Buy to Let Schemes with Guaranteed yield, are they any good?

matt78uk

Hello everyone,

I was hoping I could pick your brains in regards to this type of housing investment.
It sounds too good to be true, which makes me thinks I am missing something.

You buy an off-market studio flat and once it is finished you receive a pretty high net yield for a few years 🤔.

• One of the flats is in Manchester (https://www.pureinvestor.co.uk/properties/united-kingdom/greater-manchester/manchester/x1-cheltenham-place.html) £120000 7% guaranteed yield for 10 years

• the other in Preston (£85000, 8% Net guaranteed for 5 years)

Let's consider the £120000 studio flat in Manchester: it would give me £8400/year (£700/month) for 10 years, doesn't matter if the flat is left vacant, I am supposed to be covered and get my £700 every month for the next 10 years.

My thoughts:

1. The value of the house should be higher once finished (should be worth more than the initial £120000 as per  off-market discount and then appreciation over the 10 years), I would probably be getting £700/month for 10 years instead of being able to increase the rent (better market/inflation) regularly through the lease
2. The flat is going to be one of 126 flats to be rented mainly to students, after the 10 years I would probably be "forced" to stick with the same agent and I am afraid they could take advantage of that (I have been told they will charge 8% with an extra £1000/year for I can't remember what); this would take the income down to: 7720 - 1000 = £6728/year equivalent to a yield of 5.6%
3. Would it be easy to resell? I think it won't be as easy as a family home
4. After everything that happened during the pandemic I am afraid we are switching to a more learn-from-home kind of situation and maybe I wouldn't be able to get a constant flow of money in future
5. I will not get any cash flow until the last quarter of 2024 (I could ask for a full refund if they failed to build it before Q4 2025 so possibly stretching it to 3 years)
6. What happens if the builder(unlikely) or managing company go bust within those 2 years?

Still on the positive side I think that:

1. There is a big potential for house appreciation over 10 years in the North-West
2. It would be a steady income for 10 years that would generate 700*12*10 = £84000 (to be taxed of course)
3. I hope the GBP will get stronger in 10 years time, after all we are still at the beginning of the post-Brexit era, in that case the conversion to EUR would increase the net income
4. I could use that sum to pay into a private pension ( we are self-employed, basically just getting basic state pension)

I know that I could invest the money in a S&P500 and get an average return of 7-8% over the long term, but I have already done that and I would like to diversify my portfolio in order to have some help during retirement as I expect both my partner'a pension and my to be very low.
I am also planning to move back to Italy within the next 5 years and, for what I know, we don't have an equivalent of an ISA and would have to pay tax on the returns of the Vanguards.
We owe out current property, will sell when moving back to Italy.

I would really appreciate if you could share any thoughts on it, does it sounds like a good plan or should I stick to a Vanguard? I live i the South of England and couldn't manage the property myself and, to be completely honest, even if it was a bit closer I would struggle doing it.

Kind Regards,

Matt

ProDave

These offers keep landing in my in box.  I treat them the same as any other spam, I delete them without even clicking on the links.

propertyrental

Only have to read:

It sounds too good to be true, which makes me thinks I am missing something.

to know it's too good to be true.

You'd have to read the T&Cs of course but I'd consider readig them a waste ofmy time.

dimbo61

Wow I started reading and lost the will to live when it got too

Studio flat Bad news

7% yield Funny that cos our mortgage hit 7% today 🤔
Guaranteed Rent 
Off plan so just a whole in the ground in Manchester.
Please give your money to the Salvation Army for Xmas rather than throw it away on this get rich quick scheme for the Cowboys selling it

user1977

Before you worry about anything else - 50% deposit now, but completion not going to happen for another 2+ years?

housebuyer143

Also, most mortgage lenders would not lend on this agreement. 

peterhjohnson

If for whatever reason, the scheme is unable to find a paying tenant for your property, you are not going to get paid. Even if the T&C guarantee to pay, they won't because they will run out of money and go bust.   

matt78uk

Thanks everyone for the quick replies!


You have put my mind at rest when it comes to that kind of buy to let 👍

If I wanted to invest and have some cash flow from it in the meantime (£120000) what would you suggest, dividend paying stocks? 

Matt

ProDave

matt78uk said:

Thanks everyone for the quick replies!


You have put my mind at rest when it comes to that kind of buy to let 👍

If I wanted to invest and have some cash flow from it in the meantime (£120000) what would you suggest, dividend paying stocks? 

Matt

If you want to invest in buy to let, buy yourself a real property and let it yourself.  You may not get the yield you want, but you will have a real tangible asset.

TripleH

The fact that when you click on the link, the property cannot be found says volumes.

matt78uk

TripleH said:

The fact that when you click on the link, the property cannot be found says volumes.

That's probably my fault, I have omitted the ".html" part.
https://www.pureinvestor.co.uk/properties/united-kingdom/greater-manchester/manchester/x1-cheltenham-place.html