Free Rent - Rent Guarantee

[twobobsworth]

Just got a flyer in the mail for some new strata factory units in Sydney.

Headline:
Tenants = Rent Free
Investors = Rent Guarantee

Isn't that a contradiction? Maybe they guarantee investors receive nothing!

 

[alexlee]

Just got a flyer in the mail for some new strata factory units in Sydney.

Headline:
Tenants = Rent Free
Investors = Rent Guarantee

Isn't that a contradiction? Maybe they guarantee investors receive nothing!

On the contrary. It shows a desperation on the developer's part to sell.

This is generally how developers foist over-priced property on unsuspecting investors.

Say a property's true value, in this slower market, is $200k. The developer sells for $220k and guarantees the investor 5% for a year, and 1 year rent free to the tenant. What has it cost the developer? $10k in 'lost' rent it has to pay the buyer, but he got $20k extra on the sales price anyway. Also, if they didn't put in a deal like this the property may not have sold at all and the developer would be stuck with it.

In residential it tends to be guaranteeing a higher rent than market for 2-3 years. The developer eats the difference but is able to sell the property and get his cash.
Alex