ASKING SEAN #259 | THE REALITY OF GRR (GUARANTEED RENTAL RETURN) SCHEMES

Summary

In this episode of the Ehun podcast, the host discusses skepticism towards a guaranteed rental return (GRR) property investment project in Genting. He outlines the potential risks and challenges, including high entry costs, reliance on short-term rentals, and the lack of diversification in rental options. The host advises against such investments for inexperienced or 'lazy' investors, recommending more conventional property investments with multiple rental options and a clear exit strategy.

Takeaways

• 🏢 The speaker is not a fan of guaranteed rental return (GRR) schemes, as they believe they can attract investors who are fearful of finding tenants or those who are looking for a 'lazy' investment with minimal effort.
• 💰 GRR schemes often involve inflating the property's selling price to cover the promised returns, which means investors are essentially paying more upfront for the property than it might be worth.
• 📈 The speaker suggests that instead of GRR investments, one could consider other investment vehicles like fixed deposits or the stock market, which might offer better and more secure returns.
• 🤔 The speaker questions the sustainability of the GRR scheme, particularly after the initial guaranteed period ends, and what the exit strategy would be if the property does not perform as expected.
• 📊 The financial analysis provided indicates that the rental income promised might only just cover the loan payments and operational costs, with little room for profit or error.
• 🏨 The script mentions the high wear and tear associated with hotel-style operations and the potential for high maintenance costs, which could eat into any potential profits.
• 📍 The location of the property is highlighted as a potential risk, with concerns about accessibility and the depth of the area from main roads.
• 🔄 The agreement mentions automatic renewal but also the possibility that the hotel operator may choose not to renew, indicating a level of uncertainty in the investment.
• 🏘️ The speaker emphasizes the importance of a property having multiple rental options to cater to different target audiences and to diversify risk, which the GRR scheme lacks.
• 📉 The high price per square foot of the property is a red flag, especially when compared to more established areas like KLCC and TRX, suggesting the property might be overpriced.
• ⚠️ Lastly, the speaker advises caution, especially for first-time or less experienced investors, and recommends more conventional investment properties with clearer exit strategies and rental options.

Q & A

What is the main topic of the podcast episode?

The main topic of the podcast episode is discussing a property investment project in Genting and the considerations involved in such an investment.

What type of company is 'The Makeover Guys' mentioned in the podcast?

'The Makeover Guys' is a property solution company that helps investors and homeowners with their properties, including interior design and home furnishings.

What is the guaranteed rental return scheme mentioned in the podcast?

The guaranteed rental return (GRR) scheme is a property investment plan where the developer promises a fixed return on investment for a certain period, typically covering the property's installments and fees.

What are the concerns raised about the property's location in the podcast?

The concerns raised about the property's location include its accessibility due to a deep and narrow road, and the potential impact of its distance from the main attractions like First World Hotel.

What is the potential issue with the auto-renewal clause in the agreement after 9 years?

The potential issue with the auto-renewal clause is that while the agreement may auto-renew, there is a chance that the hotel management might choose not to renew, making it a reciprocal risk for the investors.

What is the speaker's opinion on the GRR scheme for property investment?

The speaker is not a fan of GRR schemes, as they believe it attracts investors who are fearful of getting tenants or are lazy, and that the returns are often built into the property's price, making it an overpriced investment.

What is the calculation for the monthly installments on a 35-year loan at 4% interest for a property worth 700,000?

The calculation for the monthly installments on a 35-year loan at 4% interest for a 700,000 property would be approximately 3,150 Ringgit per month.

What are the typical occupancy rates used in hotel or short-term rental business plans?

Typical occupancy rates used in hotel or short-term rental business plans are between 70% to 82%, meaning the unit would be occupied for about 24 days in a 30-day month.

What are the additional costs to consider in a hotel or short-term rental business?

Additional costs to consider include management fees, operation fees, cleaning, furnishing, and potential refurbishment costs every few years.

Why does the speaker suggest that the GRR scheme might not be suitable for first-time property investors?

The speaker suggests that the GRR scheme might not be suitable for first-time property investors because it involves overpriced properties, limited rental options, and a lack of diversification in risk, which could lead to financial strain if the business model fails.

What are the speaker's suggestions for better investment options compared to the GRR scheme?

The speaker suggests considering fixed deposits, investing in the stock market like S&P 500, or looking for properties with multiple rental options and lower entry costs as better investment options compared to the GRR scheme.

What is the speaker's view on the potential for capital appreciation in such high-usage properties?

The speaker believes that there is limited potential for capital appreciation in high-usage properties due to the high wear and tear and increasing maintenance fees over time.

What is the speaker's advice for investors considering such a property investment?

The speaker advises investors to thoroughly research and consider other investment options, especially if this is their first or second property. He also suggests treating such investments as a 'toy investment' only if they are wealthy enough to afford potential losses.