rental Underwrite

[tunnu]

As a newbie to Property investing, could anyone please explain this to me;

''The Vendor will provide the following special conditions to xxx purchasers:
6 month rental underwrite at market rate, as set by the Vendor's nominated agent
(a) any upside to the guaranteed amount is payable to the investor
(b) conditional upon the Purchaser appointing the Vendor, or the Vendor's nominated agent as property manager for the term of the guarantee
(c) market acceptable management and letting fees are payable by the Purchaser "

 

[jaycee]

Sounds like they will guarantee you a minimum rental amount for 1.6 months (does not sound long). Should rent received be higher than this, you get it.
Of course only if you use them to manage your property. You pay their normal costs associated with getting a tenant.

I think.

 

[tunnu]

underwrite

thank you . it is an rental underwrite for 6 months.

 

[Propertunity]

thank you . it is an rental underwrite for 6 months.

This is NOT a good thing. It is designed to calm any fears you have about a rental vacancy....AND you will be the one paying for it anyway.

Example: True market rent $250pw. rental guarantee $320pw.

Now take the $80pw shortfall x 26 weeks = $2,080.

Let's just sell it to yunnu for $2K over market value - problem solved.

6 months later you get the bad news that the true market rental is now $220pw as everyone's rental guarantees are expiring (all at once).

 

[Propertunity]

Here it is in plain speak:

(a) any upside to the guaranteed amount is payable to the investor

OK so we calmed your fears now we are going to appeal to your greed. Forget this clause it is never going to happen.

(b) conditional upon the Purchaser appointing the Vendor, or the Vendor's nominated agent as property manager for the term of the guarantee

OK goodie - you get to pay them management fees on your overpriced rental figure. This just keeps getting better and better doesn't it?

(c) market acceptable management and letting fees are payable by the Purchaser

"market acceptable" - what does this mean???
Possibilities:
8.8 - 9.9% is the high end of acceptable in SYD
or 12% if that is acceptable to the WA market.....when you could negotiate 6.6 or 5.5% yourself and appoint your own PM.

 

[lura]

Oh you are skeptics!!!

Why can't you accept a good deal when you see it.

Who said the rental price would be over the top?

It's just saying that they will guarantee the rent for 6 months at the market rate - ok - make sure they give you a Comparative Market Analysis to prove the rental they have provided is the market rent.

If they achieve more than this rental rate - the purchaser will benefit. Fair.

The purchaser must agree to the property management nominated by the vendor(selling agent) and pay all related property management costs. Ok - if you don't like them to manage - the deal doesn't go through. You can still buy the property without the clause.

Propertunity - please don't exaggerate the rental guarantee - there was nothing to indicate this is the proposed method of rent appraisal.

Market acceptable fees - easy to determine - get quotes from three independent agents and average this - the Office of Fair Trading will accept this method to determine "market acceptable"

 

[Propertunity]

If the property you are buying is good for all the right reasons, it does not need a rental guarantee - it can stand on its own merits.

 

[vbplease]

If the property you are buying is good for all the right reasons, it does not need a rental guarantee - it can stand on its own merits.

Kudos

A rental garentee would make me run a mile.. Unless my own research still proved it to be a good deal.

 

[lura]

Seriously, as an investor you would look at all the fundamentals - just because there is a rent guarantee, doesn't mean that the deal isn't good or there is no room for negotiation.

I don't understand - as a business deal, it's risk reversal but as a punter, you don't want it? figure that one.

 

[marg4000]

Under the conditions the vendor gets to appoint the PM and you get to pay the fees ??????

Definitely check out who the PM is and what the fees are.
Do you get to approve the tenant, or can they just put in anyone who is prepared to pay the rent?

Do your own research. Check on the web for comparable properties and see the rents being asked.

Finally, why not negotiate a reduced purchase price without the guarantee? The vendor must perceive the guarantee has value otherwise it would not be offered.

I agree with Propertunity here, most (if not all) rental guarantee amounts are simply loaded into the purchase price.
Marg