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From: Mike .


What to do??
From: Andrew
Date: 7/3/00
Time: 11:54:11 PM

My wife and I are paying off a mortgage on a small rural property where we are presently living. We are finding it difficult to meet repayments and so thought that we might sell and downgrade to something smaller and something that we would own.

We have looked around and found nothing that suits us. We also feel that after talking to real estate agents that in selling our place we will not get what our property is really worth. In the mean time we have been offered a very cheap rental house and so thought we could take up this offer and rent out our current place of residence.

What should we do? Any thoughts?

 

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redruth

Reply: 1
From: Mike .


Re: What to do??
From: redruth
Date: 7/4/00
Time: 1:11:01 PM

Andrew, No thoughts either way, however to avoid problems if you want to return back home, it is worth renting your property with contract without a time period on it, called a periodic lease, rather than a six or twelve month fixed term lease.

The periodic contract has get out clauses that allow you, as landlord, to give three months notice to the tenants to vacate. This can be shorter depending on whom will be moving into your property.

My wife and I have found that having a good property to rent, means tenants can vacate, and the property rents very quickly, hence limiting the tenants fixed term contract liabilities. In other words the tenants can leave whenever they want, knowing the property will rent very quickly and they don't have to payout the rest of the lease.

We figured that if the tenant could have this flexibility so could we. This has worked out well, however some tenants do get worried about the possibility of the property being sold whilst they are tenant. We have assured them this is not the case and have we have a tenants whom stay for long periods of time.

The periodic is identical in all other aspects as a fixed term contract.

Remember that the property manager has an vested interest in having a fixed term contract, they get paid for every new contract they set up, and then get paid for every extension of a fixed term contract they organise. Charges vary from 1 to 2 weeks rent for the contract to be set up, and then normally a set fee of $50 or more for a contract extension.

With a periodic you only pay the letting fee once for those tenants, and if they stay longer than a year you are in front.

steve t

 

[WebBoard]

Andrew

Reply: 1.1
From: Mike .


Re: What to do??
From: Andrew
Date: 7/5/00
Time: 12:58:23 AM

Thanks Steve. Some very informative advice. Appreciate the response.

Andrew

 

[WebBoard]

Sue1

Reply: 1.1.1
From: Mike .


Re: What to do??
From: Sue1
Date: 7/9/00
Time: 1:52:19 PM

Andrew

Theres been quite a lot of talk on the forum in the past about having an IP and renting yourself and it basically comes down to whether it is financially in your best interests to do so and whether you are comfortable with the idea of renting yourself.

If your rural property has the possibility of improving in value in the next few years, *and* if the rent you would receive would cover your expenses like the rates etc. *and* the rent you would be paying would be lower than the mortgage you are currently finding difficulty with then you might well be better off to turn it into an IP. The interest on the mortgage would become tax deductible the moment you rent it out along with the other expenses of course, rates etc.

If it was me, I would consider trying it for awhile, you've got nothing to lose and if you find it doesn't work out then you can always go ahead and sell it. Like redruth said stick to periodic or max 6mth leases. You may find this is the start of your new IP career and the equity you build up can be a deposit for your next prop in town.

Good luck and let us know how you go - Sue1