For Sale ...BUT...

[yadreamin]

Hi All
In the last month l have come across 2 properties for sale, but the properties have both had long leases in place.
One lease is for 12 months and at least $20 p/w less that what the market rate is.
This property is being sold by a mum, she has moved daughter in on the 12 month lease.
The second property has a lease in place till mid 2008 at at least $40 under the current market rate.
My questions are.
If you buy a property with a long undervalued lease in place, is there anyway the lease could be broken so the property could be re let to market value?
Who would buy such propertys?
If wouldn,t be much good for a PPOR if you couldn,t move in.
An investor wouldn,t be happy with such a low return.
I don,t think they really want to sell.
Thoughts and ideas much apreciated
cheers yadreamin

 

[quiggles]

You can always offer to buy subject to vacant possession. That (a) makes it the vendor's problem (and she may not want to sell to someone who will boot her daughter out and (b) is generally considered a reasonable condition.

 

[alwayscurious]

tactics

Hi All
In the last month l have come across 2 properties for sale, but the properties have both had long leases in place.
One lease is for 12 months and at least $20 p/w less that what the market rate is.
This property is being sold by a mum, she has moved daughter in on the 12 month lease.
The second property has a lease in place till mid 2008 at at least $40 under the current market rate.
My questions are.
If you buy a property with a long undervalued lease in place, is there anyway the lease could be broken so the property could be re let to market value?
Who would buy such propertys?
If wouldn,t be much good for a PPOR if you couldn,t move in.
An investor wouldn,t be happy with such a low return.
I don,t think they really want to sell.
Thoughts and ideas much apreciated
cheers yadreamin

12months x $20 / week = $1040. Discount the price by at least this or more to cover your holding costs. Effectively you are enforcing that Mum pay for her own charity, until it's finished.

Could you write into the contract that it must be subject to the lessee being bound to a new contract, if old contract is not fit for purpose. Perhaps you may not be able to raise the rent but you could do background checks etc if they haven't been done?

dunno if this second point is legally binding - check with solicitor.

 

[keithj]

Hi All
In the last month l have come across 2 properties for sale, but the properties have both had long leases in place.
One lease is for 12 months and at least $20 p/w less that what the market rate is.
This property is being sold by a mum, she has moved daughter in on the 12 month lease.
The second property has a lease in place till mid 2008 at at least $40 under the current market rate.
My questions are.
If you buy a property with a long undervalued lease in place, is there anyway the lease could be broken so the property could be re let to market value?
Who would buy such propertys?
If wouldn,t be much good for a PPOR if you couldn,t move in.
An investor wouldn,t be happy with such a low return.
I don,t think they really want to sell.
Thoughts and ideas much apreciated
cheers yadreamin

Reduce your offer by the difference - $1000. Or the servicability it would cost you.

Or you could say you need to carry out improvements, so could they break the lease & move out and 'sure you can come back when it's all finished', but on a new lease.

 

[yadreamin]

Thankyou for the replies.
One agent said there was nothing that could be done to break the lease. [ l didn,t believe her]
One just needs to look at all options/ideas.Working these ideas and conditions into a contract of sale would be the way to go.
cheers yadreamin

 

[Kristine..]

Actually, a lease is a binding contract under law which cannot be put aside merely because the property changes hands.

In Melbourne, as I am sure in many parts of Australia, there are 'rent protected' properties which are still under restrictions imposed as post-War measures to protect tenants during a time of severe housing shortages.

These 'rent protected' dwellings impose significant restrictions on the owners of the dwellings. In essence, while the original tenant occupies the dwelling, the rent cannot be increased.

Imagine buying a property still being let for the 1945 rent? You quite literally have to wait for the tenant to die.

In the case of a tenant paying less than market value and where the lease has some time to run, for example until 2008, and that the lease does not provide for market review, it would be important to read the lease thoroughly to make sure that the rent is actually fixed and not just the rent for the current fixed term.

A fixed term lease, that is, where the lease runs from date to date, does not usually provide for the rent to be increased.

However, once the fixed term effluxes, a periodic lease, that is from month to month, can be adjusted with the usual amount of notice to the tenant and subject to the maximum allowable by law.

So if the lease is defined until a specific date in 2008, then the simplest way of dealing with the issue is to offer the vendor an amount adjusted by the perceived amount which would be lost to you by not being able to adjust the rent to market value.

This, of course, is a perception, not a fact.

The property could be put to the market with vacant possession and it may take some time to let, and the incoming new tenant may offer the same rent as is currently being achieved, or even less. A market is a market, rent is a value to be paid by a 'willing but not anxious' tenant, and accepted by a 'willing but not anxious' landlord. Nothing more.

Yes, you could offer the tenant a financial incentive to move, but they don't have to, they are entitled to stay in the property no matter who the current or future owner of that property is.

For the sake of a perceived $40 per week, which is only $2,080 per year, by a maximum of three years, it is a more straightforward solution to simply offer $6,000 less on the asking price and you would probably offer at least $6,000 less anyway when negotiating no matter the rental.

Otherwise, keep looking. If you have found two properties suitable for investment in the past few weeks, there will be more, leave the hassles for someone else to deal with.

Happy Christmas

Kristine

 

[arriety]

find other investments

With interest rates set to rise, this will force rentals up, so just wait and other properties will come on market with good rental prospects (you will have to pay the higher rates though).

I don't think I would touch anything that the previous owner still had a 'hand' in so to speak. I know only of this story. A friend bought a house where the owners wanted to continue renting for another year. She foolishly didn't think to get a building inspection. A month into the contract and the tenants were ringing up demanding certain maintenance be done as it was life-threatening, eg wooden balcony loose. 3 months into contract the the tenants 'discovered' the house was riddle with white ants and my friend was forced to pay a small fortune to get the floors redone! Well it was partly foolishness on the part of my friend not go get building inspection and her back luck that the tenants were con artists!

But maybe for you it would work the other way - you could enforce your rights as landlord to inspect the property religiously every 30 or 42 days (whatever your state allows) and not being used to that with her mother, the tenant might ask to break the lease!

 

[Kristine..]

Arriety

I was a bit concerned with your reply.

Each State has quite specific regulations regarding the interval between condition inspections.

In Victoria, for example, it is not more frequently than each six months. A tenant is entitled to the 'quiet enjoyment' of the property, free from interference.

You appear to be suggesting that harassing the tenant is good business practice.

I am also not sure what you mean by the previous owner still having a hand in the post-sale business of the property.

Your story regarding your friend underlines the need for buyers to protect their interests, 'Caveat Emptor' (let the buyer be aware) puts the responsibility for this squarely on the buyer. Australia is a termite zone, some areas have more problems than others with the insects, but no area can be taken for granted as not being likely to have termites, borers, damp or simply badly constructed buildings.

The subject of buying a property with sitting tenants has been raised previously, and most posts indicated that this was generally a satisfactory situation, plus saved the usual repairs, maintenance and presentation expense, loss of rent and reletting fees which can be a big financial drain if buying a property with vacant possession.

There is always more than one side to a story

Cheers

Kristine

 

[arriety]

never harrass tenants

I don't think anywhere in my post I said to 'harrass' the tenant! In SA it is the landlord's right to inspect the property every 4 weeks (with written notice between 7-14 days prior to inspection) so this is perfectly legal. If you are renting out a property for less than the current rate for a rather fixed term, then as a landlord you would want to ensure that the property was kept in a 'reasonable state of cleanliness" and the tenant not 'fix any fixtures or make alterations'.

However in regards the above property, I have to agree with you if the property is very desirable, then a way around the issue of low rent for fixed term would be as you say offer a lower purchase price to cover the amount including cpi increases.

Arriety

 

[yadreamin]

Some interesting replys.Certainly would be well worth reading the lease before making an offer.
Thankyou.
I am not buying either of these particular properties.When l come across something which is a little different than the norm l try to work out a way to overcome the "grey areas", that way when l do find a suitable property to purchase l don,t get scared off when all is not black and white.
The ip that Mum has put daughter in as tenant certainly has grey areas.

It has a games room built onto the back of the house.
Q. to agent
Do you have the approval of plans for the extension?
Agent.
No. Council said they were destroyed in fire.
Q. to agent.
Could you supply a letter from council stating this and also signed approval letter of the extension?
Agent.
No. You will have to sort that out yourself if you buy.

Me walks away shaking head, I don,t think Mum really wants to sell this house.

Cheers yadreamin