Guaranteed Rental Schemes: The Advantages & Disadvantages

When advertising an off-plan property, developers will often try to attract buyers by offering a guaranteed rental return net of all costs. These offers vary in time-scale, but typically run from 2 years up to 7 years, but normally max out around 5 years.

What these offers represent, is a rental return on your investment, guaranteed, where you as the landlord do not have to worry about letting your property, or any of the associated costs such as service charge and maintenance charges. In most cases you will be responsible for the ground rent.

So let’s list the main advantages of a guaranteed rent:

– It is a net payment, so costs such as service charge, maintenance and agent’s fees don’t have to be considered.

– There are no unexpected costs coming your way.

– If a build runs over the contracted long-stop date (the date by which a developer needs to have finished the property, otherwise you can retract your offer to buy), it is likely that the developer will have to start paying your guaranteed rent payments.

– When a development is initially listed it may impact on rental returns especially if it is a large development so any returns that are guaranteed helps alleviate this issue.

Now we have to consider the conundrum to a guaranteed rent. Firstly, let us consider the fact that a developer is prepared to offer you a guaranteed return on your money, it is unlikely the developer is giving away more than they are earning. In most cases the developer will be in a situation where they know that they are able to achieve a higher level and is therefore comfortable offering the rate they have to you.

Additionally, it is important to ask the developer to show you what the property achieved in it’s first year of rental, if the developer has not given you a blind return, by that I mean the developer may offer the guarantee and is not obliged to show you his return. If on revision you could attain a lot more by letting outside a fixed return then perhaps it would be best to do so.

In many cases we find that clients like the security that this fixed return will give them, but as said above generally you are likely to achieve higher returns if you let it independently, so the choice is yours, sit back and take a fixed rate, or do your homework and put some effort to see if you can do better.

For more information about guaranteed rental schemes, or to speak to one of our property specialists, please do not hesitate to call us on: 0207 183 0646, and let us help you today.

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