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Many have been asking me lately, so what's more -
Preferred Yield or Yield Guarantee?
Preferred Yield
The investor was guaranteed 8% preferred return,
He has priority in getting the return
The first at 8% of earnings.
Suppose the asset yields 12% net year,
So the first 8% goes to the investor,
And the remaining 4% goes to the developer.
Or in case the asset yields only 8% net,
All 8% goes to the investor.
Yield Guarantee
This means that in a guaranteed yield,
You will have a return of X percent
Out of the total Y yield of the property.
No matter what the expenses, the revenue,
The investor receives an X percent return.
Sounds worthwhile, right ?!
So it's not. Every transaction has a risk versus a chance,
And there is no such thing as a real estate guarantee.
So where's the problem here?
The investor buys the property above the market price,
And in itself finances the rent payments,
And the guaranteed return.
When will the investor understand that there is a problem here?
As long as the investor gets a lease, then everything is fine.
And he lives in the illusion that he made a good deal.
But once he sells the property,
He will suddenly find that the market price is significantly lower
From the price he bought it.
Then all his profits will be wiped out.
So which is better?
Of course, yield is a favorite.
So don't work on you!
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But just a question
If I buy a property that is already leased ..
So, in principle, you can guarantee a return isn't it? Because there is a tenant (say with a one-year contract)
this is so true
Shell video…
That's right: they won't guarantee you returns. The property is a dynamic property - tenants enter, leave, natural / unnatural wear and tear as a result of poor use of tenants / eviction, etc.
When people turn to me the first thing I say to them is: "Stay away from those who promise a return!"
Of course there are ways to reduce risk: buying below market value, buying in a relatively stable area, checking transactions and numbers with at least 3 different factors, a strict tenant screening process, etc.…
But never be tempted by offers of guaranteed returns!
Successfully!
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