A lot of overseas property developments on the market these days, usually in holiday locations, offer “rental guarantees” as an incentive to buy. It initially sounds quite good to see that if you invest in a property especially for rental return, that you can be sure of the rental money you will receive. So why should you not want to take a rental guarantee?

1. Factored into the price? – In many instances, the most common place you receive your rental income from is YOU. To make a property more appealing for investment, some developers in emerging markets offer a rental guarantee, but because of a lack of rental market, they add the guarantee on to the price. If you come across one of these developments that looks good, have a look at what similar properties without guarantees are going for? Also have a look at similar re-sales or existing properties for sale.

1. What happens after the guarantee runs out? When the period for the guarantee expires, what kind of return can you expect then? Where will the rent actually come from? You need to know the answers to these questions.

1. Who’s offering and managing the guarantee? If the developer is offering the guarantee, are they experienced in managing rentals? Or if they are selecting a local management company, how experienced are they? The only rental guarantees you can really trust, are those with a large established holiday or vacation companies, where there is a clear contract in place.

1. A nice developer? Usually a developer won’t offer, and manage rentals unless there is a huge return or advantage for them. They are running a business, not a charity.

1. The rental guarantee is less? In some rare circumstances I have seen the guarantee offered for a different reason. If it’s an apart-hotel or resort in a popular established location, some developers might offer, for example, 8% rental guarantee nett, but their real return might be 12% nett. So you think you’re getting a great guarantee, but you’re actually getting less than you could.

At Fresh Property Co, we believe if you choose the right property in the right location, where there is already a strong local demand and increasing foreign demand, then a rental guarantee really isn’t necessary.

This doesn’t mean we’ll turn down an exceptional development if it offers a rental guarantee. But it does mean, we will know the reason why.

December 2007 

Brazil discovers another oil reserve in the coast of Sao Paulo  

Petrobras (Brazilian Oil Company) has discovered another big oil reserve in Santos, 250 km from in the Sao Paulo coast. The speculation is that Brazil has a major oil reserve to be discovered and it would extend from the coast of the states of Santa Catarina all the way to the state of Espirito Santo.  

Unemployment in Brazil falls  

Unemployment in Brazil falls from 10.1% to 8.2%, meaning less than 2 million people in Brazil are unemployed. This study has not yet accounted the last month of the year and unemployment should drop to 7% considering temp positions during the festive season.