In the past, property investments required a degree of faith, trust, or reliance on the part of the investor; once they’d bought the property, they were on their own. Today, however, the more effective and beneficial investments reduce these elements of chance by ensuring that all stakeholders have mutual goals which lead them to share the same interests. In this article we’ll look at how these interests, when aligned, lead to a more assured and rewarding investment.
Some developers just put up a building, make their profit upfront from an inflated initial sale price and move on; these are the kind of developers the wise investor will avoid.
Because their intention is to offload the property as soon as possible, the likelihood is that they will conform to the bare minimum standards of build quality and offer little in the way of warranty – a recipe for serious issues a few years down the line with negative implications for a satisfactory resale.
A developer who intends to maintain an interest in the property, however, is by definition going to deliver a property built to the highest possible standards with a matching warranty package.
Smart developers are happy to take a long-term view and make their profit from a steady increase in rental income over time; they will usually offer investors an assured NET income for a fixed number of years or as a rental income share agreement. It is clearly in the developer’s interests to maintain the property to a good standard as they still have a vested interest.
In these circumstances, then, investors are reassured that the property and its facilities will be kept in peak condition and therefore that their rental units will continue to achieve high occupancy rates.
The management company
One key to effective property management is incentivisation. While a management company is responsible for the day-to-day running and maintenance of a property, its long-term function is to maximise the property’s occupancy and therefore rental income.
Again, by being rewarded in proportion to results in these important areas, management is actively encouraged to protect and enhance the property’s appeal to potential occupants – another plus for investors.
Whether they’re in a de luxe serviced apartment or a student room, the better the property’s management the less the occupier will notice it. Pre-emptive, proactive measures mean problems either don’t arise or are dealt with swiftly and efficiently with minimum disruption – priceless whether you’re enjoying a well-earned holiday or writing up lecture notes, and worth paying a rental premium for.
With the developer still on board and the management company incentivised to drive up performance, the investor should be able to enjoy an effortless income, either as a fixed NET yield assured for 10 years or as a contracted percentage share of rental revenue.
And the key word here is “effortless”. Just because an investment is very rewarding doesn’t mean it has to be hard work. A truly hands-off, passive income is stress-free and especially suitable for overseas and retired investors.
The new buyer
On the acknowledged basis that any NET yield of 7% or above is attractive at resale, these aligned-interests investment properties are particularly sought after as they come with a demonstrable track record of proven rental income delivery at significantly higher levels.
James Harrington, Business Development Manager at high yield specialists Emerging Property observes, “This dovetailing of interests across the board is a relatively new concept but really does work to everybody’s benefit from day 1 to resale and far beyond. This means the original investor has greatly enhanced prospects of achieving substantial capital growth of as much as 40%.”