Vendor guaranteed rental

[Lotana]

Forumates,

I have a negatively geared property portfolio and am thinking over my options if ( been in IT, I probably should say "when" ) my income shrinks to the level that would cause servicability problems.

One of the IPs is a Sydney unit which is provided to relatives free of charge. (If the taxman reads it - please note this is not a real situation). Does any deal structure exist that would allow me to sell the unit paying off the loan, but keep the relatives there for a year (and pay the rent)? I was thinking of selling the unit with a guaranteed rentback for 12 months. Is it hard to achieve comparing to a standard sale?

Say cheese ,

Lotana

 

[Lotana]

Silence...

It is so unusual not to get a reply, I thought there was something wrong with my original posting. All I'd like to know was: if I sell a unit with a condition that I would rent it back for 12 months at a pre-agreed weekly rent, would it be easier or harder to sell? Is there anything to be aware of? Is there any other arrangement that would allow me to reduce the loan but keep my relatives in the unit for 12 months?

Say cheese ,

Lotana

 

[geoffw]

Lotana,

Just amateur opinion here while we wait for the professionals to get back to work (Tuesday for the NSW professionals).

I have a DHA property near the ACT. I've been told that it would be worth $10K to $30K more if it was immediately available to live in (it's worth $280K now). Restricting the market to investors immediately cuts out 90% of potential buyers- especially, if, in my case, the tenants cannot be removed for another 4 years.

In this area, at least, the market is geared towards the owner occupier. You would have to do your due diligence for your own area of Sydney.

 

[cornflower]

Lotana,
I'm considering a deal from the other angle, buying a property with a guaranteed rental.

I'm a bit wary of this because:

(1) We've all heard reports of properties with guaranteed rentals in QLD that were marketing scams.

(2) I have to do more homework to find out if the market rental is different from the guaranteed rental. If the property had a "non-guaranteed" tenant in it, I'd be more comfortable with assuming that the current rental income was sustainable.

(3) I have no idea how a guaranteed rental works from the contract point of view. If it's lots of extra paperwork that will mean extra solicitors fees and that will cost $$.

I guess the bottom line is that it's not an "average joe" deal, and can you affort to scare the "average joe" buyers off?

Cheers

Cornflower

 

[Mike]

Hi Lotana,

I can't recall this question coming up before and most books don't mention selling with a lease. If your relatives were on a fixed term lease of 12 months and you sold to an investor then I can't see a problem. A new lease may have to be created with the new landlord's name on it but they wouldn't lose possession of the property as a result of a change of landlords.

However, if the new landlord decided that they wanted to live in the property as their home then they could possibly take possession and evict your relatives. But that is unlikely.

As far as the sale price is concerned, most people assume you will get a lower price selling it as an investment property for two reasons:

1) You are selling to a smaller market ie investors, so your leverage is reduced.

2) The presentation of your property for sale may be less appealing if it has a cluttered appearance or the rooms appear smaller with furniture in them.

Quote from CREOnline:

It is always harder to sell a tenant occupied property. Your only potential buyers are other investors, and we know that savvy investors rarely pay FMV. Additionally, tenant occupied property does not (generally) show as well as an owner occupied property. It seems that tenants have no vested interest in ensuring that the property always shows to best advantage. You will have to overlook dirty dishes in the sink and often less than immaculate housekeeping.

If you think you can get a better price selling the property vacant then you might be better off to find alternative accomodation for your relatives. Although that means paying rent on top of mortgage payments until the unit is sold.

Mike

 

[geoffw]

Mike,

I'd back up this- and illustrate with real figures.

I have a DHA property in Jerrabomberra, just outside ACT.

My last appraisal was $290,000 as a tenanted property. It would have been $320,000 untenanted.