Buying a property leased under market rent

Afternoon all...

My first question on the forum, so here goes...

My sister has chosen her first home (a town house) in a suburb near Parramatta. It's just a few streets away from home, so we're comfortable with the area, and infact think that this suburb is becoming expensive by the day - and may become unaffordable in no time.

The issue is, the property is leased at 280 pw while it should be getting atleast 330 - 340 pw (leased until October 2010). Being first home and getting the grant means that we need to hold the property for 6 mths within the first 12 mth period - so that effectively means that as soon as the lease expires we need to hold on to it (whent the interest rates would be higher). In the first 10 mths we would have to put in about $450 - $500 towards the mortgage - which would've been around 250 -350 had the property been leased at market rent.

The rent which we would miss out on the 10 mth period is around about $2,000... and hence a loss due to extra repayments from pocket, plus the 6 mth period we would have to hold the property prior to renting it out again. However, we would be getting the property cheaper as it appears there aren't that many offers for it, ours being the highest (which is 19K less than the advertised price) due to the lease issue.

Is this a very short term view? Just looking at it financially... I've also purchased a property (just waiting on final bank approval!) which is required to be held as PPOR due to the grant...My sis and I are doing this as a team.

Please advise based on the wealth of experience we have on this forum.

Kind regards
Monalisa
 
Be very careful.

As the property is rented until October 2010, there is very little margin for error. You have to move in to the property within 12 months or miss out on the grant.

You have less than 4 weeks (max) "wriggle room", and that is assuming the lease is due in the first week in October. A reluctant tenant, and resultant RTA tribunal hearings for eviction processes will mean you miss out on fulfilling the requirements for the grant.

Assess the risk.
Marg
 
Hi Marg

Thanks for the response.

The moving in in accordance with the FHOG criteria is within 12 mths of the settlement - so if the settlement is in December - we have until Dec 2010.

I am just concerned about the rental for the time being - but feel it may be a short term view as we would be getting the property at least 15K cheaper than what we believe is the real market value.

Rgds
Monalisa
 
....we would be getting the property at least 15K cheaper than what we believe is the real market value.

So your question that has you worried is "Should I buy at what I believe is $15K under value to forego $2K in rent?" :confused:

What, a $13K profit is not sitting well with you? :confused:
 
So your question that has you worried is "Should I buy at what I believe is $15K under value to forego $2K in rent?" :confused:

What, a $13K profit is not sitting well with you? :confused:

Hi Propertunity

Nah its not that - just afraid of being tied into a lease till next October - which is good amount of time and results in inflexibility.

But as I said, I may be looking short term - been warned by lots of people that property is a long term thing - so on this basis 10 mths may not be long enough.

Will let you know how it goes - our broker will be getting a RP data report for us shortly, which may give us a good guide...

One advantage with this properyt would be using the equity sooner to get our next property.

Just a bit too new to all this :) and learning.

Thanks for your input.

Regards
Monalisa
 
The issue is, the property is leased at 280 pw while it should be getting atleast 330 - 340 pw (leased until October 2010).


In the first 10 mths we would have to put in about $450 - $500 towards the mortgage - which would've been around 250 -350 had the property been leased at market rent.
Hi monalisa.

Make sure of your figures.

You say you'll be paying $450-500 towards mortgage, yet with only a $50-60 increase in rent ($330 or 340 (market rent) less current rent of $280) that you would only be paying $250-350.

Something not adding up there.

Regards
Marty
 
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