Leaseback Investments - any good?

[ALIEN1X]

Hello,

Some one told me that Leaseback investmenst are A good option of garrenty rent,no tenant or maintenance hassles and you own the building freehold.

The poroperty is leased out to a managemnt company who are responsible for the tenants and maintenance. The rent you get is approx 6-9% of the purchase price each year...I think.

So is the above scheme any good?

What are the pitfalls?

Anything else I need to know about this sort of investment?

Regards
Alien1x

[Matt Churchill]

One thing to watch is the strength of the tenants, and the length of the lease. If lease is short, where is building sited, would there be good demand?

Basically it is commercial investment. In my experience, the term leaseback is normally used when a company sells its property but wants to immediately lease it back from the purchaser as they want to maintain there presence in the building. Common place for banks for example, they are huge property owners, and sometimes want to liquidate the asset, but, need to keep the high street presence so lease the property back. Invariably, they would use a agent to deal with this on there behalf.

HTH.

[ALIEN1X]

I will have to do a little more research on this.

I was told that alot of overseas residential properties are in leaseback schemes.

I'm trying to find a way of investing in property without renting out to tenants and going through hassles.

Regards
ALIEN1X

[Tassotti]

Be very careful with this. Many properties are overpriced, and they effectively pay you back your own money by way of 'guaranteed rent'

Not all are like this, but do your own due dilligence.

[propman2]

Matt is correct

You are buying the income stream as in any commercial investment and the finacial strength of the tenant, length of lease, terms of lease and provision for review of rent are all important.

Some strong companies sell their operational properties to release capital to put into the trading side of the business but as with everything there may be scams whereby the tenant signs up to a long lease takes the capital sum and then say dissolves the company/goes into administration leaving you with empty property.

one that springs to mind is Unwins wine merchants. I recollect they were doing sale and leasebacks and then would you believe it they hit financial problems! not sure whether they still exist or are still paying the rent.

be careful

[Poppy]

Lots of stinky brown steamy stuff surrounding Unwins. Just type "unwins" into any search engine and open your eyes.

[ALIEN1X]

Hello,

I have received more info on this as follows:

The Diamond, in Dubai Sports City, will attract those investors who want to take advantage of the huge growth in the Emirates fuelled by massive investment from within and abroad. Capital Growth on property prices is forecast to be 60% over the next 5 years and coupled with Rental Returns of up to 18% per annum this is why Dubai is seen as one of the hottest property hotspots in the world.

I have provided information on The Wealth Builder program below, to show you your returns if you were to invest with us.

To give you an example, on a £128,500 investment over 7 years using an occupancy level of 85%, an average room rate of £140 per night and annual capital growth of 15% per annum, this would give you a Wealth Builder rental income of £22,152 per annum and £110,759 over a 5 year rental period plus Capital Growth of £213,313 in the 7 year period. This makes your rental yield at 17.24%.

This would mean that your initial investment of £128,500 would become £497,719 including capital invested, capital growth and rentals in the period.

This example assumes a 2 year build schedule.

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But try the same comparison on house prices. In Dubai the villa in question would cost $550,000 while in Salisbury the rental house in question was on the market this summer for $1.4 million.

Why is it that a rental yield of 2.5% is acceptable in the UK, while in Dubai the rental yield is 6.8%?

The obvious conclusion is that either UK house prices have gone far too high, or that Dubai house prices should be a lot higher, the truth is somewhere in the middle.

At current rental yields Dubai property represents a very solid long-term buy as a rental property will cover its mortgage payments from Year One.

In most markets this is not the case for up to five years, and in the case of the UK things seem to have gone seriously awry as the cost of a mortgage may never be met by the rental income alone.

The idea that the UK is politically more stable than Dubai is easy to dismiss. Democratic politics mean that housing taxes, for example, can change overnight, and do not have the assurance of a stable regime as in the UAE. The same argument can also be made about the law of the land, although the UAE still has some legislative catching up to do in this department.

Unemployment is low in the UK, but is non-existent in the UAE and general income levels among house buyers are higher. It is only the general level of confidence among the general public of Dubai that is different to the UK. In Dubai there are still a lot of sceptics who constantly imagine the worst rather then facing reality but looks set to change as property prices steadily increase in Dubai and as more and more nationals and expatriates buy property.



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3. Rental income from property is a stable source of income, and while it might fluctuate, is highly unlikely to vanish altogether. Compare that to interest on deposit accounts or dividends on shares.

4. Real estate always has a residual value, although prices can certainly fall as well as rise. But property values will never fall to zero unlike shares and hedge funds.

5. Property is a kind of hybrid asset with the capital appreciation of a stock but the income producing capacity of a bond.

6. Investors typically have more control over the nature, timing and size of real estate investments. This is partly because they are tangible and easier to understand, and diversification is readily available in the form of different types of property.

7. Dubai property is open to any investor from anywhere in the world, unlike the local stock market. This means greater liquidity and more funds in the marketplace.

8. Demand for property typically picks up during an economic boom such as the one being seen in Dubai now. With massive projects such as the Dubai and theme park, Palm Islands, and Dubai International Financial Centre coming to fruition, this looks a wise time to invest in real estate.

9. Real estate is always an excellent collateral security against loans, and allows debt finance to be secured at the best rates.

10. Property portfolios offer great scope for diversification of risk into different property types, locations and rental levels. This helps to spread the risk of an interruption to income flow.


I would be greatfull if anyone can give me any feedback on the above?
If it is a real scam then I will not research any further.

Regards
ALIENX

[Matt Churchill]

Not sure if it is a scam or not, but, the comments I made earlier are sensible ones to follow regardless of where you are investing.

For me personally I wouldn't go near it, but then I am not the most adventurous of souls. You've got to be able to satisfy yourself that you trust the people managing your property for you, and that their financial models are correct.

You are along way from the property so how well can you keep an eye on it?

Ultimately, you pays your money...

[ALIEN1X]

I cant find any investors who are or have been involved in a similar scheme.
I will the keep info on file, and give this scheme a miss this time round.