When buying an apartment ‘off the plan’ some developers include a rental guarantee. While this offering has become less prevalent recently, it’s still one to be aware of. A rental guarantee is where the developer or marketer promises a guaranteed rent, typically for a period of one to three years. Developers may offer a rental guarantee because they are struggling to sell or they may need to offer some additional incentive.

There are a number of reasons to be wary of the Rental Guarantee.

  1. The cost of the guarantee is usually factored into the purchase price of the property. So in effect, the purchaser is paying for the rental guarantee upfront.
  2. It’s important to have a lawyer review the fine print. There are many ways the guarantor can avoid paying e.g. the guarantor only has to pay if you haven’t been able to find a tenant for 3 months. Is there anything you need to do before the guarantor is obliged to honour the guarantee? For example, list the property with a particular letting agent or install a particular furniture package?
  3. Does the guarantor have the financial substance to honour the guarantee? Or is the guarantee outsourced to a third party? 
  4. A rental guarantee will affect the valuation requested by the bank which, in turn, may impact on your lending ability.  Carefully consider the options before agreeing to such an arrangement and ensure you can fund the mortgage without relying on a rental guarantee.

The inclusion of a rental guarantee should ring alarm bells. If you have any questions or if we can assist with independent advice, please contact Sacha Millar at smillar@wbpgroup.com.au.