Things to consider about overseas properties with rental guarantee

It seems that many overseas properties advertisements in the local newspapers always highlight the rental guarantee by developers.

This seems to work very well.

Many people buy the properties because they see the rental guarantee between two to five years, and at a rate better than housing loan rate.

Many rental guarantee properties come with high yield of 7% to 10%.  Since the housing loan is usually less than 5%, that means a certain gain of 2% to 5%.

I do not think it is wise to buy overseas properties with rental guarantee yield.

If the property is so good, there is no need to give rental guarantee.  The locals will flock to buy, and the rich overseas buyers will come to buy in bulk.

Many fund managers are known to buy a whole project or a whole block of apartments and they will lease the apartments out for better rental income.

If the property is so good that you can command 10% yield, it is really stupid to have a rental guarantee of 7% for two years.

If the property is very bad, you will suffer loss after the end of the guarantee period.  Nobody will buy from you at a price that you have paid.

You may gain the rental income because of the rental guarantee by the developer, but you stand to lose half the property value because nobody wants to buy at a high price.

The best is to look beyond the immediate return of rental income.  It is best to assess the property based on the demand and the location, and the economic potential.

It is best that you go personally to take a look at the surroundings to make sure that the location is right.

It sure saves you the pain of losing a quarter million dollars a few years later.

(picture credit to pixabay)