Vendor Renting on...

[HomeBuyAU]

I have this unit I'm buying and the vendor has said they will stay on for 12 months and pay $XXX a week which is probably a bit above average too. The REA confirmed this before I made my offer and it was in the original advert. I'm at the stage now where we are just waiting for the bank documents to arrive to sign and then a settlement date, soon I hope!

As I'm counting on the vendor paying rent right away then I would like to have more assurance. My solicitor has sort of ignored the subject when I brought it up but I'm wondering I should have asked for this earlier to be part of the contract?

It's too late now so I need to work out what I should do to guard against the Vendor changing their mind. Should I ask for the vendor to confirm in a written document that they will rent the place from settlement date and who should I get to do this, my solicitor or the REA?

 

[moyjos]

present the vendor with a lease document prior to settlement day if they don't sign...they are not tenants, they are squatters.

A verbal contract is not worth the paper it is written on

 

[dupli]

Lol, Im just imagining them settling and then getting kicked out because they refused to sign the rental agreement.

But yes I dont think there should be anything stopping having the rental agreement signed ASAP to ease the sleep at night factor

Assumedly it wont come to this, but I cant help but wonder that given rent arrangement was part of the advertisements and confirmed by the real estate agent, if it somehow covers you legally (ie are you getting what was advertised)

 

[skater]

Like Moyjos said, get a lease signed. As well as that, let them know that they are required to have a bond lodged too. I would be letting them know that this is not negotiable.

 

[pully]

certainly agree. there must be a tenancy agreement signed and bond and all the usual formalities in place. who will be the property manager? the selling agent, as you will be aware in acting for the vendor not you.
hopefully you have someone acting in your interests?
regards.

 

[marg4000]

As said, get a signed lease before settlement. Naturally, lease to commence after settlement.

Otherwise insist on vacant possession.
Marg

 

[HomeBuyAU]

ok thanks everyone and I'm going to make some calls about this. your feedback has been a great help.

 

[HomeBuyAU]

One thing I have started to wonder about is utilities etc after reading this thread. Would I need to get the power, gas, phone and water disconnected etc and then get the vendor to reconnect them all again? As this is a unit I remember her saying the power etc is separate for each unit so it is charged only for what the tenant uses.

 

[RumpledElf]

One thing I have started to wonder about is utilities etc after reading this thread. Would I need to get the power, gas, phone and water disconnected etc and then get the vendor to reconnect them all again?

No, the previous owner would be annoyed you made them pay multiple disconnection and reconnection fees for no reason. The issue is really only when it is in *your* name, anyway. You do need to read the water meter though - the water bills should automagically switch over to you on settlement, but you still need to pro rater some part of it.

 

[Perp]

Would I need to get the power, gas, phone and water disconnected etc and then get the vendor to reconnect them all again?

The issue is really only when it is in *your* name, anyway.

Like RE says, apart from water, none of these would go into your name anyway, so it's not your problem. And I think the water bill will be adjusted by your solicitor as part of the conveyancing process.

 

[HomeBuyAU]

ok thanks a lot, I will just check up on the water, sounds easy

 

[deejay]

Just to echo what others have said, do NOT settle without a lease. Check and double check before authorising settlement. (We had a dopey property manager who assured us it was all under control, they were coming in the day before settlement to sign, yadda yadda yadda, and didn't tell us the vendors didn't show. So we went ahead and settled, and they were the tenants from hell).

It worries me that they're offering above market rent. Upper end of market, I can understand - moving is, after all, very inconvenient, and they and/or their children are presumably settled. But above market hints that they might be worried about their ability to find another place. That could just be because they haven't rented in a while - or it could be that they have a bad history. Or a bit of both.

It also worries me that you're so worried about getting them to sign. That tells me this house is not in an area where there is high rental demand - that if you don't get them, you're not sure you can get another tenant fast. Which makes me wonder if this place is such a great buy, y'know?

 

[HomeBuyAU]

Just to echo what others have said, do NOT settle without a lease. Check and double check before authorising settlement. (We had a dopey property manager who assured us it was all under control, they were coming in the day before settlement to sign, yadda yadda yadda, and didn't tell us the vendors didn't show. So we went ahead and settled, and they were the tenants from hell).

It worries me that they're offering above market rent. Upper end of market, I can understand - moving is, after all, very inconvenient, and they and/or their children are presumably settled. But above market hints that they might be worried about their ability to find another place. That could just be because they haven't rented in a while - or it could be that they have a bad history. Or a bit of both.

It also worries me that you're so worried about getting them to sign. That tells me this house is not in an area where there is high rental demand - that if you don't get them, you're not sure you can get another tenant fast. Which makes me wonder if this place is such a great buy, y'know?

I think the location is pretty good, quite high demand (South Waratah, NSW). yes maybe they have had credit problems but I guess when they sell that could help. She looked quite settled there, she had an Asian flatmate and a tiny dog and doesn't look the most active person so I guess moving is not in their best interests. Maybe she works at the Hospital nearby etc?

I plan to travel overseas in late January once I complete renovations on my other house and get a tenant in. So I don't want to also be looking for more tenants and getting slowed down with this. I think I could get close to the rent they are offering but I would also probably want to spend 3 days painting the interior which is a little faded and all this would slow me down. That is why it might seem I'm not to keen to start looking for more tenants. If I get less rent it also means I have less income as I travel. I doubt I would have too many problem's finding tenants especially in January when people are getting ready for the coming year but I would rather avoid that if possible.

 

[Rob Williams]

I've been in a situation in which the vendor asked to lease back at an attractive weekly rental. She was selling due to financial pressure.
I was able to get a written a written agreement in place prior to settlement, which eased my concerns.
I would caution you, however, to keep a close eye in the tenant and don't let them get behind in the rent. Not even for a day or so.
They are selling because they are feeling pressure. I'm sure the pressure will increase if the flatmate moves out and she has to find another one.
Don't coun't on any surplus settlement funds helping, either. Those will be spent on Foxtel, new furnture and a big plasma TV before you're first inspection.
Sounds to me like she's on a very slippery slope. One most people don't recover from, no matter how much cash comes into their hands by selling assets. If the mindset isn't there in the first place, money isn't the answer.

 

[HomeBuyAU]

Just to echo what others have said, do NOT settle without a lease. Check and double check before authorising settlement. (We had a dopey property manager who assured us it was all under control, they were coming in the day before settlement to sign, yadda yadda yadda, and didn't tell us the vendors didn't show. So we went ahead and settled, and they were the tenants from hell).

I forgot to say, yes that is important and I have already got the agent to get the lease ready in case we settled before Christmas so I will ask them to have that signed and ready to go when I give them a call shortly....

I've been in a situation in which the vendor asked to lease back at an attractive weekly rental. She was selling due to financial pressure.
I was able to get a written a written agreement in place prior to settlement, which eased my concerns.
I would caution you, however, to keep a close eye in the tenant and don't let them get behind in the rent. Not even for a day or so.
They are selling because they are feeling pressure. I'm sure the pressure will increase if the flatmate moves out and she has to find another one.
Don't coun't on any surplus settlement funds helping, either. Those will be spent on Foxtel, new furnture and a big plasma TV before you're first inspection.
Sounds to me like she's on a very slippery slope. One most people don't recover from, no matter how much cash comes into their hands by selling assets. If the mindset isn't there in the first place, money isn't the answer.

Yes I think your right and they seem to be similar vendors/tenants. I will probably get LL insurance and I better get on to that this week. I can pretty much guess they would be a bit easy with spending too as they wanted me to hand over cash from the deposit to buy a new car. There was a thread about it but it must of got deleted? I guess all I can do is get insurance, a bond and advance rent.

I'm not really worried about this anymore as this thread was from a while back and most of the questions I had have been answered.

 

[Qlds007]

In addition to a signed Lease Agreement (and i would want that prior to settlement) why not make one of the settlement cheques payable to you for say 6 or 12 months rent upfront.

Also make sure the rent she is paying is market rent so that there is not much rent variance when you have to rent in to the open market.

 

[HomeBuyAU]

In addition to a signed Lease Agreement (and i would want that prior to settlement) why not make one of the settlement cheques payable to you for say 6 or 12 months rent upfront.

Also make sure the rent she is paying is market rent so that there is not much rent variance when you have to rent in to the open market.

That would be nice but it might be pushing it. That might just scare them away.

As for a signed Lease Agreement before settlement, what happens if settlement doesn't happen or the bank is delayed and then we go over settlement date (14th of Jan)? Then the ball is in the Vendors hand and they could make me pay per day or just stop the sale.

 

[HomeBuyAU]

In addition to a signed Lease Agreement (and i would want that prior to settlement) why not make one of the settlement cheques payable to you for say 6 or 12 months rent upfront.

Also make sure the rent she is paying is market rent so that there is not much rent variance when you have to rent in to the open market.

I went to the property today as it will settle tomorrow and we did the final check as well as sign the lease agreement.

At first the vendor acted a little mad with me that I didn't lend her the full 6k+ but then she told me how it worked out fine as her brother helped her or something so she was quite happy and was thankful I had released the 2k anyway. She understood my reasons.

I'm happy with the Vendor and soon to be tenant as we get on well and she seems honest and straight up. She also isn't the type who will get me to pay for things unnecessary as there is a couple of things to fix in the place but she said it doesn't bother her.

The interesting thing is that she is paying me 6 months rent in advance as you suggested but I never asked her to. So that will be great as I can put it in my offset account and have it there if needed while taking the interest down. But the Agent said she wants to take out $1000 in case repairs or something are needed. She later suggested $1500 as she knows I will be overseas for several months and wanted access to funds in case I couldn't be contacted right away but I let her know I wasn't that happy about it.

So would that be a common requirement that the agent will take $1000 and hold it? There is no reason really as I will be contactable by phone or email although it might take a few days when I get there to know my new phone number. I would rather have that money in my bank account reducing my interest!

I also said I might let them manage my other property as well so I guess I could have that money to cover both properties if something is needed to be done. But I will have insurance anyway so I wouldn't expect to have to pay for anything out of my own money besides excess otherwise it would just be small costs like getting a window replaced etc. $1000 seems excessive!

 

[HomeBuyAU]

Can some of the experienced people here tell me if it's a common requirement that the RE agent will take $1000 from the rent and hold it as I wrote above?

If I'm going to tell them NO they can't do that then I should do that today.

 

[Perp]

But the Agent said she wants to take out $1000 in case repairs or something are needed. She later suggested $1500 as she knows I will be overseas for several months and wanted access to funds in case I couldn't be contacted right away but I let her know I wasn't that happy about it.

Yes, it would be common in this situation. The agent usually has rental income sitting there which they can use to cover any repair expenses that they outlay for you. Given that you're getting rent in advance, it seems entirely reasonable to me that they'd withhold some for repairs.

But I will have insurance anyway so I wouldn't expect to have to pay for anything out of my own money besides excess otherwise it would just be small costs like getting a window replaced etc. $1000 seems excessive!

Yeah, right, good luck with that!

Insurance doesn't cover maintenance. A hot water service, if it goes, will eat up your $1,000 quick smart! Replacing a broken light fitting or extractor fan, replacing smoke alarms (which have a limited life), an air-con service, pest control, door lock maintenance, oven and dishwasher repairs, plumbing problems, etc, are all "off the top of my head" examples of reasonably common items that you'd have to pay for, and I wouldn't be surprised if you do spend $1,000 over a 6-month period. Sure, sometimes you get lucky and pay less, but plenty of times I've spent more, too.

A rule of thumb which I've seen frequently cited is that you should budget about 1% (some say 2%) of the property's value on maintenance and improvements. For a $400K property, that's $4K pa. Investors tend to under-invest on improvements, but even so, $1K doesn't seem at all unreasonable.