Selling residential & commercial investment properties with a rental guarantee

Developers have been selling off-the-plan properties forever with rental guarantees to make it more attractive to investors, most likely with a worthless company providing this guarantee. That got me thinking, is there anything legally stopping the average mum & dad investor from selling their own residential & commercial properties with a rental guarantee to attract more buyers therefore using a similar strategy to developers?

 

Laws against fraud and misleading/deceptive conduct?

Otherwise the risk and hassle of actually have to pay out the guarantee?

 

Overpriced property based on a lower cap rate, bank the difference for the possible eventuality of a claim.

Rent guarantee based on a number of exclusions including letting fees etc.

 

Sounds like lots of hassle to me, let alone the payout liability. I prefer to wipe my hands of things after settlement!

 

It’s not uncommon with the sale of a shopping centre or industrial park where there are vacancies for the deal to be struck on the basis that the price reflects a certain yield that assumes the vacant space is rented. Often money is retained from the price or there is some other security to cover the vacancy risk with the ability of the seller to secure a tenant on certain terms. At the end of the day it comes down to the strength of the financial standing of the other party and the strength of the guarantee.

 

Many do it to copy DHA who can give the guarantee based on their tenancy base that is pretty predictable. Or fund it using a % of the marketing budget as means to get in of a contract from an anxious buyer. You can still have a lemon. A guarantee being paid means it rubbish property doesnt it ? eg A Meriton oversupply is still a oversupply. What happens when the 6 months guarantee stops ? So you picked up $12K in rent. Buy buying a property for $180K too much. Guess who won that deal ?

Smart buyers can see through it like cling wrap

 

Guarantees are only as good as they are enforceable. Prospective purchasers will be considering things like: Will the entity providing the guarantee still exist after settlement? Will they have any assets to enforce the guarantee against?