Some unsuspecting investors have purchased new builds or off the plan properties with “guaranteed” rental income, only to discover the agreement was only temporary.

The basic concept of these schemes is to attract buyer interest, by guaranteeing a certain rental return over a period of time. It has become common for developers to guarantee 6 or 7% returns for 1-3 years.

What a lot of investors don’t realise, is that the guarantee is usually factored into the purchase price and up to 60k of their money, can end up in the developer’s/seller’s pocket.

Investors unknowingly pay the developer upfront for the rent, that he will repay you over the next 1-3 years.

The problem for investors is that when the guarantee expires, the investor has to search for tenants in the open market and with a lower rental yield.

Then when the investor wants to sell, the value of the property will have fallen because of the lower returns and will still have to compete with developers that are selling new units guaranteeing 6% returns.

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