A rental guarantee programme sounds like a safe investment option when buying an overseas property and often it can be. But, be aware the price you pay for your property might be front loaded, or the sting in the tale might be that you might be left hung out to dry with a property that is difficult to rent when the guaranteed rental period elapses.
Developers know that today it often takes more than just a good product to successfully market a development. How the developer packages the product is often key to a successful sales campaign. Rental guarantees in Spain as well as other overseas markets are often used as a way to attract investors to get in early and buy up product.
But are these investors buying into a false sense of security?
Having been involved in international and overseas property for many years, I have seen my fair share of the different schemes available; rental guarantees, mortgage paid options and variations of the same. There is no doubt that in some cases, the rental guarantee is built into the price you pay as a buyer. Simply put, that means you are paying more money up front for the privilege that the developer can give it back to you in the form of a “rental guarantee”. Whether they actually rent the property or not in the 2 years, is in many cases actually irrelevant to them and their efforts will very much depend on their business model. The real trouble starts, if you are relying on the continued rental income after the initial guaranteed rental period to cover your costs.
Key factors to ask before you buy include:
- What is the duration of the guaranteed rental scheme? If it is a short period, say 2 years, ask yourself on what basis the developer is going to rent out your property to cover his costs. Long term guarantees often indicate a bona fide rental guarantee programme.
- Find out if there are discounts available if you do not want to take up the guaranteed rental scheme. If there are, you know who is paying for the rental guarantee!
- Research what comparable properties (if there are any) in the area are being rented for and what they cost to buy.
- Consider the fundamentals of rental property: LOCATION! Is it near to shops, bars, restaurants, sporting facilities and within easy driving distance to an airport? Would you rent the property yourself for a holiday?
- Find out if there are any contracts in place with tour operators who will package your property with flights for holiday makers (that is a good sign that it is a bona fide guaranteed rental scheme where you are not paying over the odds)
- What is the rental season for the property? Are both summer and winter rentals realistic?
- Emerging markets often use guaranteed rental enticements to attract people to buy in a new area and if the period is long enough, this allows time for infrastructure to be put in place that might make the property rentable in its own right.
- Read the small print: is the guaranteed rental net or gross? If it is gross, ask what costs and service charges need to be paid. Do you have to buy a specific furniture package (might be a good idea anyway)? Is it a fair price? Are you allowed to use the property yourself, if so for how long?
Let’s face it, buying an investment property overseas as opposed to at home often takes more considered decision for most. Genuine rental guarantee deals where the numbers stack up offer peace of mind that you do not need to look for tenants or property management companies for the first few years.
It’s a good job therefore that there are some genuinely good rental programmes out there run by professional companies who work ethically, aiming to enhance investor confidence and to provide an quality investment product.
Probably the best guaranteed rental investment on the market I have seen is Royal Peninsula’s new development at Medina Elvira, near Granada, Spain. It is a quality development in traditional Andalucian / Mediterranean style with front line of the golf and views to the Sierra Nevada mountains, offering superb quality of life. The development offers genuinely good rental prospects due to its location: 20 minutes to Ski Resorts, 50 minutes to beaches, 12 minutes to Granada Airport (1 hour from Malaga airport), 10 minutes to Granada City which is oozing with history and culture.
The company prices all its properties accurately and openly, so there is no room for discounts. Investors are crystal clear about what they are getting for their money and there are no hidden extras and prices remain low. The guaranteed rental agreement of up to 10 years at 5%, is made on the basis of solid, signed contracts with national and international tour operators. Travel agencies pre-book blocks of the year and supply bank guarantees. There is an investor pack available on request.
For additional information on vetted rental guarantee programmes that offer a genuine investment opportunity and other smart investments in Spanish and Overseas Property contact Anthony Fernandes at www.spc-overseas.com.