Property Investment Articles

This article describes the ninth strategy of nine property investment strategies.

Download the full report at wholisticfinancialsolutions.com.au 

Strategy 9 – Guaranteed Leasebacks

Pros

A genuine guaranteed leaseback is a rare thing. If you can find one it can be an outstanding way of ensuring your ‘sleep-at-night’ factor. The biggest fears in property investing are; “What if I can’t find a tenant?” and “What if my tenant doesn’t pay their rent?”

A genuine guaranteed leaseback can take both of these fears away as the guarantor pays you your rent regardless of whether the property is tenanted or whether the tenant is paying the rent.

You can therefore rest easy knowing that your rent will be coming in to cover your mortgage, each and every month.

Cons

Well… don’t get me started on this one or I will go on for pages! In a nutshell:

There have been many fly-by-night companies predominantly based in Queensland who flew around the country hosting free property information sessions and drawing innocent investors in through mass telemarketing and promises of free holidays for their attendance. Then the holiday turned out to be a property tour, free of course, as long as they viewed the properties whilst they were there. The organizers then convinced the innocent investors to purchase the properties through ‘rental guarantees’ that sounded too good to be true.

And yes, they were too good to be true.

In some cases, the company went into liquidation straight after completing the final sales. Of course, this meant that the guarantee wasn’t worth the paper it was written on. Alternatively, the cost of the guarantee to the company was simply embedded in an inflated price for the property. At the expiration of the guarantee the investor found that they

could not rent their property for anywhere near as much as was predicted. Further, there was never any real tenant in their property. The company had simply used the inflated profits to pay the rent to the investor for the promised period.

Worse still, there were now hundreds of vacant properties in the area all on the market for rent at the same time. And to add insult to injury, investors who couldn’t afford to keep the property now that the rent was substantially less than predicted, tried to sell their property only to find that it was worth considerably less than what they had paid in the first place.

Solution

Once again, do your due diligence:

•       Ensure the properties are not over-inflated to compensate for the rental guarantee.  For example, are you able to buy the property on the open market, or from the developer for the same price without the rental guarantee?
•       Ask the guarantor, “What’s the catch?” There must be something in it for the guarantor or they wouldn’t do it. Ask them, “How do you make your money?”

•       Check www.allhomes.com.au or www.realestate.com.au  and ensure the predicted rental is in line with the current market rental.

•       Check that the company offering the guarantee has been in business for a considerable length of time.

•       Check the company has a sound reputation. ‘Google’ the company name and you will reveal any ‘dirt’ or dissatisfied customers.

•       Ensure the rental management fee is in line with industry norms – around 7–8% depending on the state.

•       Ensure you can withdraw from the leaseback any time you want to in case your circumstances change and you want to sell the property or move into it.

•       Most of all Get professional advice

Download the full report at wholisticfinancialsolutions.com.au