The principle allure of a guaranteed rental scheme for property investors is the prospect of a regular income with minimal risk. The term ‘guaranteed rental’ is applied to a plethora of different types of property investments. Some guaranteed rental schemes are attractive and offer investors with a genuine means to gain a regular and secure income. Many forms of guaranteed rental schemes, especially those offered by overseas property developers, are principally marketing gimmicks.
UK Property Guaranteed Rental Income
UK local housing schemes offer a form of guaranteed rental. The ‘guarantee’ is implicit in so far as the rental income is paid by the local authority and is it highly unlikely that a UK local authority will become insolvent. Many of the UK’s local government housing authorities have a chronic shortage of suitable property to supply low-income families. They often look to private landlords to meet their housing shortfall needs and provide accommodation for qualifying tenants.
Renting your property to a local housing scheme can be attractive; however there are certain aspects when entering into this type of contract that requires specific knowledge and due diligence. Propertyinvestment.co.uk can advise you on this type of investment.
Overseas Property Guaranteed Rental Scheme
Overseas property developers sometimes use a ‘guaranteed rental’ as a promotional tool for an off-plan or new build property or hotel style resorts in which apartment rooms are rented out. In such cases, the hotel/overseas resort operator ‘guarantees’ to pay a certain percentage return on your investment for the first couple of years followed by a share of the rental income from the hotel room or apartment. Many of these ‘guaranteed rentals’ are highly questionable and the investor is normally paying for the ‘guaranteed rental’ within their purchase price. In many markets where this scheme is offered the rental market is untested, weak or non-existent. Additionally, local sales and resell prices for comparable property is often hard to quantify and inadequate. We do not recommend this type of overseas property investment.
French leaseback property offers a long-term (normally a minimum of nine years) form of guaranteed rental. Although less circumspect other forms of overseas rental schemes, this type of property has several drawbacks. The potential for the resort operator going bankrupt and low capital appreciation in comparison to other forms of property investment within the locality are chief amongst its problems.
What Is A ‘Guarantee’ Worth?
With any ‘guarantee’, property investors should consider what the value of it is. No guaranteed is ‘free’ and as some investors have learned to their cost, the ‘guarantee’ may turn out to be in name only. The provision for a guaranteed rental by a vendor is normally less that can be achieved than if the property was on the open market. This is the price paid for the guarantee.
Rental Income Property Overview
The search for a ‘guarantee’ in any investment is alluring as the majority of investors wish to minimise any risk. Property investments that offer such an incentive are not necessarily the best option to maximise your investment return, however each opportunity should be considered on its own merits. The application of property investment fundamentals and due diligence can help insure that your investment yields the maximum return whilst minimising the risk. Landlords can take out Rental Guarantee insurance to help allay any fears regarding rental income problems.
Propertyinvestment.co.uk is as a buyer’s adviser focusing purely on UK residential and commercial investment property . Our service enables our clients to profit from our experience, contacts and purchasing power to negotiate discounts or financial incentives that might not be otherwise available to a single investor. Our recommended investment property is typically provides a rental income ranging from 6% – 10% and has been discounted by 15% – 30% of the market value.
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