All Topics / Creative Investing / Option Contract and High Rents

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  • Profile photo of Rory BreakerRory Breaker
    Participant
    @rory-breaker
    Join Date: 2010
    Post Count: 26

    Background first.  We rent at $370 week in a town where property prices and rents have gone through the roof all around us – Karrath Median $780K and rent is $1600 week, Onslow median is $680K and rent is $1100 week.  Our residential town Exmouth median is $580K and rent $460 week.  We are next inline to see property prices increase IMO.  The council has announced support for 40 FIFO workers with the view to increase this number.  Rio Tinto have a 130 seat plane dedicated to servicing the east Pilbara from Exmouth and want to fill it.  It currently only takes 30 people daily. 

    I have chosen to continue renting as opposed to buying because it allows me to invest however I feel rents are about to go through the roof with the help of local estate agents trying to push up prices.  I do share a relationship with the current owner of the house and agree to conduct repairs to the property while the owner reimburses costs.  We also enjoy cheaper than market rent however for how long I do not know.  I did ask the owner perhaps she should stop paying an agent management fees and give me a budget for capital improvement.  My view is I live here and will improve the property where I can.

    Looking online there are some townhouses for sale for $580K and are returning $890 per week.  I do not have the funds for a housing deposit however I may be able to get around this if the owner is willing to consider an options contract.  By my calculations the current rent will cover repayments and I may be able to factor in deposit monies also so I can create a deposit.  This would be in a 3-4 year time frame. 

    What I am trying to achieve is to guard against having to pay a large amount in rent should prices increase.  We like where we live.  I thought by doing this if rents go up in town and I have control over the town house then I can offset an increase in our rent by increasing the rent on the townhouse.

    Does this make sense to hedge against something that may or may not happen?  Something else to consider is the towns population is only 2400 people strong.  A small influx of workers will lead to a housing shortage and increase prices to follow.

    I have written to Council expressing a number of concerns however I feel like I need take action and not hope council will do something.

    Also, how is it best to structure this deal should I choose to talk to the vendor about an options contract?

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    What is it that you are hoping the council will do? 

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Rory BreakerRory Breaker
    Participant
    @rory-breaker
    Join Date: 2010
    Post Count: 26

    Good question…

    There are a number of issues the town faces in order for it to grow past 10K population and none more than that of a good source of water so the town can only grow so big without sourcing water from other means than naturally.

    Recommendations to Council were:

    Support a family’s based approach to FIFO workers as opposed to single persons approach.  Ensure the worker and immediate family reside here.

    Promote tourism nationally and internationally by raising awareness of the Cape Range National Park and Ningaloo Marine Park.

    Restrict the number of workers allowed in holiday accommodation.  Currently workers reside in hotel rooms from 3.5-4.5 star!

    Vigilant approach towards crime as population grows

    Release more crown land

    Attract more competition in the building industry in order to drive competition up and consumer prices for housing down…

    I argued Exmouth has a future in mining, construction (housing and civil) and tourism not simply mining alone.  An influx of miners will mean inflation in housing prices – a false market much the same as what we are seeing in Karratha and Port Headland IMO.

    What will Council do you ask?  The Council members are new and predominately business folk with their own agendas.  The majority will promote the mining industry and in a years time the town will become unaffordable for the average income earner IMO.  So why write to them?  I hope to broaden their approach towards growing Exmouth in a more sustainable way.  I like to think they are an intelligent bunch but time will tell.

    What r your thoughts?

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Rory

    Wow very interesting.  It's certainly a heavy barrow for you to push, since as you say, councillors will be looking after their own agendas.

    I guess if you really feel your arguments are valid, it would be worthwhile communicating with state government as well as local government.  I guess that would give you a better chance of getting the town's requiremens included in the infrastructure budget.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Rory BreakerRory Breaker
    Participant
    @rory-breaker
    Join Date: 2010
    Post Count: 26

    Good points.  State Government is worth while pursuing if the need arises however Collin Barnett is all about mining and mining royalties and anti GST.  If it makes his state wealthier and he looks good then it is approved IMO.

    I will sit this one out for now and see what happens to the local real estate market.

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