Whn will people realise that there's no such thing as 'guaranteed rental income'? I was chatting to a colleage of mine who just bought in the French Alps" Me: "Of course, what we like is being able to go over for a long weekend, especially in the summer." Him: "Oh no, we can't do that, we have to rent it out via the agency to pay the mortgage. Other than the three weeks we reserve, they have it the rest of the time. But at least we have a guaranteed income." Me: "Don't tell, me - this is off-plan?" Him: "How did you know?"
I bet you that his place is empty most of the summer and half the winter, outside school holidays. And I bet that at least some of his 'rent' is from his own initial capital. No doubt it's extremely convenient for the agency to have the owners - whose money actually paid for the initial construction - out of the way so they can take a thick slice of the rentals that they do get.
However, when a lot (not all but a lot) of people purchase properties they need to take out a mortgage to do so. A rental guarantee for ? years at least takes the worry out of how to pay the mortgage for that time as the monthly income usually covers the mortgage payments. If I have seen a good deal with a rental guarantee I have never seen a lower price for the property without a guarantee, do you think Developers would sell you a property at a lower price if you didn't want the guarantee?
Make 20k in 5 years paying slightly over the odds or £0 by not buying on principle that it's a scam? I know what I'd do.
I'm not talking about long-term lets here: I'm talking about developer/agency cartels who handle short-terms lets like those of my colleague. I accept that there are lots of places where the letting season is almost continuous, or where there is a demand for long-term lets.
What I object to is when owners are prohibited from using their holiday properties by the terms of the agreement - even 'though the property is empty.
In Alpine resorts, a property is probably unoccupied most of May to June and September to Mid-December. So why should my colleague be prevented from using his own property?
The answer is that it's convenient for the agency to 'pull the wool' over owners eyes, and pretend that the place is occupied 48 weeks/year.
In Florida they offer you a guarantee (built into the price of the property) and then
either:
A. dont pay it (look at the small print on page 56! Sue us if you like!)
B. pay it late but make sure it's netted off against management/maitenance charges that are grossly inflated.
C. Just rent your property out and keep the money.
D. If you dont like it and get irrate and send a threatening e-mail. Take a court injunction against you the owner so you can't go within a mile of the company who offered the guarantee or your of property. (great you own a 5 bed villa and your booked in a $49 buck a night redneck motel).
Rental guarantee's are raley what the buyer thinks they are.
P.s. Oh yes and you normally find the party you are contracting to for the guarantee is rarely the same legal entity as the one you bought the property off.
I agree that 'guaranteed rental' schemes are mostly not worth the paper they're (rarely even)written on. However, this is almost certainly untrue of the property mentioned by the OP.
One of the few long-term fixed rental schemes worth having is the French leaseback. Typically for nine years, it offers an index-linked yield and in many cases a few weeks of personal use. These schemes also result in a repayment of the 19.6 percent VAT on new-build properties too. Crucially, they're backed by bona fide holiday operators, and are not just a way of receiving back some of the money you've overpaid for the property in the first place.
Even with the French VAT/Leaseback scheme, I still am not convinced. My colleague can only use the place for 2 weeks in the year. Yes, he gets the VAT back, but the £/M2 of his French Alpine apartment is almost twice that of my Swiss one - and we're in comparable locations.
He pays more per sq. metre; only has 2 weeks use; pays 3% more on his French mortgage than me on my Swiss one; and is in a fixed contract for 5 years before he cap opt out.
The French leaseback was an example of the guarantee being good. There are others and applying a little common sense should see you OK. If a recognized hotel operator is offering the guarantee you should have few worries. An example of one that I’ve encountered (leaseback) that didn’t have this was high in the hills above Cannes. In 2005 the operator had revenue of just over 100k Euros from the one hotel it operated near Paris. They were going to be taking care of the rental / management etc of 40 or so units in a hotel in Cannes yet they didn’t have anyone down there. (Rest of rooms were managed by Pierre Vacance.) Location was good, but I had no confidence in the guarantee. I’d rather have had a lower guarantee from Pierre Vacance, and I’m no fan of them.
Another simple tip is to see what other hotels in the area are charging and try find out what occupancy levels they have. That should give you a feel for whether the guarantee is purely a hook to entice you. (If comparable units in area are only realizing 4% return before expenses what makes you think yours will continue to generate 7% when the guarantee has elapsed?)
Agree with you msej449 on a number of agents / operators deliberately misleading. The limited use angle is but one way they do it.
Dave if you read this I have tried to email you on 'info@laforet35.com' but my message keeps getting bounced back. I would like a chat about property in La Tzoumaz.
Fraught with problems, smoke and mirrors, leeches, liars and brigands. Horses for courses and whilst I can't say I've never taken a risk I am pretty risk averse and have never fallen for this b------s and would never put myself in the position where I could be taken advantage of by these schemes. Others here clearly don't agree and it appears to have worked for them. Hope it goes on doing so - not a hint of schadenfreude from this poster. Question - Why run this sort of risk when there are so many less risky areas/methods you can make a profit in this business? Good luck to those who wish to continue.
Originally posted by Vonreisa: Question - Why run this sort of risk when there are so many less risky areas/methods you can make a profit in this business?
Great post.
Whenever I read posts on this, my reaction is always the same.
Fair enough possibly, but why would you want one rather than something that is more simple. flexible and transparent?
The property market abroad is at saturation point, people buying to let there have missed the boat in my opinion. We done it years ago lots of problems with rentals, now sold but made a good profit, beware of capital gains tax. my advice keep the property 10 years at least.
I've been in the Industry a very L-O-N-G time and it would be unfair to write off ALL guaranteed rentals as 'cons', however valid points have definitely been raised on this thread. At the end of the day there is no such thing in life as a 'free lunch' and whilst a guaranteed rental might very well help with mortgage repayments, the 'guarantee' will have been worked into the purchase price somehow. Oh and another thing to remember, is say for example a rent is guaranteed for '3 years' at the end of this time it is inevitable a swathe of properties will suddenly be put on the market so you run the risk of having to tailor your asking price to make it appealing as there will be a raft of identical or similar properties for buyers to choose from.
Leaseback's in France are ok if you seldom if ever wish to use the property and purely want it for investment, but they are not the same as guarantee rental.
Originally posted by rosebud 186: The property market abroad is at saturation point, people buying to let there have missed the boat in my opinion. We done it years ago lots of problems with rentals, now sold but made a good profit, beware of capital gains tax. my advice keep the property 10 years at least.
Fair point though I think a bit sweeping. The world is a huge place so it would be very difficult to write the whole of it off! However, it is true the 'Brits abroad' mentality has worn very thin and buyers now seek individuality, good rental potential, and a wider choice of Countries. Florida in my opinion is good to invest in as due the dollar being so weak the property market is very weak right now - which is by far the best time to invest! No point in buying in a market where prices are booming!
