All Topics / Help Needed! / Buying IP with existing long term tenants? Any advice?
Hi Guys,
Just picked up another investment property with some help here from the propertyinvesting.com forums.In about a months time – we settle on a property that has been tenanted by the same family (single mum, 2 kids) for 12 years.
It had been a private arrangement we believe between the then owners and her and she was paying a modest rent in return for being a great, long term tenant.
Anyway, she is lovely and we have met her twice, the property is great and she has told us she has every intention in staying long term as well.
It’s in a cheaper area, so we’re not to fussed on the price… so what i did for her was meet her halfway. Being what she currently is paying, what the market value is (rent wise) and halfway we’d settle. That part was fine. I then sent over my Property Management (real estate) to formalize the contract and they’ve just informed me that she doesn’t have enough for the bond, or the first month down in advance, but does say she has and will be on time etc…
So anyway, my questions is this…. While i’m happy for her to not have to put the first month down and i believe she is going to Department of Housing or something for the bond… and i know she has a great rental history… i’ve informed her i’m happy for these things, but in respect to meeting her needs, she needs to meet mine and make sure its paid on time, everytime and that i’ll have close to a zero tolerance.
So guys… i’m just concerned after reading a story, completly difffernt i know about squatters… but would i get myself in some sort of legal trouble if i ask her to vacate, if she’s late and if she keeps mucking up…. or because she has been there for 12 years… would i get stuck?
Not saying it will even come to this… but its the first time i’ve bought an IP with tenants in it and they have been there for 12 years
???
If she signs the agreement (A MUST) then the laws apply. If she's late with payments she gets notification (after 14 days). But having said that the courts do often favour the tenant.
If she's been paying for 12 years, why would she stop now?
What's the difference in what she will pay and market rent? Why are you supplementing her income?
I know it's difficult when you meet the tenants and they are nice but you need to think about the money out of your pocket and into hers. But also take into account- if she did move out how much would you have to spend to get it up to rentable condition? How long would it take (with the extra rent) to get your money back. If there's a fair bit of work and the extra rent is not huge it's probably easier to leave her there.
ok – which state? In NSW you cannot increase the bond & must also give 90 days notice of a rent review. Why would the tenant be required to stump up the entire bond? Would yurt not have the previous owner transfer it from the bond board? You can’t personally hold the bond in any case, it must be lodged with the RBB.
It’s in Victoria and been privately negotiated with the owner and tenant.
Long story short – i think they just had an arrangement over the 12 years. I’ve now just bought it and the arrangement they had is not worth anything. I’m getting the tenant signed up to a lease but as it was a very quick sale, she just physically does not have the cash for a bond and month in advance. I’m OK with this though – as long as she pays prompt and more so, that legally she’s not in some position, having lived there for 12 years, that makes her almost more of an owner than me! Sounds strange… i know, but i’ll just get her to sign the new lease and we’ll go from thereAlrightey.
Firstly, if she has already paid some kind of bond, you can't ask her to top it up. Sadly it doesn't work that way. Eventually the bond held for a long term tenant looks so small it would struggle to buy a Mars Bar.
Secondly. I agree – don't subsidise people. I'm happy to be flexible on perhaps 5 or 10 dollars per week to save myself the headache of changing tenants to an unknown person, but that's it. Remember that $10 a week is $520 a year. You get the idea.
Thirdly. Department of Housing. I'll tell you right now that this lady could stop paying rent, trash your place and sell drugs from it, and you will never ever get to keep a penny of it if she has gone through Department of Housing. It's yet another crappy outcome of VCAT.
The above doesn't really matter anyway – if someone trashes your house a lot, the bond would not come close to covering it anyhow, and it would become an insurance claim regardless.
Bottom line is, yes, if you have a genuine great tenant on your hands excellent, but don't reward too many dollars per week for such greatness.
Damages will be covered by insurance provided you're suitably covered, so don't get sucked into the thinking of "oh my word, if the tenant doesn't pay rent I'll get no money" line of thinking.
You are a business, not a charity. If this lady is in a spot of bother financially, newsflash, she can get Newstart Allowance and Rental Assistance money from Centrelink. Get online and find out how much, and you'll see how comfortably a person can live even on benefits. No need to discount your property a great deal.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks for your reply.
I agree – i’m not trying to be charitable or anything and perhaps i am being a little generous but yes, we’re only talking about $10 difference from market value and really, that might not even be the case (meaning i migh rent it out, have it vacant and find i have to list it for what she was paying)But anyway, as i said she treats the property great and has agreed to sign up to electronic automatic payments with the real estate etc. I wasn’t as much concerned with her in regards to being a tenant, as i said i met her, the house was immaculate inside and out and the real estate backed it up and told me she’s been like that for 12 years.
Cool.
Get yourself suitable building and contents insurance and also the tenant protection extra to cover you for malicious damage, failure to pay rent and so on. I use AAMI for this.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
AAMI – are you in VIC?
I use RACV and they seem to be quite comparable with their policies? Speaking off – has anyone started a thread on here about good insurers?
Honestly, i have 4 properties (soon to get my 5th – the one we’re discussing) and i’ve always been covered by home insurance and landlord, but never ever had to even use the landlord. Seems kind of like a premium that is never used
I haven't used RACV for IP insurance so I couldn't comment. I've used AAMI and have had caused to make a very large claim and they were fantastic.
Always have the landlord insurance with tenant protection. Murphys Law says when you don't have it you'll wish you did. A tenant can do an enormous amount of damage. They can leave you holding the hat with $50k of damages without even trying.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Good call!!!
The one day i need it is the day i’ve let it lapse. you never think of things like “oh a broken window or damaged carpet” – but what happens when tenants destroy kitchens or flood places etc!good call!
Thanks for that… RACV have been pretty good so far and i have motor vehicle etc with them.
Hi Energy4.
As has been mentioned, the rental history is a pretty good indicator that she is stable, and as long as you have it managed a nd a proper leas in place and insurance you can't do much more.
I will disagree a little with some of the comments re 'not subsidizing' tennants. One house I have, that I was getting market rent in (and 'managed') I had to repaint, and re carpet when she /it vacated. $5k allowing fo time, travel etc.
The current tennant is paying marginally less when you take everything into account, as yes, being an elderly widowed pensioner my soft side came into action. I recently signed her up for another 2 year lease, and winced when I did not put the rent up again, but really, when you inspect the house she treats it liek her own, has spent her own money on improvements, gardening etc, and while I could get another $10-$30 a week extra 'at market' I think to have & keep a stable tennant that looks after a place is worth a few bucks a month under 'market' if you weigh up the pros and cons. Sounds like you've reached a happy medium, so hope it all works out, and congrats on what sounds like a good deal,As a sidepoint re insurance, a lot of the mainstream insurers only cover $10k as the max for deliberate tennant damage. Again, another trade of between premiums, risk, and price.
Cheers
It's good to have a quality property manager looking after the property and if they aren't quality look around for somebody who is, if they are doing their job well it should give you some distance and allow you to be more objective. Having a below market rent can affect such things as sale value, ability to refinance, holding costs. On the other hand quality tenants are worth a discount as they sometimes improve the property as well as maintaining it (which should be the bare minimum for all tenants but sadly isn't). All a balancing act.
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