DEVELOPERS WOO WOULD-BE LANDLORDS WITH GUARANTEED RENTAL INCOMES

– but Britain’s biggest lettings specialist warns of potential pitfalls ahead

Belvoir, Britain’s biggest lettings specialist is warning would-be landlords to check the small print before being seduced by property developers’ ‘guaranteed rental’ offers.

Stagnation in the residential sales market has resulted in house builders across the UK offering a range of incentives to potential buyers and investors in a bid to shift some of the many empty properties they are currently finding difficult to sell.

One such incentive is the ‘guaranteed rental’ scheme where landlords are being promised guaranteed rentals at fixed yields – often around 6% - if they invest in a new build property on a buy-to-let mortgage. Such offers are now available across a range of different property types from city centre apartments to family homes on new developments. They are also being used as an incentive to help sell properties off-plan.

At face value, such schemes appear to offer landlords a safety net and have been particularly designed to attract first time landlords to the buy-to-let sector. However, tempting as they are, Britain’s biggest lettings specialist Belvoir is warning investors to read the small print and consider all their options before opting for a ‘guaranteed rental’ investment deal.

Mike Goddard, Chief Executive at Belvoir, says: “The slump in the residential sales market has forced developers to come up with increasingly innovative incentives to try and encourage people to buy their properties and this is just one incentive that they are using to try and persuade people to enter the buy-to-let sector.

“Investing in property to let is still a very smart move if you do your homework and get it right and there are certainly some great deals out there for landlords at present. However, most established landlords tell us they are wary of ‘guaranteed rental’ schemes and, while at first glance they might seem like a no-brainer, we advise caution.”

Mike points out some of the potential pitfalls which landlords could encounter as well as offering advice on what to consider when looking at such deals:

Check how long the ‘guaranteed rental’ period is for and consider whether you will still be able to achieve the same rental yields for a particular property once this period comes to an end.

If a whole development or a considerable number of properties in a development are being sold to investors on such a scheme, bear in mind that once the period of guaranteed rental income is over there will be a lot of landlords all chasing the same tenants.

Developers often introduce these schemes in areas which are previously untested for lettings as a way of tempting investors who might prefer to stick to tried and tested locations.

Compare the purchase price with similar properties in the area to ensure you are not covering the cost of the ‘guaranteed rental’ income in an inflated purchase price.

Read the small print and find out the exact details of the incentive scheme – often costs such as services charges can be deducted from the ‘guaranteed rental’ income or there are conditions such as being obliged to furnish the property using the developer’s rental packs which could be considerably more expensive than other deals available.

Talk to local lettings specialists to find out typical rental values and tenant demand in the area – ask yourself if you will be able to demand the same levels of rent and secure tenants once the fixed period of the deal is over.Always consider whether the property is an attractive investment over the longer term.Bear in mind that it is the landlord and not the developer who will be paying tax on the ‘guaranteed income.’

Like Mike Goddard, ARLA (Association of Residential Lettings Agents) also advises investors to proceed with caution when considering ‘guaranteed rental’ deals.

“Such incentives might appear to offer the investor peace of mind and ease of financial planning but anyone considering entering the buy-to-let market is advised to speak with the experts first and get an objective opinion about the local market and opportunities,” says Mike.

“Belvoir is Britain’s biggest lettings specialist with more than 140 offices across the UK, each of them able to offer specialist and objective advice to would-be or existing landlords looking to benefit from the buy-to-let sector.”