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Guaranteed Rental Return. Buying whole block. 85% tenanted.

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A friend asked me about buying an apartment with guaranteed rental return. I think majority of anyone who has read many articles would understand that these guaranteed rental return MAY also meant that the buyers are paying for it and getting back the rental return on a monthly basis. Of course there is nothing wrong with this because if you really calculate, you would notice that the guaranteed rental rate is definitely higher than if the buyer were to deposit their money into fixed deposits. Some is offering up to 6% which is considered attractive. I told my friend that if she has understood everything that the developer is selling and she likes it, by all means go for it. She invited me to buy one unit and I politely declined, saying it is not my cup of tea. My reason is because I already have my next property in my mind and is still saving for it. A secondary unit which is easy to rent out, even IF the rental return is next to nothing.

If someone were to offer me a unit with tenant and a seemingly attractive selling price, I would grab it. However, when it’s one whole block, then I may not be their target. Perhaps REIT funds may be interested? Alternatively a very rich businessman who just want to buy a recurring income for his son? Haha. I am none of both. The offer was for a 10-storey high-end residential block in Ampang Hilir which is considered a prime area in Kuala Lumpur. The said property is known as 7 U Thant and it comprises of 24 apartments ranging from 500 to 4,600sf. It is a 4 year old bloc and the guide price is RM131 Million or about RM1,343 psf. Successful bidder is required to honour all existing tenancies.

Currently, 85% is rented out, which meant an immediate recurring income, as long as the tenants do not move out within this period of it being offered to market. Facilities include gymnasium, BBQ pit, Jacuzzi, skydeck and a rooftop infinity pool, in addition to its 24-hour security and generous parking space. In terms of location, it’s considered pretty exclusive. Opposite the US Embassy and just a 10 minute drive to Kuala Lumpur City Centre (KLCC). Interested buyers are advised to submit their bids by 26 November 2014. Its marketing agent is SLP International.

I have no idea what’s the final decision of my friend but I hope she understand her risk profile and buy accordingly instead of asking me. Over many years, I have learnt that her reasoning and mine are totally opposite. Haha. It’s ok, anything that makes sense would give you returns. I have never been pressured to follow any property gurus and I feel that no one should be forced to follow me too. Reading and understanding, why not but following is another matter altogether. Happy investing!

written on 2 Nov 2014

Next suggested article: Demand vs Supply, Location and Price, Your Decision.

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