Im about to settle on my second IP in Perth.
The property is a 2 bedroom unit which is in desperate need of repair (I love these ones). Got it for a good price too!
There is a long term tenant in there at the moment and the lease is due to expire in April 2005.
I would like to renovate this place, but would also like to purchase a 3rd property. By spending around 5k on it, it would value at 20 – 30k more, giving me enough equity to top up my loan for another deposit…
My problem is the tenant. If this was the best option for me, how would I go about booting him out (in a nice way, of course!). Maybe help him find another apartment in the same complex? Pay his moving costs?
As the unit is fully furnished maybe I could give him all of the furniture to cancel the lease early? (It aint exactly Ikeas latest range or anything)
I know that I cant just kick a tenant out, but Im sure there are ways to ‘help’ them as well so that both parties win.
OR would I be better off leaving it unrenovated and using more of my funds (5k renovation money) to put down another deposit?
Luke [cap]
be a little bit careful about renovating straight away… if you leave things as is and get a depreciation schedule you will be able to get a deduction for the fittings that are there over the course of the next couple of years. if you renovate straight away the ATO rules that your purchase price would have allowed for the shabby fittings i.e. it is assumed you got the place cheap, so no tax deduction. What is your motivation in doing this NOW? if your tenant is happy why disrupt them… I doubt if the reno will bolster rents enough to justify the reno so all you are doing is boosting your equity. If you need this to buy your next place, well then fair enough you have no choice. Just talk to the tenant and see what they would want to move, you never know they may hate it and be quite happy to be released from theor contract!
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
Can you elaborate on the bit about the ATO?
From my understanding, any property you buy, and renovate you can claim the renovation costs back. The reason for the renovation is both:
-the capital gain (2 bed renovated units in this street / complex have sold recently for $135 – $165k) I bought mine for 115k…
-and secondly the rent. Similar properties in the area (renovated) are renting for $140 – $160pw
The question is weather to buy property # 3 now or do this renovation now. If not I will fly back to perth next April when the tenant moves out and renovate it then. I just thought, the sooner I do it, the sooner I get access to the equity and the higher rent… makes sense to me? What do you think?
Luke [cap]
Devil,
I would consider the following:
Does the tenant wish to move? Is s/he a good tenant? What is the current market like for property and units in your area – are they still rising and do you believe the value to futher increase in the area?
If i was happy with the area and tenant, i would use the $5K to go towards another property in the area, then in x months or expiry of the lease then renovate the unit. Then if property values rise further up til April, your $5K reno may result in a greater increase and you may have double that result with the other property? Keeping the tenant there will also assist wtih cashflow to service debts and allow additional purchases. Can you do some work while the tenant is still there (may need to compensate for the inconvenience caused – weekend away at freemantle for the tenant so this may allow you to get in and do the work etc)
Hey like i said, this would be my action plan if i was content with tenant, general property market. If you do not expect it to further appreciate in 10 months then, do the reno now as long as there is demand for that unit from tenants. When it comes to claiming repairs or doing capital improvements and the associated tax implications, this is icing on the cake and would not be the decider in my decision. Do whatever you think will return the most for you now.
Old School Skata[cap]
I presume he is a good tenant. I bought him with the property [biggrin]
Hes an old guy, and has been there for a few years. Im sure he would be happy to move if I helped find somewhere (ie in the same complex) and helped him move out. Hes defintely made it his home. (I couldnt live there) Not a great deal of work I could do there with him living there cause theres crap everywhere! haha
Because i live in stinky Sydney now, I dont have all the time in the world to do these things.
I believe there is good growth expected in the next few months considering this lower end price range is a perfect target for the new first home owners which will be out shopping in July
-this is sure to push up prices as stocks in this price range start drying up…*just my opinion*
Luke [cap]
You could ask him which things could be done that he would be happy to pay more for? While there you could just do some more reno work on it and not charge him for it for ‘disruption caused’ until the contract is up in April.
[strum]We had a situation last year when we bought a place with a tennant but it to was run down. We ended up asking the tennent to visit his mum for 2 weeks in nth qld and in that time we didnt charge him rent and we did all the reno’s and then got it revalued. When he got back he was rapt at what we had done and he started paying the extra $10 per week on his rent and he is still there!! Win, win for both sides.
ChefmanPoor ol’ tenant sounds like a disposable slave. It’s not easy finding a good tenant, so i suggest waiting for April, but give the tenant plenty of notice before April so he can move or go on the holiday (that bit sounds great, good onya chefman). sizzlin duck sounds like a good landlord too, I know tenants in Cronulla who’ve been there for 17 years, same unit, unbelievable, paid for it a few times over. They moved, 2 floors up.
look after the tenants.[wink]
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
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to elaborate on the ATO – a bsaic example is say the only depreciable fitting was $5k worth of carpet, if you went in and replaced that in the first month of owning the property, you couldn’t claim a $5k tax deduction for carpet replacement as the ATO assumes you would have bought the property cheaper to compensate for it. If however you waited two years, you could depreciate that carpet and get a deduction for it. Thats my simplistic explanation – check out places like depro and washington brown for further info though.
add up the cost of your reno, guess what the improved rent will be per annum (taking into account vacancy times etc) and make sure that the extra return is really worth it – you would want to be getting at least 12% on your money to bother. So if the reno was going to cost $10k, you would need an extra $1200 per annum rent or $23/week.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
Devil, if the guy is on a lease, you can’t kick him out til the end of it.
Maybe have a chat to him and see what his plans are, he might be happy to stay on and pay a bit more for a renovated unit…
Cheers
Mel
-this is sure to push up prices as stocks in this price range start drying up…
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