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Sure ways to lose money in today’s property market

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Your Investment Property | 19 Dec 2011, 12:00 AM Agree 0
Most investors lose money by making a number of poor investment decisions, swayed by smooth talking salespeople and too good to be true purchasing schemes.But have you considered any of them? You might be surprised.
  • Helen | 20 Dec 2011, 12:31 PM Agree 0
    This is a bit one sided. There are some honestly good rental guarentees out there too you know!
  • Paul | 20 Dec 2011, 01:17 PM Agree 0
    I saw one with a 10 year rental guarantee and it didn't seem overpriced in Melbourne.
  • Pascoe | 20 Dec 2011, 05:38 PM Agree 0
    In regards to a rent guarantee I purchased a property back in 1998 in Caboolture for $133,000 (sounds cheap now) and the developer had a rent guarantee on it for 230 a week for 2 years. Six months in, he started to not pay the rent and eventually declared himself bankrupt. I was unable to get any money oweing from him for about 8 weeks of rent and also the remaining 18 months of $230 per week. I had to than accept a tenant at $180 per week. I suggest steering clear of rent guarantees. If the property is worth buying it doesn't need a rental guarantee, it will always be in rental demand.
  • Brett | 11 Apr 2012, 01:25 PM Agree 0
    The first question I have is does the Valuation stack up? If it does, surely it is the developer that is taking the hit not the purchaser. If it doesn't you will have all the information you need, that is the price is loaded. In addition, why not ask for a discount to offset the rent guarantee and control your own finances.
    Alternatively have the guarantee rent difference or what is referred to as a buffer. (i.e. say the market rent rate less 20% is placed into a third party managed trust account) which would be paid at settlement of the property. If the rent levels out over two years, then the Developer gets the buffer back or it is paid out to both parties on a pro-rata basis. Quarterly reconciliations can also be done to ensure the purchaser has enough cash-flow to manage debt. Lenders prefer this by the way as it is controlled by a third party, such as a solicitor or a reputable Real Estate Agent.
    Investors must take responsibility for their own decisions and actions; Developers can only estimate forward rental rates and cannot guarantee market conditions and things like a GFC , pirating banks or their own future liquidity.
    Investors should also get good sound advice, advice and more advice before making these decisions. If they do not get the advice and it goes wrong, the only finger pointing that can be done is in the mirror.
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