What is being offered, in plain terms
You buy a property, usually off plan. The developer or an associated management company agrees to pay you a stated percentage of the purchase price each year for a stated number of years, whether or not the property is let.
We are not recommending these arrangements and we do not present projected returns as facts. Nobody can promise you an investment outcome, and any figure printed in a brochure is a commercial offer rather than a market rate. What follows is how to examine one properly, because buyers are shown them constantly and deserve to understand what they are reading.
The four questions that break a weak offer
One: who is the counterparty, and what are they worth? The guarantee is a promise from a company. If that company stops trading, the promise stops with it. Ask who exactly is contracting, whether it is the developer or a separate management entity, how long it has existed and what it has delivered before. A guarantee from a newly formed company with no history is a piece of paper.
Two: is the payment funded by rent, or by your own purchase price? This is the question that matters most and the one least often asked. If the property is priced above comparable units nearby and the guarantee pays a percentage for a few years, some or all of what you receive may simply be your own money returned slowly. Compare the price per square metre against similar properties with no guarantee attached. If there is a clear premium, you have found where the guarantee is coming from.
Three: what happens the day it ends? A three or five year guarantee finishes. Ask what the property realistically earns after that, on ordinary terms, and who will manage it. Many owners discover the open market rate is well below the guaranteed one, which is not fraud, but it is a very different asset from the one they thought they bought.
Four: what are you giving up while it runs? Usually your own use of the property, sometimes entirely, and control over furnishing, tenants and condition. Read what access you retain. An owner who cannot use their holiday home for five years has bought a bond, not a home.
A guarantee is only ever as good as the company standing behind it. Read the offer to find out who that is, because the percentage tells you nothing.
The clauses to find before anything else
| Look for | Why |
|---|---|
| Who exactly is the guaranteeing party | Determines whether the promise has anything behind it |
| Gross or net of costs | A gross figure can shrink substantially after charges are deducted |
| Payment frequency and method | Annually in arrears is very different from quarterly |
| What happens if they miss a payment | Your remedy, in writing, or you have none |
| Whether it survives a sale of the development | Guarantees have been known not to |
| Your own usage rights | Whether you can ever stay in your own property |
| Condition and furnishing obligations | Who repairs and replaces, and at whose cost |
How to test it in ten minutes
Do this before you get attached to the property.
- Find three comparable properties nearby without a guarantee and compare the price per square metre. A premium is the clearest signal available.
- Ask what the same unit would let for today, on the open market, from someone who is not selling it to you.
- Ask for the name of one buyer from a previous scheme by the same company who has completed the full guarantee period, and ask whether you may speak to them.
- Give the whole document to your own lawyer, and ask them one question: if they simply stop paying, what can I actually do?
The third point separates serious operators from the rest quickly. A company that has run schemes to completion generally has satisfied owners and is happy to introduce one.
Where we stand
We do not sell guaranteed return products and we will not present any yield as assured, because no honest agency can. Property income depends on the season, the location, the management and the market, all of which move.
If you bring us a guarantee offer from elsewhere, we will read it with you and tell you plainly what we think of the counterparty and the pricing. Sometimes the answer is that the scheme is reasonable and the price is fair. Often the answer is that you are being offered your own money back with a percentage sign attached, and you would do better buying a well located property at the market price and letting it normally.
Either way you should hear that before you sign, not after the guarantee period ends.
