Rental Guarantees

[annaspanna]

How does this work exactly?

I am looking at an investment and it says in the add

"This is seriously for sale at $xxxxxx with a 12 month rental guarantee of $xx per week".

[Hound]

The cynic in me would say the % of guaranteed return would be built into the purchase price. Either way you're giving a large degree of control over to a third party, much safer to DIY.

[Dean@Massiveaction]

In this market it may mean
"We can't sell and we are desperate".

If it is a straight rental property and the guaranteed rent is higher than the median rent for the property then work out your numbers on the median rent and then take the rental guarantee knowing that if the guarantee is bogus you will be all right anyway.

[Jabroni01]

This wouldn't happen to be one of those "blue chip" type set ups would it?

Jabs

[Keys]

This may take several hours to read annaspanna.

But it is worth reading before you go further with your rental guarantee.

[captaincrab]

You have to be very careful with Rental guarantees. The main thing to do is look past the number and try and make your own determination as to what the income stream is really going to be.
I dont see many RG's on standard Ressy but I do see a lot on Short Stay apartments and Hotels. On ressy I would be very suss about it (why do you need it?) but I would think it would be easier to check what is real and what is not.
Short Stay and Hotels is harder.
Theres Nett and Gross Guarantees. Gross, you have to pay the costs, such as Body Corp, Rates, Ins and the Management Fee. Nett, you dont, but you should still be aware of these costs as everntually the RG will expire and you will be wearing them. As with other investments note the Body Corp budget and then theres the Management Fee....You need to look at the Management Agreement and the Lease and work out what they can charge you and what you will eventually end up with. A LOT of these type of investments, its all about the Manager making money.(cough Sofitel Queenstown as an example. Hilton is another)
The other side is that these investments are in buildings which are businesses. You need to look at the building and make an assessment as to whether it will actually produce the income to cover the costs and return a yield for you.
Being in a good position, having good management, and the "right" type of rooms is all important. But especially its about the marketing to get the occupants there. Thats why Hotel chains such as The Westin, Sebel, Holiday Inn, Mirvac do ok as they have the grunt from international marketing and employ Hotel professionals.
I understand the The Bolton (location/quality) in wgtn does very well for investors and there has been a reasonable re-sale market. But I hear that rent has stopped on Holiday Inn.(can anyone confirm?)
The Westin in Auckland is going well too, but just look at its location and quality.
Blue Chip have been promoting this type of investment. Basically copying others who have done it sucessfully (Melview Developments) The Investor Forum was going down that track too. RGs are an easy way to disguise a bad invesment , which is probably what attracted those guys.
They are also a totally passive investment which has appeal to off shore investors also.

[roseneath_rat]

From a valuation perspective, you should look at the situation based on market rents (not the guaranteed rent) including all normal outgoings. You can then add a small amount on top if the guaranteed rental is above market value. Possibly one year left on a rental guarantee that was originally for 3 years?

Remember a guarantee is only as good as whoever is providing the guarantee. If it is an empty shell company with no assets then the value of the guarantee is also empty.

Give us a bit more info about the property you are looking at Anna.

[annaspanna]

This may take several hours to read annaspanna.

But it is worth reading before you go further with your rental guarantee.

Thanks Keys

[Heg]

Maybe is simply a Housing NZ tenancy..

[Hec]

Plain and simple.
Rental guarantees for residential....dont go there.

Hec

[Fobby]

Hmmmm, ........ I wonder if the residential rental guarantees are soft enough for my purposes?

[AnnetteS]

Good advice from Dean, RR and crab. Shame its not appreciated....

[annaspanna]

who doesnt appreciate it? I certainly do.
I have only just finished reading Keys posted link too.