Guaranteed rental yield: what it actually is
The developer guarantees 7% a year for five years. That sentence sells better than any brochure, and I am relaxed about these programmes, because plenty of them are perfectly sensible. They simply need to be counted differently from the way people count them. Here is how I do it.
What a guarantee actually is
The developer undertakes to pay the owner a fixed percentage of the purchase price for an agreed period, regardless of whether the apartment was ever occupied. Two, three or five years is typical. Occasionally programmes run to ten.
That is a genuine contractual obligation and there is nothing improper about it. But it is worth being clear about what it is not. It is not a gift, and it is not evidence that the project performs. It is a marketing instrument, and the cost of that instrument is almost always already inside the price of the apartment.
And separately: a guarantee is an obligation of the developer towards you, not permission from the state to let nightly. If the building holds no hotel licence, short letting there is unlawful whatever the contract promises. Both documents need checking, not one. what the law allows on short-term rental.
Where the money for the payments comes from
Three sources: actual rental income, the developer's margin, and a higher purchase price. The higher the promised percentage and the longer the term, the larger the third source tends to be.
That is arithmetic rather than suspicion. A five-year guarantee at 7% is 35% of the purchase price committed in advance, and no developer commits that without a view on where it comes from.
The question that matters is what happens after
The guarantee ends and the apartment stays. What follows is the ordinary market: real occupancy, real nightly rates, the management company's share of revenue, and quiet months in the low season. That period is where you will spend most of your years as an owner, so that is the period the asset should be judged on.
In practice this means running the full net calculation for year six as if the guarantee had never existed. The method is the same one I use on any property, set out in how to calculate net rental yield in Phuket. Realistic benchmarks are around 6-8% net on good quality stock, and 4-6% net in the busier Bang Tao and Laguna corridor against a 7-9% gross, with annual occupancy of 60-70%.
If the property produces a sound net yield after the programme ends, the guarantee was a pleasant addition to the first few years. If the number collapses without it, you were not buying a property. You were buying a promise with a property attached.
What to read in the guarantee agreement
- What the percentage is calculated on: the full purchase price, or the price less something
- Who exactly carries the obligation: the developer, the management company, or a separate legal entity
- How often payments are made and what happens if a payment is late
- How many nights a year you may use the apartment yourself, and how that use affects the payment
- What happens to the programme if you sell: does it transfer to the buyer or lapse
- Which costs are deducted from the payment: common area fees, utilities, tax
- What the remedy is if the obligation is not met, and what stands behind it
That last line is the one people skip. A guarantee is only as strong as the entity giving it, which is why I look at the developer's balance sheet and delivery history before I look at the percentage at all. The way I do that is described in how to check a Phuket developer.
When I say yes
When the property stands up on its own. The location works, the developer has a delivery record, the price per square metre is in line with the market before the guarantee is taken into account, and the programme itself is short and backed by a company with real assets.
In that situation a guarantee does something useful. A new building needs two or three years to establish occupancy, reviews and a rate. A short guarantee covers exactly that ramp-up period, and it lets the owner plan cash flow through the phase when a property is least predictable. That is a reasonable trade, and I have clients who took it and were glad they did.
When I say no
When a double-digit percentage is promised over a long term while the price per square metre sits noticeably above neighbouring projects. The two facts are almost always the same fact.
And when I ask what the property earns without the guarantee and the seller starts talking about the future of the area. That answer is available for any building that is genuinely let: the operator's occupancy and average rate for last year, in that street. If nobody will produce it, the reason is rarely that it is hard to find.
The third case is a guarantee attached to a project that has not yet broken ground, from an entity with no assets behind it. The percentage there is not a forecast of performance. It is a deposit incentive, and it should be read as one.
How the guarantee interacts with your own use
This is the clause that generates the most disappointment, and it has nothing to do with money. Most guarantee programmes limit how many nights a year the owner may stay in their own apartment, and many exclude the high season entirely, because that is when the operator needs the inventory.
If you are buying a purely financial asset, that costs you nothing. If part of the reason you are buying in Phuket is to spend February here, it matters a great deal, and it should be settled before the reservation agreement rather than discovered in the booking calendar. I ask about it on the first call, because it changes which projects I put in front of a client at all.
There is also the question of what happens to the programme if you sell during its term. Some transfer to the new owner, which is a genuine selling point at resale. Others lapse on transfer, which quietly reduces what your buyer is willing to pay.
Guarantee or ordinary management
A guarantee is not the only way to have a property looked after. A straightforward management agreement, where the company takes 20-30% of revenue and you keep the upside, often produces more over a full cycle and always produces clearer information. The formats and the contract terms worth checking sit in who will actually rent out your apartment.
The honest comparison is not guarantee against no income. It is guarantee against what the same apartment would have earned on ordinary terms, with the price difference taken into account. Once you put it that way, the decision usually makes itself.
A guaranteed yield programme is not a scam and it is not a red flag in itself. It is a component of price, and one calculation is enough to see it clearly. I do not talk clients out of these programmes. I show them what the property becomes on the day the programme ends, and if the figure there is healthy, I am entirely comfortable with the purchase. What I will not do is let a guarantee stand in for the analysis, because the guarantee expires and the apartment does not.
- Yield calculator — run your own numbers in a minute
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I am an investment strategist: I select the property, calculate the net return, check the developer and run the transaction. Anything that needs a legal, immigration or tax qualification goes to specialists I have worked with for years.
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Frequently asked
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Lyubov Fortunova
Investment strategist and founder of Fortunova Capital Group. I have lived on Phuket for more than five years and run every deal myself: I select the property, calculate the net return, check the developer and hold the process together until the keys are handed over. Lawyers, visa and tax specialists come from my own circle.
“I count net, not dreams”
Could you compare a unit with a guaranteed yield against one without, and show me what each earns after the programme ends?
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