There is an interesting article featured in The Age today looking at the potential pitfalls of rental guarantees for apartments purchased off the plan. Click here for the article. Melbourne has been in a boom time when it comes to the construction of new apartments (just look at Docklands over the last 10 years) and the article highlights that there are 25000 new units coming on the market in Melbourne in the next 12 months. What it importantly points out though is what can potentially happen to investors that purchase with a rental guarantee which is above the going market rent for the area and then the guarantee period expires leaving the investor with sometimes an enormous gap between their income and expenses.
It’s these sorts of ‘incentives’ that investors need to be aware of. OK, they may work in your favor if the time and the place is right but it’s important to ask yourself the question ‘why is this being offered?’. Always follow the dollar! (Some useful advice I was given years ago and it hasn’t failed me yet!). Interestingly the author highlights that people may find themselves ending up buying a financial product rather than a piece of real estate. Check it out and make up your own mind here.