Hello all.
We have been approached by the NSW Department of Housing with a proposal offering us a 3-year uninterrupted lease (with an additional 3-year extension option) on our IP. They would sub-lease to DoH applicants in need of state housing.
As far as we can see it the advantage is that we would be guaranteed at least 3-years of rental income with no lease prep fees or vacancy periods. They will, after the completion of the lease, restore and repair the house to its pre-lease condition (with fair wear and tear taken into account).
Now, here are the disadvantages as we see them:
1) The contract only allows for a $5/week rent increase annually. Considering we are getting $270/wk now, and given the low NSW vacancy rate and upward pressure on rents, this is a pretty small annual increase. However, this could be offset by the guarantee of no vacancy between tenants.
2) We bought the property with a view towards subdivision in the next 2-3 years. Under the contract we would have to wait until the end of the first 3-year period before moving on our plans. Basically this limits our flexibility unless we break the contract. There is also the possibility that we could build a development clause into the contract.
3) The quality of the sub-lease tenants is beyond our control BUT there is the guarantee of repairs by the DoH.As it stands it's a real line call. Has anyone out there had experience with a State DoH as tenant? Anyone care to give us their two cents? All comments appreciated.
Cheers,
Art
'Great spirits have always encountered violent opposition from mediocre minds.' – Albert Einstein
'Great spirits have always encountered violent opposition from mediocre minds.' – Albert Einstein
I haven’t had any experience with DOH but I would consider $5 rent increase every 6months and a clause to be able to access the property for development. (surveying, council approval, etc). If possible sign up for 2 years and then it will give you more flexibility if rent has risen heaps and with development. Then you may be able to consider another contract with them. I’d go ahead if you want to set and forget, but if you want to be more involved with this investment it might not be the best option.
We have a property in Kalgoorlie that we have owned since 2003. The property came with a GEHA lease, which I am assuming is similar to you situation, and they re-signed for another 2 x 2 lease.
We have never had a missed rent payment and the property is looked after by them. There has been an odd incident (domestics I gather) but basically trouble free, no vacancy and rent always paid.
Every Landlord dreams of this scenario. This could be a good time for you to consolidate some funds while the DoH lease runs, then work on the sub-division along the way, ready to go when the lease expires.
It's guaranteed but doesn't allow you the freedom… Which is more important?
Remember that you are also helping on a wider scale and providing a roof for someone.Hello all,
Thanks for your comments.
Truth be told we are leaning towards taking up the DoH lease provided they agree to a couple tweaks in the contract (more or less like those suggested here already). Our current tenant is a DoH client with part of her rent being paid every month by the DoH and I have to say that she's been great.
Cheers,
ArtHello Art
You mentioned that they are offering a three year lease with a 3 year option. That's their option … not yours …… so doesn't that mean that you could be locked in for 6 years. ?
Is there any mention in the lease about rent after the first 3 years. Is it tied to fair market value.? If so I think that this probably means that you can't then ask for some rediculous amount to get them to refuse their option. Worth checking maybe.
Cheers
ElkaHi Elkam,
Yes, this is the case. Should we proceed we will insert a clause whereby we can unconditionally terminate the lease with 6 months notice. Given our development time frame there is no way we want to be locked into a potential 6 year lease. However, under our subdivision plans the existing house will remain after subdivision so there may be a bargaining point there (ie the DoH can have the 3+3 lease but we reserve the right to subdivide and develop).
Art
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