find you tenants and guarantees all rental  payments while all you need to do is hand over the keys for the specified number of years. This is essentially what happens, however, you will need to consider the price you pay for this rental guarantee income and bear in mind the following factors:

- The developers usually recover the cost of their generous offer, namely by including it in your purchase price. Typically many will offer you a rental guarantee of say, 5% while the purchase price is quietly raised by 10-15%, more than covering the guaranteed rental. Therefore you will essentially be paid back with your own money.

- Many developers are not interested in obtaining a maximum rental value for your property as they have already more than recovered their money with the sale. You, the owner, might find that when the guaranteed rental period ends, you are stuck with the existing low rental payments which are difficult to increase, while some developers don’t even bother renting units out at all.

- At the end of the rental income guarantee period, you may find that your property is one of many in a glut of properties newly up for rental. Yours may take time to rent or be difficult to shift.

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What to Look For

However, not all developers operate in this way, and it would be unfair to brand them all the same. In fact, there are some genuine companies who work ethically, serving to enhance investor confidence and continue to provide an excellent guaranteed rental product. Look out for the good signs when picking your property. A company offering a good guaranteed rental agreement will:

- Not overprice your property by huge percentages to more than cover your rental guarantee. However you will need to bear in mind they will not be giving anything away either as most of these companies, price all units accurately and openly, so there is no room for discounts. The flip side is that investors are clear about what they are getting for their money; there are no hidden extras and prices remain competitively low.

- Have in place agreements with major Travel agencies and national and international tour operators, who have agreed to promote and advertise the new development to their customer base, and pre-book blocks of accommodation for several years ahead. This helps to keep your property permanently occupied with genuine rentals that will continue to feed your investment.

- Finally it is icing on the cake, if the developer has a continuing interest in the development. Most of the successful developers offering guaranteed rentals do this by running and operating either the developments hotel chain, bars, restaurants, shops or ancillary activities (such as diving, sailing, skiing, boat tours and island tours to name but a few). This is hugely beneficial to everyone, as the developer will want to make the development and the resort services, first class for all occupants, to encourage repeat bookings and high occupancy rates.

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Simple Three Point Check

The best advice for all investors is to make three simple checks to be sure your developer is offering a genuine Guaranteed Rental deal:

1. Add up the items making up the price of the terms offered in the Guaranteed Rental offer, including legal fees, stamp duty and deduct this from the asking prices. This will give you the actual price of the property, which you can then compare with other similar options.

2. Study the rental market in the area and work out if your property stands a good chance of rental. On what basis are the developers guaranteeing to rent out your property and will you be able to do so when the guaranteed rental period is over?

3. What is the infrastructure like around your property? Will it be adequate for the rental market proposed? Make sure your property is located within an established, or preferably an up-and-coming area which is becoming popular. In this way your property will be commercially viable and a good investment.

So the name of the game is be vigilant and don’t allow a salesperson to talk you into a deal that is not worth the paper it is written on.

We only recommend carefully vetted developments offering genuine Guaranteed Rental and investment potential. 

CLICK TO VIEW OUR PROPERTIES THAT OFFER GENUINE GUARANTEED RENTAL INCOME