Rental guarantees aren't all they seem

Rental guarantees are great, aren't they? Many investors would certainly think so, tempted by developers' assurances of an agreed level of return on a property. But as many analysts are at pains to point out, they're as likely to act as deep cloud cover for hidden charges. That's because developers will have to recoup their generous offers somehow.

According to John Herron of the finance company Paragon Group, "they're just one of a number of incentives such as carpets and curtains, and in many cases they're meaningless". He tells The Guardian that "there is no such thing as a free lunch and these incentives will be reflected in the purchase price". The Irish Times agrees. It says that these "guarantees are often paid out of an artificially inflated asking price".

So what should buyers do? The consensus among property advisers is that astute buyers should use the offer of a rental guarantee as a bargaining tool. According to Adrian Owen of Hamptons, also in The Guardian, "if you're reasonably confident that you can rent the property out yourself and you've calculated the value of the rental guarantee offer, you can then ask for that as a discount off the purchase price".

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Jody studied at the University of Limerick and was a senior writer for MoneyWeek. Jody is experienced in interviewing, for example digging into the lives of an ex-M15 agent and quirky business owners who have made millions. Jody’s other areas of expertise include advice on funds, stocks and house prices.