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Hands off rental income investments
Deborah Baker
Posted: 08 June 2018 07:35:49(UTC)

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I am looking at several schemes that guarantee say 10% hands off rental income for say 3 or 5 years when you buy a student apartment in a pbsa, or a holiday apartment or similar. . Having done due dilligence and spent hours asessing i have to say they look like good investments. One in particular is a serviced holiday apartment which i am interested in. Most developments are purchased by the developer using a spv. Some are off plan, some are already complete. The one thing holding me back is getting feedback from anyone who has experience in this type of investment and wondered if anyone here had any advice please.
Posted: 08 June 2018 11:30:24(UTC)

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Sorry no experience with this, but sounds high risk. If you've no experience I'd recommend getting a solicitor or ifa to look over this.
bill xxxx
Posted: 08 June 2018 11:52:33(UTC)

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You've very probably already checked this, and anyway maybe subsequent legislation means it can't happen now - but some years ago, a friend of mine went for something similar.

When he came to sell it, it transpired that the net rental return he'd been getting each year during the guaranteed period included an element of the original purchase price effectively being rebated by the developer. Maybe this element was mentioned in the small print - I don't know. Anyway, once the guaranteed period was over, the return he received - and hence the capital value - was rather less than he had expected.

I've never bought anything like this, just because a yield of say 10% doesn't seem to me to be enough to compensate for the lack of liquidity and all the risks (occupancy rates, damage by tenants, repair bills etc) which are likely to attend this sort of thing.

To add to AJW's comment - I'd also talk to local letting agents etc, to see if the net return fits with gross rents etc, and maybe any thoughts they've got about new capacity coming on stream e.g. new halls of residence for students.

Just my 2 cents.
2 users thanked bill xxxx for this post.
Tim D on 09/06/2018(UTC), Deborah Baker on 09/06/2018(UTC)
Posted: 08 June 2018 12:41:43(UTC)

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No experience, but how difficult do you think it would be to sell when you decide you want out?
And what might the value be?
In my opinion there are easier, less complicated ways to invest your money.
(Apologies if I have misunderstood the situation and my contribution is out of context.)
2 users thanked TJL for this post.
Captain Slugwash on 08/06/2018(UTC), Deborah Baker on 09/06/2018(UTC)
Joe Soap
Posted: 08 June 2018 12:44:40(UTC)

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Forget all that kind of opaque nonsense. Just buy shares in Regional REIT. You get a pretty secure 8% or more dividend, the property portfolio is very well managed. In my mind it is a gem. It even trades on a discount to NAV. As a bonus, the dividend is paid quarterly. For hands off property income I think Regional is pretty much unbeatable right now.
6 users thanked Joe Soap for this post.
Captain Slugwash on 08/06/2018(UTC), Tim D on 08/06/2018(UTC), Sara G on 09/06/2018(UTC), Tony Peterson on 09/06/2018(UTC), mcminvest on 10/06/2018(UTC), Deborah Baker on 10/06/2018(UTC)
Captain Slugwash
Posted: 08 June 2018 14:03:40(UTC)

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Sorry, but I am with joe soap.
There are also less aggressive REIT's on offer if you prefer, and plenty that don't charge.

Nothing is truly ever safe, but 'guaranteed 10%' , and I am guessing the holiday apartment is abroad. Have you been fully appraised of all additional charges?, what happens if not rented out? etc, etc, etc.

1 user thanked Captain Slugwash for this post.
Deborah Baker on 09/06/2018(UTC)
Deborah Baker
Posted: 09 June 2018 14:45:25(UTC)

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Thanks for all your input it is much appreciated. I am off to do more due dilligence. I had looked at REITs as they got good reviews so these comments have re-affirmed my thoughts on these.
Deborah Baker
Posted: 09 June 2018 14:48:48(UTC)

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For some reason the thank button on Joe Soap doesnt work. update: works now :)
Tony Peterson
Posted: 09 June 2018 16:27:34(UTC)

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If it looks too good to be true, it isn't true.

This is one my bargepole would not go within a whisker of.
Alan Selwood
Posted: 09 June 2018 17:13:20(UTC)

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Firms offering guarantees are almost by definition liars or crooks, or the guarantee offered will be at the expense of some sort of offsetting charge, or the inability to sell at all or at a decent market price.

If the assets are overseas, the con percentage usually rises from 95% to 105%.

As others have said, buying some form of property package is easier and probably more reliable and safer.

Don't buy a property FUND, buy a REIT or a property-based investment trust, to avoid potential liquidity problems.

4 users thanked Alan Selwood for this post.
Mostly Retired on 10/06/2018(UTC), mcminvest on 10/06/2018(UTC), Deborah Baker on 10/06/2018(UTC), Captain Slugwash on 10/06/2018(UTC)
Posted: 09 June 2018 17:21:34(UTC)

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Have you done much btl previously? There are maintenence wear and tear agency and voids that will all hit your yield. So quite often the final yield will be lower.

Secondly if anyone is making a 10% return on property then you have to ask yourself why are they offering it to you??? There will almost certainly be a catch or additional risk that you haven’t spotted.

My suggestion - if you are new to btl and want in stick withocaripns you are familiar and higher quality tenancies initially. Or as others suggest invest via a reit (tax advantages, diversified, liquid and managed by pros). Both will make you a little less returns but capital preservation is much more important...

One final comment - the property market is very loosely regulated and in my experience there are very suspect sales practices - don’t be the sucker !!
1 user thanked MoMoney for this post.
Deborah Baker on 10/06/2018(UTC)
Keith Cobby
Posted: 09 June 2018 17:26:34(UTC)

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I have sold my direct property trusts and topped up TR Property.
simon peacock
Posted: 10 June 2018 13:20:58(UTC)

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I let out numerous properties and don't see any opportunities to generate those types of net returns without incurring considerable risks. The costs and inevitable void periods are always understated. Similar schemes have been touted in respect of hotel rooms. Proceed with extreme caution.
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Deborah Baker on 14/06/2018(UTC)
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