The Problems With Rental Guarantees

Do you need a rental guarantee when investing in property? Why can a rental guarantee actually be a really bad sign and what can you do to make sure your investment property is going to be rented?

0:00 – Introduction
0:38 – Always look a rental vacancy rates – https://onproperty.com.au/vacancy
1:19 – Why a rental guarantee is generally a red flag
2:32 – What you should do when you see a rental guarantee

Transcription:

Ryan 0:00
here i am today in brisbane about 12 kilometres from the cbd inspecting another property with granny flat potential as you can see room in the backyard there potentially for a granny flat so this is a really interesting one with already has car accommodation off to the side for a granny flat so all you need to do is add in a path which is what we absolutely love but in today’s episode i want to talk about whether or not you need rental guarantees when investing in property and why if you see a property with a rental guarantee you should actually be really wary of that property and that should raise a massive red flag with you so when investing in property a really important thing to look at is the rental vacancy rate of an area this is really easy to find if you go to onproperty com au forward slash vacancy that will actually redirect you through to sqn researchers page where you can search the vacancy rates are different postcodes so you can find out how many properties are vacant in an area you can find out what percentage of the market is vacant myself as well as the team over pumped on property like to use 2% as a benchmark so you want a vacancy rate that is going to be under 2% which indicates that an area is chronically oversupplied so obviously a lot of people get really nervous when investing in property is my property going to be rented so they want to go with something that has a rental guarantee or there’s a big illuma when there is a rental guarantee but i want to talk about why this can be a fool’s errand and why this can be a red flag there’s two general generally two types of properties you see with a rental guarantee the first one is defense housing australia so defense housing australia obviously can offer full rental guarantee basically the government will pay for your property to be rented the downside of defense housing australia is that sometimes the rental yields may not be up to market rate and also the property manager fees can be quite high on that compared to what you would generally find in the market the second and what i consider i guess the more risky rental guarantee is when you see it on a new build property or a house and land package property so when you’re seeing one of them advertised and they’re saying rental guarantee of 7% rental yield or however much per week they’re the ones where you really want to double check your figures massively because that can be a red flag because if someone’s selling you a development project with a rental guarantee that money has to come from somewhere they’re not doing it out of the goodness of their heart and generally that money comes from the sales price so it comes from you actually purchasing the property so when you see those rental guarantees what you should be doing is a looking at the vacancy rates in the area which we’ve already talked about but be looking at comparable properties in the area so go on to realestate.com.au and look for properties for rent in the area and try and find a property similar to what the property would be once it’s been built and see what they’re listed for on realestate.com.au and what they’re actually renting for because what you’ll often find is that the rental guarantees that are provided are significantly higher than what you would actually get at current market rate so there might be a rental guarantee for one year or two years but after which that your rental income will drop significantly to what the actual market rate is and then if there’s high vacancy rates in the area it can be very difficult to find a tenant in the first place so i’ve seen too many people get stung by this so this is why i wanted to talk about rental guarantees and why you should be wary of them there are also stories obviously of people who have been offered a rental guarantee they thought it existed but when it came time to own the property they might have received that rental guarantee for a couple of months and then it dried up and actually pursuing that and trying to get that money back generally tends not to be worth it it’s just going to cause you a lot of heartache so it’s better to do your own due diligence when looking at area look at the vacancy rates of an area look at similar properties and what they’re going to rent for and this area that we’re looking at right now i think has a rental vacancy of 0.77% or around about that mark so this area is chronically over supplied not over supplied under supplied so there’s just not very many rentals in this area so that indicates to us that if we were to purchase this property or if a client was to purchase this property they would be able to rent this property quite quickly if they price it correctly the same as if we go and build a granny flat in the backyard and we do a good job of that and we build a really nice granny flat and then obviously market at a competitive rate for the market that it should rent competitively i mean it should rent pretty quickly as well so you don’t need rental guarantees when investing in property and rental guarantees can be a red flag and can actually be a bad sign and indicate that you actually need to do a lot more research and it should be a warning sign for you so yeah be careful with rental guarantees do your research yourself and when you’re looking at an area if you know that it’s under supplied you can also talk to rental managers and say what do you think this property will rent for how long do properties generally take to rent in this current market and they might tell you how many weeks it generally takes to rent a property so you can learn a bit more about that through your rental manager. But if you do your research, you should be able to invest in confidence and know that your property is going to be rented if you purchase correctly. So I wish you the absolute best of luck in your property investment journey. Make sure you do your research before investing so you can make the best decision for yourself. Say go out there, do your research. I wish you the best of luck, and until next time, stay positive