Guaranteed Rental Returns has made a comeback and it wants your blood, tears and sweat! (Hard Earned Money) 6% for 10 years, 5 + 5 + 5, I even seen one for 20 years! Imagine that 20 years, someone else is having control of your property. Are they guaranteeing You or they’re guaranteeing their profits? I STRONGLY urge you to ask these Question to get to the Truth. (mostly)

1.Property is Guaranteed return by the Developer, but Who is Guaranteeing the Developer? Developer guaranteed you but who guaranteed developer?

2. Why does the developer need to give Guarantee returns in the First Place? Why dont they just sell in the market and let you and me do the renting and bear the risk ourselves?

3. The Quoted Rate of Return is Nett or Gross? Frequently left unsaid is the Rate is not Nett meaning you have minus out the management fees, quit rent, insurance, and every few years there is a renovation cost or whatever they want to add into the monthly deductions.

4. The Historical Capital Gain for GRR schemes properties is not great. One of the investors I met in a conference bought a GRR property for 320k in KL that give her a 7% returns for 10 years, but when she tried to sell it for 380k after 7 years, there were no buyers as the 7% returns is based on 320k.  Therefore the rate for 380k is 5.8%

320k x 7%          = RM22,400/year
22,400/380,000 = 5.8%

The Guaranteed Rental Rate is tied to the original SPA price, therefore when you sell be prepare to wait long long. Nobody likes to pay more to get less!

5. As the Capital Gain of GRR are low to none, cashing out and refinancing the properties might be quite silly since there is hardly any Equity Build Up in the property itself because of the low capital gain.

6. How often will the cash payout going to be? Monthly or Quarterly? There are just so many things that could go wrong with these type of properties because you are not in control of the investment.

If the developer uses a different company name to sign the GRR offer. Watch out! Because you cannot sue developer if anything goes wrong. And of course they often do. Oh  and Leaseback Guarantees are almost the same. Good Luck chaps if you are keen on GRR props.

propertykid. Always learning. Always Investing.