Guaranteed Rental Schemes

There are 2 types of 'Guaranteed rental' agreements.

If you are buying a new build apartment in, say, a coastal resort and the agent is promising you a guaranteed rental then be prepared to be burned! They pull the curtains and pay you back with your own money.

On the other hand there ARE deals out there with a guaranteed rental unrelated to the price paid (in a way, but more about that in a moment!)

We are currently negotiating to buy a building, or part thereof, which on one level has a bank as a client with a 5 year contract (they've just paid the first months rent) + 5 year option to extend, and a Bar in the basement with 4 years of a 5 year rental contract to run.

BTW the Bank has invested a huge amount in doing up the premises, completely renovating the interior and pulling cables all over the place at their own expense which is common practice out here. They also are undertaking a complete revamp of the fascade at the behest of the city council to peserve the Art Nouveau air of the city centre.

I'd say that the Bar will not survive due to it's poor location relative to the city's nightlife centre but that is all to the good as the bank has indicated that it will take the basement too at a much higher rate per square metre.

This truly IS a guaranteed rental agreement of which so many Irish investors dream. The gross yield is upwards of 9% and will be higher if the Bar fails and the Bank takes over.

There is, however, a link to the purchase price and the rental yield as I'd say the former has been calculated after the latter . However who cares!

There are a number of legal and contractual points to be cleared up but if it works then it will be a good deal.

Now that's a real 'guaranteed rental' return!
 
bacchus said:
I don't see where the "guaranteed rental" is in that story???
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Agreed. This is simply a commercial property deal. Commercial property, as a rule achieves higher yields than residential, except where you're talking about trophy/advertising assets (Grafton St). This has nothing to do with the thread, ie: Guaranteed (Residential) Rental Schemes.
 
Contrary to popular belief, there are (some) genuine guaranteed residential rental schemes, where the property is being used to run a business (e.g. a hotel or serviced apartment) and is generating a cashflow that can pay for the guaranteed rental. I would not dismiss all guaranteed rental schemes outright, provided you can see a real revenue line for the person offering you the guaranteed rental return.
 
Propman said:
Contrary to popular belief, there are (some) genuine guaranteed residential rental schemes, where the property is being used to run a business (e.g. a hotel or serviced apartment) and is generating a cashflow that can pay for the guaranteed rental. I would not dismiss all guaranteed rental schemes outright, provided you can see a real revenue line for the person offering you the guaranteed rental return.
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Propman said:
Contrary to popular belief, there are (some) genuine guaranteed residential rental schemes, where the property is being used to run a business (e.g. a hotel or serviced apartment) and is generating a cashflow that can pay for the guaranteed rental. I would not dismiss all guaranteed rental schemes outright, provided you can see a real revenue line for the person offering you the guaranteed rental return.
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And providing you, or someone else, is prepared to continue offering the guaranteed rental to whoever you sell the property to.
 
There is always the possibilty in these situations that your tenant, especially in the commercial world, will go bust. If that happens then your rental contract is worth nothing so it pays to always buy where you are sure another tenant will be easily found.

But as the man said if it was that easy then sure wouldn't everyone be doing it!
 
By the way the word 'residential' was not mentioned in the original thread..simply 'guaranteed rental'
 
In my opinion Portugal - at today's prices - is better viewed as a lifestyle choice rather than a good market for those seeking good capital growth/rental yield. Not unlike Spain in this respect....
Regarding guaranteed rents, contributers who state these are loaded onto the price are spot on....if you are buying in a viable market you shouldn't need the "guarantee"!!! If you opt for this you are paying your own rent for the first couple of years......on top of this yields quoted are usually not reflective of the actual market and unsustainable in the longer term.
No chance refund of legal fees I would imagine - in fairness the lawyer probably would have a point regarding work completed etc,..developer is another matter - worth putting up a fight!!!
 
Propman said:
Contrary to popular belief, there are (some) genuine guaranteed residential rental schemes, where the property is being used to run a business (e.g. a hotel or serviced apartment) and is generating a cashflow that can pay for the guaranteed rental. I would not dismiss all guaranteed rental schemes outright, provided you can see a real revenue line for the person offering you the guaranteed rental return.
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This isn't too far from the truth, especially when there's a contract with a tourist agency to fill them, but again it's not exactly "guaranteed" as the agency might not be able to fill and give up on the contract (esp if it's, for example, a local agency sub-contracted to an Irish one) or there are serious problems locally.
 
And remember that a large and well established corporate tenant is a much better 'guarantee' than any developers promises to, essentially, give you your own money back over time, IMO.
 
Previous posters have it right -- run a mile from so-called "guaranteed rentals".
Worst cases seem to be in Bulgaria, where there is simply no possibility of getting tenants for the properties. Black Sea properties being offered with 4K to 5K annual returns? Nonsense where the summer season is very short and there is curently almost no market in apartment rentals.
All this should be obviuos to buyers, but it seems not. I recently saw one company offering to pay the buyer any rent achieved over and above the guartanteed rental!!! If that's not a pointer to a scam, what is it?
One contributer advised asking to purchase without the guarantee and watch the seller's face; in fact, most developers will happily sell to you without the guarantee at an equivalent discount if you promise to keep your mouth shut.
Some genuine ones do exist in Spain and Portugal, but ask to see the contract with the tour company before you buy. The ones in Bulgaria and Turkey, in my experience, are marketing tools where you pay over your own money and get it back over the guarantee period.
The developers have several reasons for using this scam. Firstly, it makes it seem as if these properties are valued at a multiple of the "rent" received. Secondly, the two or three year "guarantee period" keeps you off their backs while they get off site and away from a lynch mob of disappointed punters!
Another point to watch is that sometimes the "guarantee" is given by a separate paper company that may not continue to pay the "rent" if it suits them to disappear, i.e. if the developer has completed the construction and has moved off site. Check the small print!
Best advice on the markets in places like Bulgaria and Turkey is to stay away -- they are overpriced and have almost zero investment value. You will certainly lose money in these markets when the "house of cards" collapses. These markets sell idiot property to idiots -- none of the big investors go there.
 
Have to say I agree with the Auto320 on 2 things:
never go for Guaranteed Rentals -> you arjust getting your own money back. Have seen this in budapest for years.

Regarding Bulgaria, I have some serious reservations. I spent some time there recently working, and the place is completely run my the mob! Seriously! (yes, it sounds like taring everyone with one brush).

Example: Big issue at the min with the local armed mafia moving into new apartment blocks, and not letting the buyers in. They simply tell you to 'hop it'!
The locals say the mafia is the big reason why Ireland and other countries are blocking Bulgarian and Romanian from coming over once they join the EU.
 
Yea Guaranteed Rental is a total con job. Very popular in Bulgaria but you can only rent out there for 4 months a year so how do the figures add up when the guaranteed rental period are over ? They dont
 
To heck with 'guaranteed-rental' schemes. If it doesn't stand on it's own two feet right from the get-go then steer clear.

If you are not inclined to spend some time getting personally involved in the letting of your property abroad and, instead, wait at home for the check from the company that sold you the premises to arrive every month then you are, quite simply, a MUG!
 
Ancutza said:
To heck with 'guaranteed-rental' schemes. If it doesn't stand on it's own two feet right from the get-go then steer clear.

If you are not inclined to spend some time getting personally involved in the letting of your property abroad and, instead, wait at home for the check from the company that sold you the premises to arrive every month then you are, quite simply, a MUG!
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Lots of mugs out there though, and salespeople play on their greed; eyes light up at the thought of all this free money, where a cheap (by irish standards) property pays for isself from rental income and even gives a bit of excess profit. Dream on! The real world isn't at all like that.
 
Paddyd, I assume you have some knowledge of Bulgaria. That's fine! But to say that the European comission is concerned about the 'transfer' of the romanian mafia into the rest of Europe is JUST PLAIN BULL!!! Please comment where your knowledge can support it.

The European comission has currently got three major areas of concern about Romania and, is quite rightly, kicking the governments butt about them! These are as follows:-

(1) The Judiciary and the due legal process

The EU comission currently deems that much reform is in order to bring the romanian judiciary up to acceptable EU level in terms of accountability. This has less to do with institutional corruption than to do with the fact that, in Romania currently, if you steal a chocolate bar then you can get 3 years in the slammer. Let the punishment befit the crime! The judiciary is just TOO sh*t scared to take any form of bribe at the moment,as they did in the past to 'bend' a case. I speak from first-hand knowledge here as one of my friends is a circuit-court judge. She was appointed about same time as the anti-corruption drive got started. She was too worried after appointment even to meet me, a foriegner, for lunch! Such was her concern that fingers would be pointed! Now that I've got married I'M the one that is too worried to meet her lest rolling-pins get pointed! :D

(2) Food hygiene and general standards in aforementioned

Romanian controls in this area are simply not up to scratch yet. My brother-in-law owns an abbatoir and a meat distribution business (including his own stores) but will still not be allowed to export pork after entry into the EU due to continued swine-fever outbreaks in the country.

His business meets all EU hygiene requirements thusfar enforced ( and he has invested a fortune over the last 5 years to ensure that this is the case) but he is stymied by the fact that mere mortals like me can bite into a sausage (not his) and find grit in it from the manufacturing process. This has happened to me!

(3) A lack of a system for effectively distributing EU farming subsidies

This charge has been levelled at both Romania & Bulgaria but to date the best progress is being made by Romania in establishing these bodies. Bulgaria is far behind.

Both countries are under pressure from the EU comission to tackle corruption and Romania is making progress there too, though in my opinion lesser fish are being sacrificed by bigger fish so as to ensure their continued corrupt survival. In otherwords deals that were 'struck' years ago are being revisited. Corrupt politicians are laying their previously protected benefactors on the altar of EU sacrifice. As a result the small fry are getting fried but the bigger fish slip the net. This is SLOWLY starting to change and bigger fish are finding themselves targeted.

To suggest that Romania suffers from the same kind of organised crime problems as experienced by Bulgaria is just plain CR*P!!!

Very little is ever mentioned on this board about Romania and the little that is is very coloured by misconception and plain ignorance. Please don't let yourself fall foul to the same!
 
Agreed Ancutza, much negative publicity about Romania re mafia etc. which is completely unjustified.

In my experience, Romania is like Ireland was about 15 years ago, i.e. a lot of black economy, cash-in-hand nixers, etc. However the legal system and particularly the notaries who look after property transactions is clear and transparent, and safe by and large.

There is still a huge reliance on cash transfers to close land sales, but I have never had a problem in this respect. Banking is getting better all the time, and I have found Romanian accountants and other professionals to be straight and honest in all their dealings with me.

You simply cannot compare Romania to Bulgaria in this respect. In Bulgaria it is only six years since the collapse of the central bank and the Lev, following the huge pyramid schemes that defrauded almost all the population of their savings. If only a small number of people came out of this gigantic fraud with profits, where do you think all the money came from to start development of apartments for Irish and English suckers?

Romania may still have its problems, but it is a huge country with all natural resources including coal, oil, timber, and unlimited tourism and development potential. It suffered in the past from bad government, but there is no doubt that this has changed in the recent past and they are now very much pointing the right way.
 
I'd actually say that much of Romania is 30 to 40 years behind the rest of Europe, Ireland included. In fact Ireland in particular.

Romania is a particularly schizophrenic country with western -style developments living cheek-in-jowl with very rural living.

This does not detract from the fact that there are some very attractive deals on offer if you know where to look.
 
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