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What Happens After The Guaranteed Rental Package Ends?
This is a good question and unfortunately, an answer is not always provided by the company providing the GRR package. This is mainly due to the fact that most businesses understand that the future is not guaranteed.
A few options exist. The common ones are:
• The GRR agreement is renewed when nearing the expiry period.
• A new tenancy agreement is arranged on a yearly basis.
• The management arranges a profit sharing agreement with the owner.
• The property is passed back to the owner and it is up to the owner to manage.
However, keep in mind that for the GRR to exist in the first place, that area is usually a good rental area, making it easier to rent or sell the property in the near future. If the initial GRR agreement is for 5 years or more, that is more than enough time to handle the property.
Why Are They Offering It In The First Place?
Another burning question and there are usually 2 main reasons for this:
1. As a marketing selling point to attract buyers; and / or 2. To earn an ongoing profit.
Just like the owner, the developer can earn in two ways, either sell or rent the property. Offering GRR gives the property an added advantage to potential buyers. Renting it out will incur additional costs( management fees, etc.) but the profit earned is more ongoing. Developers will usually choose to offer the GRR if they think that the property has a high potential for rental profit.
With selling it on GRR, the developer will be able to reduce their costs and earn an initial profit through the sale and then increase their ongoing profit via the rental of the sold property.
What Running Cost Is Not Covered by The Package?
As with all properties, be sure to double check what the running costs are that still needs to be paid. Usually, the maintenance and sinking fund is still borne by the owner even under GRR.
At the end of the day, it is your due diligence to ensure that the package offered is worthwhile or not. There is no perfect package or investment, there is only the best package and investment according to the needs and wants of the buyer.
Bottom line is, before plunging into any investment with GRR, you need to ask yourself these 3 important questions:
1. If the GRR wasn’ t part of the deal, would you still buy the property?
2. Is the GRR offered realistic to existing rentals of similar properties within the same area?
3. Is the property selling price fairly the same to other similar properties within the same area?
If your answers to the questions are NO, chances are you could be better off looking elsewhere. Till then, invest safely and wisely.
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