Some thoughts about rental guarantee programs
Two year rental guarantee!! Sounds amazing right?
This is very common with builders especially when sales start to slow down and they can’t offload their new builds as quickly as they used to. It sounds great! Two years of guaranteed rent! Is there a catch? What really are the pros and cons? Let us break it down here.
Brand New: New construction properties are often more modern, energy-efficient and come with Alberta New Home and builder warranties that can provide peace of mind.
Rent Guarantee: A rental guarantee on new construction provides the added security of a guaranteed rental income, even if the property is unoccupied, which can definitely be nice especially for a new investor.
Higher Cost:”FREE two year rental guarantee?” Nothing in real estate is free! New construction properties tend to be significantly more expensive than comparable resale properties, and the added cost of the rental guarantee can further increase the cost of the property. So you’re essentially paying for it upfront in the purchase price!
Longer Time to Rent Out: New construction properties can take longer to rent out than existing properties, as they are typically located in the outskirts with few amenities such as grocery stores or schools, until the community becomes more established which could take years!
Dependence on Third-Party: The rental guarantee is dependent on the performance of the rental guarantee provider, who may not always meet their obligations under the agreement. If the provider fails to pay, you may face the risk of losing your rental income and may need to pursue legal action, which may not be worth it.
Limited Control: Rent-guaranteed properties often come with conditions and restrictions that limit your control over the property, such as restrictions on sub-letting or use as a short term rental.
Lack of Resale History: New construction properties lack a resale history, which can make it difficult to accurately assess the potential future return on investment or to predict future market conditions.
Can you get the same rents after the rental guarantee period? Rental guarantees are usually quite high which make them very appealing to investors and make the numbers look excellent on paper! However, you might not be able to command those same rents as true market rents are dependent on current market conditions.