BEWARE Of Guaranteed Rental Yields From Overseas Developers

by Jeremy Smith

16:53 PM, 13th February 2014
About 7 years ago

BEWARE Of Guaranteed Rental Yields From Overseas Developers

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BEWARE Of Guaranteed Rental Yields From Overseas Developers

Every so often we get offers from companies promising guaranteed yields for investment in overseas properties or property developments. These are usually for one or two years, whether the property is rented out or not. This can be the case with UK property developments as well.

Sometimes they even guarantee further investors down the road when you want to sell on.

The pitfall with overseas investments in particular, is that it is much more difficult to make sure you are paying the local market price for your property.

In the UK we can so easily check out the local ‘for sale’ prices and the ‘sold’ prices, so the occurrence of this is a lot less common I would think.

I came across this in Berlin, it is easy to tell you how it works:

The agent guarantees rental for say two years at 8-10% return on investment, let or not. After that they can source tenants for you if you so wish.

The problem is the buying price; it is usually around 20%+ higher than the real market value, so in effect all they are doing is giving you back some of your money, as if it is rent.

When the two years are up they don’t guarantee to find you tenants, but if you want to sell on, they are hoping that prices have risen and you don’t notice that you paid 20% more for it than you should have done. If the property has been tenanted for the first two years, that’s all extra profit for them too.

The buyers who are coming along to buy when you want to sell are usually more clients who don’t know the real local market value of the property they are buying. Therefore, you might get lucky and you might make a profit, but that’s not guaranteed at all.

One trick the agents use is to show you properties in one area and then try to base the value of the ones they have for sale in a slightly different area on the higher value area properties.

Berlin has good, moderate and bad areas quite close to each other, and so is exceptionally good for this sort of sharp practice. BEWARE Of Guaranteed Rental Yields From Overseas Developers

There will be perfectly honest and trustworthy agents out there, but there are also some who will take advantage of a buyers limited market knowledge, so overseas buying is much more time consuming and hazardous for the investor.

Just saying, be careful if you are buying overseas!

All the best

Jeremy



Comments

Mark Alexander

16:54 PM, 13th February 2014
About 7 years ago

Excellent advice Jeremy, thanks for sharing 🙂
.

Jonathan Wilson

7:18 AM, 14th February 2014
About 7 years ago

Hi Jeremy

Totally agree - rental guarantees are a marketing strategy not a reason for investing. Ask yourself, "why would the developer or agent NEED to offer a guarantee if the property was correctly priced in the first place".

Some firms even offer a 'buy back' guarantee after say 2 or 3 years. Again why would they need to?

Also who or which firm is offering the guarantee? If it is a separate shelf company or similar then good luck 'cashing' your guarantee.

For me, guarantees are worthless.

Cheers

Jonathan

Jeremy Smith

11:47 AM, 14th February 2014
About 7 years ago

Reply to the comment left by "Jonathan Wilson" at "14/02/2014 - 07:18":

I raised this thread, since I saw a name I recognised: Knight Knox.
Now I am sure they are reputable and I do not want to cast any aspersions on their good name, it was the lead they passed me onto in Berlin, after I had done my homework, turned out to be doing as I described.
I'm sure Knight Knox passed on my name in good faith, I don't doubt that.

Now, there is nothing illegal about them getting as much money for a property as they can, it's just I decided to do some research, and found their 50,000 euro flats similar ones in the same block, could be bought through other agents for 30-35,000 euros !!

- Unfortunately prices have gone up somewhat since I bought there, but there are still pockets where bargain 'might' be had.


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