A guaranteed rental scheme can provide you with peace of mind, safe in the knowledge that you will receive a fixed income for an agreed period of time. Many buyers like to use the guaranteed rental income to pay associated mortgage costs. Additionally, the management of the property is hassle-free as the property developer or management company is responsible for this aspect over the agreed time period.
Guaranteed rental income
No guaranteed rental scheme is free! If the risk is lower, the return will be lower; a guarantee obviously lowers the risk. A valid guaranteed rental scheme is where the property developer or management company knows what rental income can be achieved and will pay you a smaller amount, the excess being kept by the property developer or management company.
If you want to achieve the maximum possible rental income, then a guaranteed rental scheme may not be the most suitable. In this case, you will be responsible for renting and maintaining the property. You should also budget for the possibility of one or several void periods (where the property is empty).
Investment property
Although this particular form of investment property can be attractive, care should be taken with guaranteed rental schemes as some are not genuine. In some cases, the price of the guaranteed rental scheme is simply priced into the price of the property by the developer, which in turn makes the price of the property above the true market value. It is important to know what the rental market expectation is so once any guaranteed rental scheme expires there is an attractive market for rentals.
Many investors like guaranteed rental schemes as they do not want to get involved with the management of the property and look to capital growth, rather than rental income, as the main investment criteria.
Guaranteed rental schemes such as French Leaseback have been operating very successfully now for many years and generally are a very popular choice with property investors.
Part of our due diligence with property developers, and whether or not we recommend an area, is to research whether the investment property represents good value and ascertain what the rental market situation is.
