Hey guys, been inactive for a few months but since the mega conference in Melbs i have had my passion for investing re-sparked. I have an absolute doozy for you guys as I am trying to help my mother keep her only asset (house).
Ideal situation is to get this baby as close to neutrally geared as possible so she can hold on to it when she moves in with her new boyfriend. She wants to sell but im urging her to keep it if she can afford it, as its the only thing she owns.
So here goes.
Property is worth 375k in Oakden in Adelaide. 3br 2bthr 1car semi-detached house.
RP Data says 360pw rent with a range from 340-380pw possible.
House is in fairly good condition and has solar on the roof. Lets say for arguments sake we manage to achieve $370/week rent
Finance is structured as 2 loans
1st : P&I Loan FIXED for 2 years at 4.890% pa
Balance: $260k owing Repayments : $390/week
2nd : P&I Loan VARIABLE at 4.64% pa
Balance: $19,250 owing Repayments $30/week
(second loan was for a car)
What are the costs associated with getting this place ready for rental. I know about landlords insurance, property manager rates (7%) but what else do i need to take into account. I was hoping that the place being pet friendly would be useful to collect the higher rental bracket?
As well as this, is there a way i can get better finance and in turn suck a bit more juice out of this lemon. Converting the loans to I/O and perhaps combining them to save on fees?
Id love any help you wonderful people can give. I can provide more information where necessary :D
Cheers in advance.
In terms of your questions, landlord insurance + property management will certainly be the main additional costs than currently.
With regards to the finance – the lender *may allow the loans to switch to IO, this depends on the lender and specifics of the loan (how many years in etc). You’re not going to be able to combine the two loans with one loan being fixed – this would trigger a break fee which will likely cost thousands. It wouldn’t be ideal to combine the two in any case, as you would be combine a personal use loan with a future investment use loan, muddling the tax deductibility causing long term tax issues for negligible if any gain.
If the intention is to rent the property out, it’d be best to touch base with the lender to see if she can initially switch the loans to IO, then get in touch with a property manager. David Traeger on this forums is a well known Adelaide property manager who runs http://www.dtproperty.com.au – I’m sure he’d be able to shed some light on the rent potential, whether to advertise at pet friendly to boost the yield etc.
Not sure about Adelaide but I have found that allowing pets does provide a small increase in rent, but it comes with additional risk.
When does the 2 year fixed period end?
If your mother is still working then there is capital depreciation – you’ll need to get a report done.
In general I agree with you and selling sounds a bit risky. It might seem harsh but you don’t want your mother to split with the boyfriend and have no home. Chances are any cash made from the sale would get spent and she might end up with nothing.