How safe are rental guarantee concepts?

Mar 6, 2017 | Emerging Trends

It seems almost natural these days that we question all investments, after all we were all effected or know someone who was effected by the economic crisis of 2008. Of course, a certain degree of caution is always wise and anything that sounds too good to be true probably is but that doesn’t mean that we should just dismiss everything out of hand. So, rental guarantee concepts, are they safe or are they something that should avoided at all costs?

Like most things, when it comes to rental guarantee concepts you will find good and bad but the idea behind them is sound so long as no party get greedy. As most of these concepts are available from developers it is important that they remember their need for investors but likewise, investors need to remember that the developers need to generate a return as well for managing and operating thee scheme. Assuming that both parties work together, there is no reason why it can’t be roaring success.

What do investors need to consider prior to joining a rental guarantee concept? One of the key factors with successful schemes is experience and longevity. Schemes that have been in operation for five or more years have probably ironed out any problems. They will also have the infrastructure including management teams to ensure that everything runs smoothly and there are firm foundations in place for this to continue to be the case. Obviously, another major consideration is the financial position of the developer. Are they financially sound and do they have sufficient cashflow? If the developer has longevity and a sound financial position everything is looking positive.

How safe are rental guarantee concepts?
How safe are rental guarantee concepts?

 

Of course, it is not just the developer who will determine the success of the investment. Location will play a massive role in determining if this particular rental guarantee concept holds water. Many of these types of investment are in tourist locations so you need to establish whether the resort has a long-term future or if it is just somewhere that it fashionable at the present time. Also, do visitors come from just one country or variety? If it is from just one location this increases the risk so think about this when making your decision.

One example of a great rental guarantee concept is offered by the New Nordic Group in Pattaya, Thailand. The group have completed dozens of properties over the last decade offering the same deal of returns of 10% p.a. over periods of five to twenty years. They build the property, sell it to investors – hence they get their desired return, rent the unit back from the investors and then sub-let the units out to generate profit for themselves and 10% p.a. returns for the investors.

The business model is now so finely tuned after ten years that occupancy rates, even in the low season, are kept to the absolute minimum required to satisfy all liabilities. It is the perfect concept and one that is tried and tested and thanks to the company’s cashflow, infrastructure and reputation and one that has numerous failsafes.

Several local developers have tried to emulate the scheme but to date none have the same resources in place to give investors the same level of confidence that they gain from the New Nordic programme. This really is the perfect investment as it gives superb returns and is relatively low risk. When you see a scheme like this you will certain feel that rental guarantee concepts are safe investments.

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