Recently, I come across an advertisement wherein a company has put big signboards around the city guaranting income for 9 years @9%, *by purchasing a pre leased commercial property through them.*
On website it's mentioned that they lease property to IT companies. Also occupancy or non occupancy doesn't impact Investors return of 9%.
As a financial planner when I digged into the offer found following points to ponder for investors, before falling prey to it :
1) Price of property is decided by them: Even in this bearish phase they dictate their price and inflate it, making it costlier for investor.
2) Rate of return@9% is not adjusted for inflation. Assuming even 6% inflation your return would be meagre 3% from very next year and will keep going down with every passing year. After 6 years effective real return would be negative.
3) Income tax on rental income : Obviously person buying such a costly property must be falling in top tax bracket.So if accounted for tax their is hardly any income.
4) Maintenance and wear and tear.
5) Property tax - Being a commercial property taxes are going to be high.
6) They are giving post dated cheques as a guarantee for rent.PDC's really😖😖
*_The big question is what is the guarantee of Guarantor._*
*With a little common sense, a little patience, and a little sense of humour you can live well on this planet - W.Somerset Maugham*
When we all know rental yields are in the range of 3-4% then why we fall for offers which is *too good to be true.*
It always helps to have a professional by you side, who can guide,analyse pros and cons and help you take a informed decision.
*So next time whenever see such lucrative offers think twice before investing or contact a financial advisor to help you with.*
Have a rocking weekend.