Property Investment Abroad -- Beware Of Guaranteed Rents
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The article "Property Investment Abroad -- Beware of Guaranteed Rents" is about real estate, it was created by Don Suter.
UK buy-to-let investors are being tempted by offers of
guaranteed rents on real estate deals around the world, but how
good are these deals in real terms and will there be any rental
demand once the guaranteed period ends?
Worldwide opportunities
Investors want beyond the overcrowded UK market for
untapped real estate hotspots in Eastern Europe, the Middle East
and out to the Far East.
Deciding on the hottest foreign markets to invest in is a case of
weighing up the potential for growth and rental income against
the risks and costs.
For example prices of residential homes in Beijing rose by 20%
in 2005 (according to the Beijing Municipal Construction
Committee), however there are many issues regarding the transfer
of funds out of China, a 5% tax on rental income and the
possibility that the Chinese government could claim the land
back.
Latvia on the other hand presents a lower risk to foreign
investors, with membership of the EU and the ability to borrow
up to 90% of the value of the real estate making it a more
appealing choice.
However, this is not to say that an investor can simply buy any
property in Latvia and expect to make easy rental returns.
Like
any foreign market, the risks are generally higher than buying
in the home market.
Incentive to buy
To help encourage potential landlords to overseas markets, a
number of investment companies are offering guaranteed rents for
anything up to 5 years.
Rental guarantees, it is argued, provide
a reliable safety net for riskier markets, however many experts
warn they are merely a marketing tool and advise investors to
look very closely at the deal being offered.
Key issues
One of the biggest issues with guaranteed rentals is a lack of
demand for the real estate once the period has finished. Guarantees
are often used to market properties that otherwise would not
sell and many investors are shocked by the resulting drop in
income.
In addition to this, it is often the case that investors end up
footing the rental bill themselves, when developers inflate the
price of the real estate to cover the guaranteed rent. This can
provide a further shock when the investor tries to sell the
property and realises that it is not worth as much as they
originally paid for it.
If you do opt for a guaranteed rental deal, make sure that it is
properly underwritten by a bank. Otherwise you would be at risk
of losing the gaurantee if the developer were to go out of
business.
Poor regulation means that it is also worth checking the small
print for any hidden clauses that enable the developer to avoid
paying the guaranteed rent and it is always a good idea to seek
expert advice.
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Property Investment Abroad -- Beware of Guaranteed Rents
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