Rent Guarantee

Discussion in 'Investment Strategy' started by luckyP, 1st Jul, 2020.

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  1. luckyP

    luckyP Well-Known Member

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    Don't know if that is the right thread but I just wanted to hear your opinion on rent guarantee that agents give to new purchasers. One of my friend bought a new townhouse and got 2 years rent guarantee.

    Does anyone have some experiences and willing to share?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    essentially worthless - I doubt the agents would be giving the guarantee it would usually be the vendor or builder.
     
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  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Rental guarantees are marketing point to make the property more attractive to get you to pay a premium price. If you can sell the property for $20k more, it's easy to cover an extra $50/wk for a rental guarantee.

    Your friend should be looking at similar properties in the area that are on the open market and figuring out what they rent for. A lot of people find that once the guarantee expires, they can't get tenants.

    To me a rent guarantee says it's probably a bad investment. You're paying over market value for a property that will have trouble attracting tenants at a good rent over the longer term.
     
  4. luckyP

    luckyP Well-Known Member

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    I also think it is a bad idea, but he argues that if after the guarantee expires and he can't find tenants he is going to sell it and after 2 years the property will go up in value...
     
  5. TMNT

    TMNT Well-Known Member

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    and what if it doesnt???
    thats a pretty naive/optimistic comment

    has he considered, selling costs?
     
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  6. Trainee

    Trainee Well-Known Member

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    Well if the friend is making that statement based all their years of property investment experience and millions made from property.....
     
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  7. NewGuyACT

    NewGuyACT Active Member

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    Sounds like he's got it all figured out. Not sure what the problem is :cool:

    It's a bad idea. If it works out at all, it'll be by good luck rather than good planning.
     
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  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    He's likely already paid more than what it's worth. So if he has to sell within 2 years, there's a good chance he won't make a profit.

    In fact, with the current crisis, he's set himself up to loose money within the short term.
     
  9. Lindsay_W

    Lindsay_W Well-Known Member

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    My theory has always been that if they have to offer a rental guarantee it must be a bad investment, it's like they're admitting they know it's bad so they offer some compensation to make it appear better. If it was a good investment they wouldn't have to offer rental guarantees
     
    Last edited: 2nd Jul, 2020
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  10. The Y-man

    The Y-man Moderator Staff Member

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    Look, your friend's already bought it - bit late to tell them they bought a dud?

    The Y-man
     
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  11. Trainee

    Trainee Well-Known Member

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    Let him feel good for 2 years. You never know, he might get lucky.
     
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  12. luckyP

    luckyP Well-Known Member

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    No, I am not going to lecture him.

    However, what if he saw it online, finalised the price with builder/agent and then asked for rent guarantee. What do you guys think of this sceanario?
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Pointless because it's probably unenforceable in practice.
     
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  14. luckyP

    luckyP Well-Known Member

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    Reason for asking my wife, his sister is thinking to do the same thing .. obviously I am not happy
     
  15. Lindsay_W

    Lindsay_W Well-Known Member

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    Same scenario, bad investment - IF a builder agrees to this, which I would be surprised. Think about it, if they can afford to cover the rent for whatever period they must be building that cost into the price/their commission (agent) - meaning that cost is ultimately transferred to the buyer as it's likely built into the overall cost.

    Grow a pair and tell her not to do it, sorry if that sounds harsh but it directly affects you financially.
    Hoping to sell the property in 2 years if you can't get tenants is not a strategy IMO
     
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  16. NewGuyACT

    NewGuyACT Active Member

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    Show your wife this thread, that should end the conversation. Literally no one is saying it's a good idea :D

    If she still thinks it's a good idea, just remember that 50% of marriages end in divorce.
     
  17. Synergy

    Synergy Well-Known Member

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    what if its corelogic given out the rental guarantee?
     
  18. Trainee

    Trainee Well-Known Member

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    The guarantee temporarily distorts the true returns. Even if the guarantee comes from Jeff Bezos it just means the guarantee will be paid out. It doesn't change what happens after the guarantee expires.
     
  19. luckyP

    luckyP Well-Known Member

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    Thanks guys, I think I let her go ahead with this, if it works out fine if not fine too.
     
  20. Shogun

    Shogun Well-Known Member

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    your money to waste