Guaranteed rental return (GRR) schemes are highly attractive options for property investors. However, the promises can sometimes result in the wrong choice being made.
Being promised a guarantee 7.5% rental return every year will immediately set off one’s internal calculator and the thought of getting some RM1600 per month sounds very attractive indeed. However, we should rather think what happens after few years of high returns? What types of return can we expect for the subsequent years if things going in unpredictable way? It is important to understand that buying a property is for the long haul and is crucial to ensure the long term viability of the purchase and not be distracted by short term gains.
Even the revenue can be eroded by huge cost and hence it is crucial for investors to find out the true return from investment. Often time the returns stated by the seller are only gross returns and do not take into account of the managing and maintaining the properties costs. Investors need to factor these cost into their decision to ensure they are indeed making the right choice.
Another pitfall is the other types of properties are your competitor in the market for tenants. Once the GRR schemes expires, you will have to compete with hundreds of landlords in getting tenants and this mean having to resort the price competition to press ahead. Rapid development can further increase the number of units and depress the rental return yet further. So, we should also need to consider the ease of selling properties once the GRR has expired.