Good day, folks!
Got an issue on our hands now that is a little bit grey and ill-defined, and we're not sure what to do. Here's the scenario: we recently bought a house at auction with a 90-day settlement. The house was previously leased with the same agent that sold the property to us, but is currently vacant because the tenant has moved out. The vendor has suggested that we attempt to lease the house out BEFORE the 90-day settlement is up for the following two reasons:
1. Being the end of the year, it was suggested that new tenants will be trying to make their move into a home during the holiday season so that everything is settled before work starts again.
2. Leaving the house vacant for a prolonged period is not a good idea.
Do you believe that now is the best time for me to find a tenant, rather than after settlement sometime in the middle of March? If we went ahead with this, the rent would go to the vendor. However I have a few concerns about this:
1. What are the legal implications for doing this? For example, who pays for landlord insurance? Who is responsible for any problems the tenants might find with the house or any issues they might cause? I'm guessing that costs involved with landlord insurance, the advertising and letting fees etc can be negotiated and the vendor and us will split the cost.
2. The house is in need of some repairs. If I were to conduct repairs on the house BEFORE settlement but the house is currently leased, can I claim such expenses against tax? Can I claim agent fees against tax? The house is still not in my name, however it is an investment property generating income (although not for me but for the vendor) and there are expenses involved.
In short, is leasing the house to tenants BEFORE settlement considered a good idea or does this send alarm bells ringing and is something to clearly avoid?
The key advantages to me are not really monetary in nature, but may simply help me secure a tenant at a time when tenants may actually be looking to move.
Hope some of you can advise.
Hi Fword,
The vendor would get the rent, the vendor is responsible for landlords insurance. The vendor must still present the property to you in the same condition as you bought it. You would do an inspection the week before settlement to check.
Why did the vendor suggest to you to do it? If the vendor wishes to rent the premises they should be organizing it.
Was the property sold to you with a lease in place or vacant possession?
You'll have to ask your accountant about the repairs before settlement to get the best advice.
I wouldn't want to leave a property empty but that's what insurance is for. If you are looking at renting the property in the new year I'm sure you will be fine to find a tenant. There may be tenants who go the opposite way and will not move during the holiday period.
Let us know how you get on, good luck
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeDWolfe wrote:Hi Fword,The vendor would get the rent, the vendor is responsible for landlords insurance. The vendor must still present the property to you in the same condition as you bought it. You would do an inspection the week before settlement to check.
Why did the vendor suggest to you to do it? If the vendor wishes to rent the premises they should be organizing it.
Was the property sold to you with a lease in place or vacant possession?
You'll have to ask your accountant about the repairs before settlement to get the best advice.
I wouldn't want to leave a property empty but that's what insurance is for. If you are looking at renting the property in the new year I'm sure you will be fine to find a tenant. There may be tenants who go the opposite way and will not move during the holiday period.
Let us know how you get on, good luck
D
Good day DWolfe,
Nice to hear from you. Hope things on your end are going well.
Have to agree with what you say regarding landlord insurance and also the clause that states the property is to be presented to the purchaser at settlement in the same condition in which it was bought. This was actually in the contract of sale that we already signed.
The property was sold with vacant possession. I checked with my accountant regarding expenses before settlement and they are not tax deductible, as I also guessed.
Ultimately I'm sure the vendor proposed this because it's advantageous to him. However I can see it's also of potential value to me to spend this time before settlement looking for a tenant, rather than wasting the next three months and then waiting till settlement to start looking for one. Would think that different areas attract different sorts of tenants and therefore play a role in deciding when tenants usually move house, but I could be wrong.
If I could just as well find a tenant in March then I wouldn't worry as much.
2 schools of thought
a) leave it vacant & lease it when you get possession – you will be up for all costs in leasing the house, you may have a delay between securing a tenant and them occupying the premises, you may need to delay access until make good works have been completed, house will 'smell' of being closed up for 3 months.
b) if the vendor leases it, they will pay for the leasing costs, you have no control over who the tenant is or their quality, the vendor gets the rent up to settlement, you may not be able do as thorough a final inspection as you like, make good works won't be done (if you are to undertake them), you get rent from day 1.
Options: if you agree to the vendor leasing the premises, then you should get a say in vetting the tenant (or agree with the managing agent's recommendation), you may need to pay part of the letting costs for the privelege, alternatively seek early access to find a tenant with lease starting soon after settlement (and any works you need to do).
Scott No Mates wrote:2 schools of thoughta) leave it vacant & lease it when you get possession – you will be up for all costs in leasing the house, you may have a delay between securing a tenant and them occupying the premises, you may need to delay access until make good works have been completed, house will 'smell' of being closed up for 3 months.
b) if the vendor leases it, they will pay for the leasing costs, you have no control over who the tenant is or their quality, the vendor gets the rent up to settlement, you may not be able do as thorough a final inspection as you like, make good works won't be done (if you are to undertake them), you get rent from day 1.
Options: if you agree to the vendor leasing the premises, then you should get a say in vetting the tenant (or agree with the managing agent's recommendation), you may need to pay part of the letting costs for the privelege, alternatively seek early access to find a tenant with lease starting soon after settlement (and any works you need to do).
Thanks. The way you put it, it makes it sound like a better idea to get the house leased before settlement, despite the risks involved. We will definitely vet the tenants and will need to mutually agree on the choice of tenant and the amount of rent they pay. Otherwise I might get someone in on a 12 month lease and paying way below market value. If we do this we could probably get early access to do a couple of small repairs before the lease occurs. Regardless, I suspect the vendor will not bear all the costs associated with leasing the house and the costs may be divided between the vendor and ourselves.
On speaking to my solicitor today he didn't see any need worry if the house is rented out before settlement. I understand there is a clause for vendor to present the house to us in the same condition as it was when it was bought. However from my knowledge, if any damage occurs, I'm only entitled to a $5000 compensation. I cannot choose NOT to settle if say, damages by the tenant amount to $10K and the compensation doesn't cover this.
Indeed there would be landlord insurance in place, however the insurance company is answerable to the vendor, not to me. And once settlement occurs and if any damage is not rectified, I could be left with a substantial repair bill and toxic tenants. This really, is my main worry about leasing before settlement. Otherwise, weighing things up, it makes more sense to just lease the house straightaway.
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