The Rental Guarantee - A Figment of Your Portfolio's Imagination
We've seen and heard from property brokers all around the world promising a "Rental Guarantee" on Investment Properties purchased through them. To this concept, we politely say:
Hogwash. Hooey. Balderdash. Poppycock. Hokum. Jive, as in Jive Turkeys.
If a firm is "guaranteeing" your rents, they are only charging you more to do so. I know, I know, you want security. You want to invest safely from your sofa and still get incredible returns. I totally understand.
Remember, we're choosing real estate- and many are choosing real estate that is located outside of your state or even half-way around the world. So, there's an element of risk involved automatically. This is inherent in any type of investing and shouldn't deter any investor.
We can't eliminate risk, but we can do our best to minimize it.
So, let's take a look at the numbers:
Property With "Rental Guarantee" - $50,000
Average Purchase price on Turnkey Investment Properties: $30,000
Average rental rate per month: $800/mo
-Average rental property expense: $300/mo
=Average monthly rental income net: $500/mo
So, with the extra $10-20,000 above market prices, a firm can "guarantee" that you'll see rents after expenses for the next 24 months or more!
This allows them to give you the appearance of a safe, steady cash-flowing investment property, while they're furiously scrambling in the background to make sure it's so.
Do we want you to be frightened to death and worry endlessly night after night that your property is vacant? No.
However, we do want you to remember, that properties have vacancies- no one can guarantee there will always be a tenant occupying your property, without incurring great cost to do so.
Always remember to build in a Vacancy Contingency of about 5-10% of your yearly rental income. This is like emergency preparation: you may never need it, but you know that you're prepared if it should ever happen.
Even when purchasing occupied properties, tenants have a myriad of challenges that may occur. If possible, try to pick properties that have a long term tenant that wants to remain in the home. If there's a good, proven rental history, it doesn't eliminate the chances of vacancy, but it cuts them down significantly.
The Best Defense is Offense
Before you spend one dollar on an investment purchase, find out all of the pertinent info upfront:
1. What are the rental rates in the area (always get a report dated within the past 6-12 months and within 1 mile of the property you're considering)?
2. How long is the average days on market for the area?
3. If already occupied: What is the payment history of the current tenant (get a rent roll to verify)?
Proper Screening Prevents Poor Performers
When choosing a tenant, you can give yourself your own rental guarantee by having your professionals perform the following layers of screening:
- Criminal Background checks
- Credit Checks
- Prior (or current) Residence checks
Hastily choosing a tenant is the #1 cause for vacancy, so make sure your Investment team is well-versed in screening tenants effectively. This will help you avoid countless pitfalls by not choosing the wrong person at the start of it all.
While we would love to "guarantee" your profits, anyone promising to do so, is more than likely attempting to take advantage of you. You can always have faith in your ability to patiently analyze a great Investment deal, and in your team's ability to assist you in finding the right resources to keep your Investment property cash-flowing! If you need great assistance, please feel free to contact our team!
Good Luck and Happy Investing!
Patterson is a licensed Realtor in Michigan and certified Investor Agent Specialist. She has sold hundreds of
Investment Properties to Investors from all around the world and loves
them invest wisely for immediate cash-flow, as well as long-term gain.
Letitia's mission is to help make Real Estate millionaires!
Letitia N. Patterson
Cell: 248 506-9426