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Rental Income Guarantees

PROS

A genuine Rental Income Guarantee is a rare thing. If you can find one it can be an outstanding way of ensuring your ‘sleep-at-night’ factor. The biggest fears in property investing are; “What if I can’t find a tenant?” and “What if my tenant doesn’t pay their rent?”

A genuine Rental Income Guarantee can take both of these fears away as the guarantor pays your rent regardless of whether the property is tenanted or not. You can also therefore rest easy knowing that your rent will be coming in to cover your mortgage, each and every month.

CONS

Typically, the biggest pitfall to avoid here is buying a property where the purchase price has been inflated to cover the expense of a rental guarantee, even if you do not take it. Guaranteeing the rent can be very expensive. You should expect to pay a nominal fee for a reliable guarantee, just the same as you would expect from an insurance company.

rental income guarantee

SOLUTION

Once again, do your due diligence. Ensure the properties are not over-inflated to compensate for the rental guarantee. For example, are you able to buy the property on the open market? Or from the developer for the same price without the rental guarantee?

Ask the guarantor, “What’s the catch?”. There must be something in it for the guarantor or they wouldn’t do it. Ask them, “How do you make your money?”

Ensure the rental management fee is in line with industry norms — therefore around 7-8% depending on the state.

Ensure you can withdraw from the rental income guarantee anytime you want to. Just in case your circumstances change and you want to sell the property or move into it.

 

Our 10 Year Rental Income Agreement provides you with peace-of-mind.

It also comes with knowing that your rental income will be paid should your tenant not pay their rent, or if your property is untenanted. Don’t risk putting yourself through the financial stress of income loss if your tenant vacates, does not pay the rent or if you can’t even find a tenant in the first place.

Please note: The Property In A Box’s 10 Year Rental Income Agreement is valid only when held in conjunction with a landlord’s protection insurance policy, and only when making a purchase from our extensive range of property and from Property In A Box. Terms & conditions apply and are included in our 10 Year Rental Income Agreement document.

Ask us about our 10 Year Rental Income Agreement.

 

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Next on the blog: The Right Finance

 

House and Land Packages

PROS

Stamp duty savings as you pay stamp duty on the land component only. In a moving market, an investor can make a gain on the investment simply by holding it in the period between agreeing to purchase and when construction is complete.

CONS

The cost of servicing the loan throughout the construction period needs to be carefully considered. Remember also, that while the property is being built, you will not have a tenant to pay you rent. Because of this, banks might instruct valuers to be very conservative on construction valuations. This is due to the increased risk of taking an incomplete property as security for a loan. It can sometimes mean that more equity is required to secure finance for a House and Land package than would be required for a completed property.

package diligence construction

SOLUTION

The good news is that a lot of the cons can be extinguished by undertaking due diligence and research. You need to ensure that the developer has a sound track record of choosing houses in the right location. Also, choose builders that have stable and profitable track records. They must choose properties that suit your financial goals as well. You need a really good mortgage broker. House and land contracts and the process itself is fraught with complications and technicalities. You need a broker who is experienced in financing for such developments.

 

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Refresh your Portfolio

Sometimes it is necessary to go back to the drawing board.

You may have a portfolio that is not quite right. You may have had good intentions, theories, dreams or hunches when you bought particular properties but looking back you realize you made a mistake. But that’s OK. As they say, “There is no such thing as failure unless you fail to get back up again.” The successful man is one who fails four times but gets back up five times.

There are times when the best thing to do is sell and move on. Other times, you may need to sell because you did not seek the right advice in the first place and you have the wrong loan in place or have bought in the wrong name. A common example is the client who has bought a home and followed their parent’s advice focusing on paying down the mortgage. Now they want to upgrade and rent this property out. Bad news – the reduced loan amount means the property is positively geared and they will be taxed on the excess of rent over interest. Worse still, they will have to take out a large loan to buy their home and this will be a non-tax deductible debt.

refresh your portfolio property investment

 

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