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

user1977

If somebody has really developed a miracle way of guaranteeing a 7% yield (plus enough for a profit margin for the agents etc) - why would they be letting the "little people" in on the game?

theartfullodger

Question is, who or what provides the 40 year guarantee?  If a 20 year old multi-millionaire may be ok, but if the company I'm confident I can forsee the future and it will, inexplicably, go bust....

matt78uk

user1977 said:

If somebody has really developed a miracle way of guaranteeing a 7% yield (plus enough for a profit margin for the agents etc) - why would they be letting the "little people" in on the game?

I suppose it works that way:

They rent it and pay you the 7% of the value, but they sub-let it for a higher price and while you are paid the same amount over the 10 years they are able to increase their income by increasing the rent through that time.
Also by letting all the flats developed by that builder they haven't to worry too much about any competition.

I am pretty sure it is common to rent a property and then sub-let it to multiple tenants for a profit, they just can do it more on a large scale.

However, as many users mentioned in the replies, not much of a real 10 years guarantee and I could get more by buying a property and hiring an agent over the 10 years. The fact that the building was new was attractive as less likely to give problems for a few years.

matt78uk

theartfullodger said:

Question is, who or what provides the 40 year guarantee?  If a 20 year old multi-millionaire may be ok, but if the company I'm confident I can forsee the future and it will, inexplicably, go bust....

I am not sure what you mean, are you referring to the years of retirement and not being able to get a reliable income from stocks?

That's a fair point but pensions come from money that have been invested too, and depending on what happens in the coming years you might not get what you expect: in 25 years time they could have raised the retirement age to 70 or 75 for what we know.

Maybe a building rented locally could give some relief on a monthly basis and the stocks help in time of crisis.

eddddy

matt78uk said:

I suppose it works that way:

They rent it and pay you the 7% of the value, but they sub-let it for a higher price and while you are paid the same amount over the 10 years they are able to increase their income by increasing the rent through that time.
Also by letting all the flats developed by that builder they haven't to worry too much about any competition.

<snip>

It sounds like you're taking what the salespeople have told you at face value.

I don't know the company you mention, so I'll talk more generally.

This is an unregulated business investment. So there is no regulator, no safety net, no consumer protection, etc. I'd suggest that you need to approach a scheme like this with extreme caution and extreme cynicism.

A 'stranger' is saying to you "I've got this great investment idea - do you want to put £120k into it?".  As a starting point, how thoroughly have you investigated the backgrounds of the people involved? (Do you even know the names of the people who are masterminding the scheme?)

As another starting point, bear in mind that the salesperson saying "buy this investment" might take a commission of up to maybe £20k to £30k out of your £120k, if you go ahead.


I once read a 109 page legal pack for a scheme like this (Leases, lease-back agreements, service agreements, etc).

I'd suggest that you don't read the legal pack thinking "How much money will I make?".

Instead, read it thinking "how can this scheme go wrong", "what are the risks" and/or "how can I be shafted"?

In the legal pack I read, there were so many huge "bear traps" and so many risks - far too many to list here.

user1977

Also consider the previous threads here from people who plonked money down years ago for off-plan developments which have never even been built...obviously the rate on your money before any tenants move in is 0%.

matt78uk

eddddy said:

matt78uk said:

I suppose it works that way:

They rent it and pay you the 7% of the value, but they sub-let it for a higher price and while you are paid the same amount over the 10 years they are able to increase their income by increasing the rent through that time.
Also by letting all the flats developed by that builder they haven't to worry too much about any competition.

<snip>

It sounds like you're taking what the salespeople have told you at face value.

I don't know the company you mention, so I'll talk more generally.

This is an unregulated business investment. So there is no regulator, no safety net, no consumer protection, etc. I'd suggest that you need to approach a scheme like this with extreme caution and extreme cynicism.

A 'stranger' is saying to you "I've got this great investment idea - do you want to put £120k into it?".  As a starting point, how thoroughly have you investigated the backgrounds of the people involved? (Do you even know the names of the people who are masterminding the scheme?)

As another starting point, bear in mind that the salesperson saying "buy this investment" might take a commission of up to maybe £20k to £30k out of your £120k, if you go ahead.


I once read a 109 page legal pack for a scheme like this (Leases, lease-back agreements, service agreements, etc).

I'd suggest that you don't read the legal pack thinking "How much money will I make?".

Instead, read it thinking "how can this scheme go wrong", "what are the risks" and/or "how can I be shafted"?

In the legal pack I read, there were so many huge "bear traps" and so many risks - far too many to list here.

The thing is that I have decided to ask here before doing any further investigation.
I have always been very suspicious on "too good to be true" and all the replies had the same kind of bad feeling about it so I am not going for it.
Also the salesperson as you called him, has been texting me too often to try to convince me it is a good opportunity, which makes it even more suspicious 😆

I really appreciate all the replies and I have decided that I am not going to invest in that or similar schemes.

Matt

eddddy

matt78uk said:

Also the salesperson as you called him, has been texting me too often to try to convince me it is a good opportunity, which makes it even more suspicious 😆

Yep - with so much commission at stake, and with no rules or regulations to hold them back, the salespeople can sometimes go to extraordinary lengths.

Somebody was telling me about all the phone calls they were getting from a salesperson selling this type of investment. It really sounded like the salesperson was trying to 'groom' their victim into handing over their money.

LegallyLandlord

If something sounds too good to be true, it probably is. 

My advice is that if you want to become a landlord, keep it simple. Don’t do rent to rent schemes. Don’t believe marketing hype. Buy a property in a good location that is popular with renters, get the property up to standard, learn about landlord responsibilities and manage it yourself. Buy freehold if you can (many new apartments have uncapped service charges and unless it’s a lease on a new property, many have onerous ground rent clauses). 

Once you’ve found a good property, here’s how to start letting it out:
https://theindependentlandlord.com/new-landlords-guide/

FreeBear

https://www.liverpoolecho.co.uk/news/liverpool-news/investor-lost-700k-buying-plan-24459673

https://www.theguardian.com/cities/2018/mar/13/buyer-funded-development-scandal

Buying off-plan in an investor funded development is just asking to lose money.