I win auction, tenant lease until March 2015, I want PPOR

I'm going to auction this weekend for a PPOR. The agent has said "currently leased out until March 2015 at $300pw".

A couple of questions:
  • Is there an easy way to break that so I can move in sooner?
  • If no, and the tenants remain until the end of that lease, will I have a mortgage immediately (and have the rental income covering some of the mortgage) OR will settlement occur at the end of that lease (i.e. no mortgage until that date)?

I'm just not entirely sure of the logistics of it all.

Thanks.
 
If you and the tenant agree then you can break it early.

You have the mortgage at settlement

I don't think you can use your ppor cgt exemption if you don't move in immediately
 
Each states rules are a bit different - you'll have to check in Vic whether you can evict.

Assuming they do stay,mortgage repayments and rental income begin on settlement date. During this time the property will be an IP. With all the normal stuff tax deductible. Arrange them to exit at the end of the lease if you wish to move in.
 
You will probably be stuck with a tenant until the lease expires next year.

Will the rent cover the mortgage? It depends upon how much you pay, yhe amount of the loan, interest rates and your deposit.

Settlement will occur as per the contract eg 42 days.

The property will become liable for cgt as you can't occupy from day one.

You may be liable for land tax.
 
They have a lease and can stay up until the expiry, although you could speak to them and let them know your situation. I'd say the owner though has given them a lease as they would have been concerned about the auction and having to move out.

You could offer an incentive for them to move. Work out how much you will be out of pocket by paying your mortgage plus rent for the next 7 months then work out how much it's worth to you.

Maybe offer to pay their moving costs?
 
I'm starting to go through the contract now (agent only provided today) and its becoming clear that it's all conditional on the lease (it's explicitly written in there).

Are you guys sure I will forego the CGT exemption though? I'm buying it for PPOR and the only reason I wont move in immediately is because of prior contractual obligations (i.e. existing lease) that don't relate to me.
 
You wont forego the CGT exemption. It just wont start until you move in.

So when you do sell you might have to calculate a CGT amount on a small period of time that it was rented before you moved in.

You will get all the rent due after settlement.
 
In VIC, leases are inherited by purchaser. You can only give a 60 day notice if the tenant is on a periodic tenancy.
 
Do I inherit the managing agent as well?

Would it be worthwhile if I flagged my preference to the tenant (giving them an easy out of the contract if they wanted it), offering to pay removalist costs say up to $500?
 
No, you must sign a new agency agreement with the PM of your choice.

What is the current market like in the area? Is it easy to find a replacement for the tenant? What is the vacancy rate? Is the tenant paying market rent or will they pay more/less if they move (ie are they getting out for a cheaper place or will they pay more if they move)?
 
Yield is not great in the area. Current owner has a yield of 3.7% based on their 2008 purchase price. I believe the current rent is maybe slightly cheaper than market rate (maybe $20 to $40?) so it looks like the tenant is getting a reasonable deal.

If I take over ownership, can I do these three things:
  • Order rental increase of X amount (to cover some more of the mortgage shortfall if they stay on)
  • Offer them a way out of their contract without penalty
  • Offer to pay up to $500 in removalist costs if they agree to vacate within two months
 
Yield is not great in the area. Current owner has a yield of 3.7% based on their 2008 purchase price. I believe the current rent is maybe slightly cheaper than market rate (maybe $20 to $40?) so it looks like the tenant is getting a reasonable deal.

If I take over ownership, can I do these three things:
  • Order rental increase of X amount (to cover some more of the mortgage shortfall if they stay on)
  • Offer them a way out of their contract without penalty
  • Offer to pay up to $500 in removalist costs if they agree to vacate within two months

No. Basically you have to take on the lease that the current owner has negotiated. You have no legal right to vary the terms of the lease.

You can *offer* them inducements for them to move out, but they are in no way obliged to accept.

Have you got a copy of the current lease and read it?

IMHO find another house for your PPOR.
 
You cannot change the rent within the contract time frame.

Legally they are contracted to stay but if you and the tenants agree on them leaving then you can end the contract. It' totally up to them as to whether they want to stay or leave.
You need to make it more attractive for them to leave than it is to stay. If the rent is low for the area they will not want to go. I think you'll need more than $500 as an incentive but there's no harm in trying. It will cost you a lot more thn that over the 7 months I think.

Up to you.
 
I'm estimating in the vicinity of $1,000 pcm negatively geared. I do want the property though. Thanks for all the feedback. I will be speaking with my solicitor this afternoon.
 
I'm estimating in the vicinity of $1,000 pcm negatively geared. I do want the property though. Thanks for all the feedback. I will be speaking with my solicitor this afternoon.

The potential benefit for you is that other purchasers are likely to be put off, if it doesn't make a good investment (and isn't available for PPOR).

Good luck
 
The potential benefit for you is that other purchasers are likely to be put off, if it doesn't make a good investment (and isn't available for PPOR).

Good luck

That's what I'm hoping for. Also some thunderstorms would be nice too. Thanks.
 
I'll try something like that Jameso.

Can someone confirm these calculations are correct for how much I will lose out if the tenants stay:
  • Assume $1050pcm loss (negatively geared)
  • Assume 7 months until end of lease
  • Total cost of $7350
  • Assume marginal tax rate of 35%
  • Total net loss after tax benefits: $4777

So offering them $2,000 to leave early would save me money if I'm not mistaken?
 
You would probably pay a few thousand extra in Stamp Duty as well because it is being purchased with a tenant in situ and hence it is an investment.
 
Shiiiiiiit.I just used this calculator: http://www.sro.vic.gov.au/SRO/SROCalcs.nsf/transfer?OpenForm&3&CD=02/08/2014&V=$500,000&E=0&PPR=Y&fh=Y&sd=02/09/2014&S=3&R=$10,985&#calc and plugged in $500k purchase price, PPOR with settlement on September 2nd. Stamp Duty = $11k.

Then when I plug in no to PPOR stamp duty is $25k.

Can I still apply as a PPOR, and then move in within 12 months to ensure the discounted stamp duty? This is a massive difference that I had not accounted for :/
 
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