3yr residential lease

[Big Tone]

I am looking at a townhouse....$210k, the market rent is about $250/wk but as the owner is in financial trouble due to the sharemarket he wants to sell bet re-lease the prperty back at above market of $270 and has even suggested a long term 3yr lease as he really does not want to move and loves living there............

any thing I should be wary of?

Thanks

Big Tone

 

[buzzlightyear]

Couple of thoughts....

* If he is in financial trouble will the vendor be able to make the rental
payments? What happens if he defaults? If you take him to the CTTT, if he has no money, you may be forced to cut him loose and the 3 year lease maybe worthless

* 3 year is a long time, will you have anniversary rental increases? Admittedly I do not know the NSW rental market, but would have thought in the current environment, even after one year $20 rental increase is not an unreasonable increase to expect.

* is the price that you are going to purchase the property fair market value or is this a rental subsidy by stealth eg higher rent to compensate for high purchase price so he can pay off his debts?

 

[Belu]

increase rent at a min of 5% ($13.50/week) per year or better yet market review or 5%.

no vacancy and i would use a manager but negotiate the fee down to nothing more than 5.5% and no signing fee.

6.3% return - should be cf+/neutral depending on loan and depreciation.

 

[BayView]

Yeah; be wary of dying from laughing so hard at getting such a good break!

But seriously; make sure you get the normal bond, make sure you get 6 monthly or 12 monthly rent reviews written into the lease contract, or even put an actual rent increase figure on it if you want - our Landlord did that with us, and we had no probs with it.

And make sure you get a proper Landlord's Insurance coverage on the property as well as your normal house and contents.

 

[keithj]

....and has even suggested a long term 3yr lease

any thing I should be wary of?

Check your mortgage doco - some say that the max permitted lease is 2 yrs ?

Looking at it from the banks POV.... if you get foreclosed on and the tenant has a loooong cheap lease then the property may be virtually worthless as a mortgagee sale.

 

[twobobsworth]

Maybe offer a 12 month lease. That will give you some flexibility if you have to sell in the future as well.

 

[buzzlightyear]

Check your mortgage doco - some say that the max permitted lease is 2 yrs ?

You really do learn something here everyday!

 

[fernfurn]

Why not do a semi-commercial thing and say 1yr at $270 with first option to renew 2nd and 3rd year

 

[GoAnna!]

I personally would stick with an initial 12 month lease and let him know you are happy for him to renew each year as long as payments are up-todate and property well looked after. 3 years is a long time to be locked in. It might seem like a great deal right now...

Other thing to consider is maybe a lease option where he can pay the rent plus outgoings with option to buy back at set prices at set times in the future.

 

[Big Tone]

Couple of thoughts....

* If he is in financial trouble will the vendor be able to make the rental
payments? What happens if he defaults? If you take him to the CTTT, if he has no money, you may be forced to cut him loose and the 3 year lease maybe worthless

* 3 year is a long time, will you have anniversary rental increases? Admittedly I do not know the NSW rental market, but would have thought in the current environment, even after one year $20 rental increase is not an unreasonable increase to expect.

* is the price that you are going to purchase the property fair market value or is this a rental subsidy by stealth eg higher rent to compensate for high purchase price so he can pay off his debts?

Apparantly a "margin call"..........
Price of property I reckon is a touch over market as well as rental. So I am a little concerned but I do know that another in the same block is rented at $250/wk and is not as good condition, although that same one had trouble selling about 6moths ago for 185k.

 

[Big Tone]

increase rent at a min of 5% ($13.50/week) per year or better yet market review or 5%.

no vacancy and i would use a manager but negotiate the fee down to nothing more than 5.5% and no signing fee.

6.3% return - should be cf+/neutral depending on loan and depreciation.

I agree, I was going to stipulate $10/wk increase every 6mths.

BIG T

 

[Gools]

although that same one had trouble selling about 6moths ago for 185k.

How much better is the one you are looking at compared to the one that had trouble selling for $185k?

If you're going to pay $25k over market value then what's the point. $25k over 3 years is over $160/week. I'd be leaving the deal alone even if he was going to pay you $400/week rent if that was the case.

Don't let an "attractive" lease make you pay too much. Do your sums properly.

Gools

 

[Big Tone]

How much better is the one you are looking at compared to the one that had trouble selling for $185k?

If you're going to pay $25k over market value then what's the point. $25k over 3 years is over $160/week. I'd be leaving the deal alone even if he was going to pay you $400/week rent if that was the case.

Don't let an "attractive" lease make you pay too much. Do your sums properly.

Gools

Yes, you are dead right............I made an offer on what I thought was about market value, he did not accept, nor try negotiate so I walked away.

Plenty others out there anyway. Just gotta look!

Thanks for everyones input

BIG T