What's the catch?

mikecc

I was recently contacted by a company who specialise in buy-to-let, largely of student properties it seems.

They offer typical student apartments with purchase prices averaging 65-85k depending on city, with the usual 'pay a deposit now, earn interest on it, complete later'.

Interestingly, there's an 8% (or in some cases 9%) assured NET income for 5 years, fully managed, with a buy-back option at the end of the 5 year period for between 105-115% of the purchase price, or you can keep the property of sell it on open market.

This seems like a fairly low-hassle method of investing in low cost property with reasonable returns and assurances. What am I missing? I assume the risks could include it falling flat after 5 years etc..

movilogo

Not understood the model. Who is the owner of the property?

[1] Are you becoming owner of property and then becoming a landlord (with help from property management firm)

OR

[2] you are helping them to become owner of property by investing an amount for which they will give you interest?

OR

[3] something else?

For [1], it is entirely on you whether you want to own and a HMO property (if done correctly can indeed bring good profit).

For [2], it depends and could be just a way of unsecured lending (they could have asked for loan from banks).

getmore4less

IF it was that good why would they need you to buy the place for them to manage?

Pixie5740

Mortgage lenders won't touch them so you'll need to be a cash buyer.

Guaranteed rents are covered by you paying over the odds for the property.

You're buying off plan so what happens if the build is never finished?

What would be your exit strategy?

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10852153/Student-digs-offer-a-harsh-lesson-for-investors.html

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10718950/Landlords-warned-of-rental-guarantee-pitfalls.html

eddddy

mikecc wrote: »

What's the catch?

Read the contracts and you will find dozens of 'catches' - some of the 'catches' are likely to be the size of a large planet.

Here's just one example 'catch' that I posted in the Savings and Investment forum a while ago:

eddddy wrote: »

A few years ago I read the full 106 pages of legal pack associated with one of these schemes. (Leases, lease back agreements, buy back agreements, management agreements)

It was totally biased towards the "investment company" and full of 'bear traps' for the "investor".

As an example, to paraphrase a clause about "Guaranteed Buy Back" around page 95 of the legal pack...

We guarantee to buy the investment back, if we have sufficient funds to do so.

Our decision on whether we have sufficient funds will be final. We will not tell you how much funds we have, what would constitute sufficient funds, or enter into any discussion on this matter whatsoever.

i.e. No guaranteed buyback whatsoever.

Also, regarding guaranteed returns ... maybe you buy an investment for £50k with 10% returns guaranteed for 5 years.

But if the investment's real 'value' when you buy it is, say, £20k (or £0k), it's not such a good deal.

... and there were many, many more 'catches'.

Cakeguts

The university has realised that there is money to be made by building its own student accommodation and so then the need for privately owned diminishes rapidly.

mikecc

Thanks for the feedback guys, some things I had not considered, though I did not for a minute think it was 'easy money'.

It's a business which I assume specializes in fast/low-cost student blocks in popular cities, and then sells these off plan, plus manages for a set period.

Sounds like I should get hold of a legal pack and have a look through.

I am not planning to buy a property for myself for a few years yet, currently working overseas and looking for something to do with the money.