G’day
In reading chapter 14 of Steve McKnight’s book (lease options) I wondered if it would be legal for the tenant to sub-let (rent) part of the property to offset their costs. This would be particularly helpful if the lease payments were about 20% higher than market rents (as recommended in Steve’s book) and thus somewhat difficult for tenants to meet. The investor (you or I) would be more certain of getting regular lease payments.
Isn’t this similar to group house situations, where the primary tenant gets co-tenants to help cover the rent payments (effectively sub-letting)?
Cheers
NeilIt wouldn’t be illegal, but some people have clauses in their contracts saying the tenant would need the landlord’s permission to sub lease.
One of my LO tenants did this (without my permission I later found out). He paid a small option fee, sublet and waited a couple of years, selling the property for a nice profit without paying stamp duty (he ended up making more than me).
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw,
Even when there is a clause requiring the landlord’s permission (which is a fairly standard clause) the landlord cannot unreasonably withhold their consent. They would need a pretty good reason not to give their consent.
Interesting that you had a tenant that did this without ur permission. Perhaps when you found out you could have asked for a slice of the profit in exchange for ur permsission [wink]
Regards,
Boyler RoomDuckling Business & Investment Network
http://www.duckling.com.au
Why Walk When You Can Fly?Thanks Boyler Room. I don’t mind, I would have given my permission anyway. We both ended up making a profit, so it was a happy ending.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I havent done any, but if you are even thinking about it, you must jump on the net and buy “the australian lease option handbook”- a dirt cheap ebook. It talks about doing exactly that, it calls them sandwhich deals. ie you lease for 200pw, can buy for 300k, lease for 250pw, can buy for 340k. If you can line it up, cash flow of 50 per week, and a possible 40k down the line.
If you arrange simultaneous settlements, you pay no stamp duty either!
If I was to proceed (which I think is a great idea btw), I would make sure of three things,
i) the initial lease specifically allows it (else walk on to the next deal)
ii) insurance to the house, specifically covering willfull and negligent damage by the tenant
iii) the next person cannot sublease again.
Make it simple get the agent to do the running around and put the advertisement under shared house accom that way you get positive cash flow by charging more rent from each one of them. Better still manage it yourself if you are time rich……………
I am curious how stamp duty was not payable. Surely for the income/profit to be in your name then your name must be on a contract thus triggering stamp duty in your name. Terry, would you mind explaining how SD was avoided in your case. Sorry…. this is a new concept for me.
Mick
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