Rental Guarantees: A Safety Net For Nervous Investors?

Rental Guarantees: A Safety Net For Nervous Investors?

Posted on April 23, 2020 by Mirren Property Investment

Real estate investing can be challenging, especially for first-time property investors. There are many things to consider before you choose and pick a property to put your money in. One thing most investors often underestimate is their financial capability. Do they have enough funds to pay the lender if their tenant leaves? What will happen if the economy halts amid a pandemic – just as we are right now with the coronavirus pandemic globally? What will they do if rent drops?

In a saturated rental market, nervous investors may look for safety nets to avoid huge losses. This is where rental guarantees become beneficial. In this article, you’ll learn more about rental guarantees.

What are Rental Guarantees?

Rental guarantees are risk-management solutions offered by developers for investment properties. A rental guarantee assures the buyer that he’ll get a percentage return after his investment property is on the market for rent. Rental guarantees help developers find more buyers and instil confidence in people who might be fearful of investing in the first place.

There are two categories for rental guarantees. The first one, ”Rental Assurance” is a form of rental guarantee wherein a developer will guarantee the gross rental return to the investor. Rental Assurance is a direct approach and often put in contract in an ‘Under Lease’, which means that the investor will lease their property back to the developer for a certain period for a fixed payable price. The next one is the ”Rental Guarantee” which is in itself an insurance policy that needs to be operated within the jurisdiction of the investment.

During times of instability, a rental guarantee can help you see through your income potential. Investors who put their money in properties with rental guarantees can get good returns even if they lose clients or tenants. With a rental guarantee, you’ll be receiving stable cash flow, no matter what the circumstances are.

If you’re apprehensive about investing during this time of crisis, seeking a property with a rental guarantee can help. Many developers in different locations in Australia are already providing rental guarantees. In inner-city Melbourne, where rentals are low, rental guarantees offer a safety net for investors.

Advantages and Disadvantages of Rental Guarantees

In this section, we’ll discuss the positives and negatives of rental guarantees. Let’s start with advantages:

Income Stability

Rental guarantees provide stable income to property owners as they aren’t affected during falling market rents or vacancies. The landlord will receive a guaranteed rental income every month during the time of the arrangement. The rental guarantee can also be significant protection for landlords against loss of income when tenants fall behind payment.

No Extra Expenses

Unlike other insurance deals, there’s also no extra expense cuts which mean you’ll get your rental return precisely as what you’ve negotiated. There will be no monthly commissions, set up fees, or hidden expenses.

Confidence Booster

Are you a newbie investor? Rental guarantees are great options for investors who don’t have the experience, time, and confidence to pursue their dream investments. With a rental guarantee, they will have a safety net, should problems arise.

Now let’s see some of the disadvantages or risks rental guarantees may have.

High-Cost

If you’re not smart enough, you may fall prey to developers who inflate property prices and use rental guarantees to make the investment look good. This is their technique to lure and attract investors. Are you looking for secure property investment? The property strategists at Mirren can help.

Limited Control

During the period of returns, the landlord may not have power over the property. This means the developer or agency can control the tenants in the investment property. If you’re a new investor and want to create a great first impression, putting the care of your tenants in someone else’s hand can be a risky move.

Considering the risks, how should you go about finding an investment property with a rental guarantee which will help you invest with more confidence?

Who Offers Good Rental Guarantees?

Not all companies and agencies who offer rental guarantees have your best interests in mind. To get the money they need for rental prices, they often charge more than the market price. So, how do you know which ones are legit? You can consult an investment property strategist (like us) to help you purchase the right investment property.

Work with Investment Property Strategists

Look for investment properties and property management companies that can save you the stress of losing income during your stabilization period. An experienced investment property strategist will provide proper guidance and help you choose a property that is most secure and fits your investment capabilities. Need help with this? Mirren Investment Properties is here for you!

Have you planned to buy an investment property, but are now hesitant to go ahead? We have helped several of our clients – both first-time investors and seasoned investors, navigate through this current crisis in the best possible manner. We’re happy to give you a complimentary, no-obligation strategy session to discover the best course of action for you. Reach us here.