[~floss~]

So out of the blue I found our dream home today.
It has a flat built on it which is perfect for my mum

We already own our home we are in now
We are at 80% on our current home loan
Questions:

Can we use the 20% as the deposit or collateral for the new house? What about other charges like stamp duty etc?

If we rent this house out - how much do real estate agents get out of the rental price? Is it better to rent privately?

Do you include water charges in the rent?
Do we only pay rates and building insurance?
What else would we be looking at paying?

Is there other things I haven't considered?

Considering I didn't even know this morning I wanted a new house I'm trying to catch up

Any help is appreciated

[~floss~]

bumping

[wanting3]

Hi floss,

I haven't ever been a landlord but I can answer a few of your questions. Yes you will need home insurance (just not contents), most landlords only pass on water charges if they are over the normal water usages.
Check out landlord insurance, but after looking at a few threads in here, I don't know how useful they are. Some realestate agents have staff better suited to managing properties then others (or even yourself), however you will need to ask the correct questions before employing them. eg - how long will they allow a client to default on payment before contact/letters/etc, how long will it take for them to contact you regarding maintenance issues, do they employ anyone who can look after emergency maintenance, what will this cost you?

Plus what is their %.



We had this dilemma (to sell or rent) and we found it was better for us to sell, we sold for much more than the mortgage was worth, we paid off all our other bills, were able to buy the house we wanted, paid the stamp duty etc in full, not on the home loan, and now only service one loan.


In a few years, if we are in a position, we may use our equity to purchase an investment property, but unless it is in a postcode that ensures a profit if it is sold, I would not even contemplate it. Renting does not make you money, unless you totally own the property. Sitting on the property, to sell in the future makes you the money.

[SeaPrincess]

I can't answer the finance questions, but we've rented out 2 of our own homes, both times with the intention of moving back in eventually. We ended up selling the first to buy the second when we moved interstate, then when we moved rural, we rented out our current house.

If we rent this house out - how much do real estate agents get out of the rental price? Is it better to rent privately? We've had quotes ranging from 8.5% - 16%. Obviously there was also a range of things that were included or extra, so for the 8.5%, there were a bunch of monthly charges, plus additional charges for them to do anything, like regular inspections. Our current agent offered us a choice of 9.35% plus minimal extra charges ($9 monthly admin or something, plus advertising) or 16%. I worked out how much extra it would cost for the 16% and we opted for the 9.35%. I would never rent privately - I don't want tenants calling me to organise repairs, I don't want to have to deal with late rental payments or inspections or any of that. The Property Manager is the middle man who takes all the emotion out of it for you, and knows the legal requirements at every step.

Do you include water charges in the rent? We pay rates, tenant pays consumption, both billed through the real estate.

Do we only pay rates and building insurance? We pay rates (again, billed through the real estate), building insurance and landlord insurance (billed through the real estate). We could have landlord insurance that incorporates our building insurance, but we wanted to keep the building with our same insurer. Our property manager deals with a specific landlord insurance agency that doesn't do building insurance, and she said that her experience of claiming through them has been very good, so we went with them.

What else would we be looking at paying?
Before renting the house out, we had professionals come in and clean it thoroughly. This cost about $650 for our first house, a bit less for the second one. We expect to get the house back in the same condition.
Be prepared to pay for maintenance that you would normally do yourself.
Be prepared for tenants to expect things to be fixed that you might put up with.
Be prepared to terminate the services of your property manager if you're not happy - with our first house, we had one who was slow to do maintenance, paid the wrong lawn mowing service, and failed to do a warranty termite inspection on time. I didn't even have a new PM lined up and we weren't living local to the house, but when I got the termite inspection report from the pest company 4 months after I requested the inspection, I sent them notice.
Be prepared for it to cost you money - the house you bought to live in may not be the house you would buy as an investment - ours is costing us far more than it's bringing in, but we are planning to move back into it at the end of this year, so it has been worth holding on to.

[~floss~]

Thank you for the replies

Also another question - what about tax time? do you get back a lot of money when renting out a property?

I have heard of negative gearing and stuff like that but will have to look at talking to an accountant if we go through with this as I dont know what to expect.

I guess I'm hoping to keep this house as an investment for my kids once they are old enough to want to get into the market and I did the figures and it isnt going to be too much difference between the rent we would get and the current mortgage.

[LifesGood]

double post

This post has been edited by LifesGood: 10/02/2013, 12:09 PM

[LifesGood]

We already own our home we are in now
We are at 80% on our current home loan

Can we use the 20% as the deposit or collateral for the new house? What about other charges like stamp duty etc?

if by this you mean your loan-to-valuation ratio (LVR) is 80% then no, you cant use the 20% as collateral for the other property. The bank keeps this portion of your home unencumbered as a buffer in case you go down the gurgler financially and they have to sell your house. So you would need to raise the deposit some other way.

If we rent this house out - how much do real estate agents get out of the rental price? Is it better to rent privately?

Usually between 5-7% of the rent, shop around but be aware you sometimes get what you pay for in terms of service.

Do you include water charges in the rent?
Do we only pay rates and building insurance?
What else would we be looking at paying?

You pay water rates, council rates, building insurance, landlord's insurance (if you want it) and any maintenance and repairs as well as admin costs. You can negotiate anything you like into the rent if you can find tenants who are prepared to pay it.

Is there other things I haven't considered?

yes, negative gearing can be a benefit. If you have a large mortgage on the property you may be in a loss-making position on the rent i.e. the interest and other expenses on the property may outweigh the rental income. You can use this loss to reduce your taxable income each year. You will get a partial refund of income tax you have paid during the year.

[JRA]

This is a decision you should talk to an accountant about.

If you have paid off 80% of your current home, and would need to take out a mortgage for a significant amount for your new home you really are not getting a lot of tax benefits. As your mortgage on your new home is not tax deductible. So you are paying a mortgage on one house and getting income on the other. You also cannot simply re-finance the current house so you have cash to buy the new house, that is not acceptable by the tax office.

Depends on your state, you will also need to pay land tax on the house. In Vic you don't pay land tax on your PPR but do on an other land.

Also another question - what about tax time? do you get back a lot of money when renting out a property?

Ummm. only if you are making a loss on it. And then only your tax rate amount. i.e. you make $100K normally, and you had a loss of $10K, you would then only need to pay tax on $90K, so you get 37% of $10K back, so $3,700. Of course this means you have actually had to LOSE $10K to get that back. So you first need to have enough cash flow to afford to make a loss.

Remember if you have a mortgage on the property you are renting out, it is only the interest you are claiming on tax, not the capital you are paying back - if you are paying back capital.

[SeaPrincess]

Also another question - what about tax time? do you get back a lot of money when renting out a property?

I have heard of negative gearing and stuff like that but will have to look at talking to an accountant if we go through with this as I dont know what to expect.

In a nutshell, negative gearing means your investment is losing money. There can be benefits in reducing your taxable income, but it does ultimately mean that you are paying out more than your investment is bringing in. Another consideration is that the income (or loss) must be split between you and your DH if the property is in both names. If one person isn't earning much (or not working at all) you lose half the benefit of negative gearing because you can't claim back more tax than you paid.

TBH, I'd discuss the finance options with a broker. If you only have 20% equity in your current house, you'll be up for lender's mortgage insurance on top of the house price and stamp duty, and you might find that for now, keeping your current house isn't an option.

[Justaduck]

If we rent this house out - how much do real estate agents get out of the rental price? Is it better to rent privately?

As a general rule 10% or more. My parents rent out their own house to save money. Not only saving week to week, but consider things like if there is a problem with anything they can go out and usually Dad can fix it himself rather than pay a tradesman to come through.

Also, I know one property we rented they liked to not renew the lease. The landlord got paid more at the start of a tenancy & at the end of a tenancy (for their extra work securing new tenants). I cant speak from experience though

Do you include water charges in the rent?
In QLD you can pass on the water usage (not the water supply) charge to your tenant only if the house has a certain number of water saving devices, otherwise landlord pays the whole bill. Only exception there is they can pass on 'excess water usage' charges.

Do we only pay rates and building insurance?
You would want landlords insurance, it can cover you for things like loss of rental income

Is there other things I haven't considered?
If you self manage - factor in...sourcing all legal documents, time for open houses, money for checking potential tenants on the databases, time for running tenant checks (ie ringing referees), time for doing routine inspections. You will need a significant amount of money aside for repairs that would need to be done immediately (ie if the hot water tank breaks overnight), also money at the end of the tenancy, although you might be able to claim on insurance, say the bill was $2400 and the bond was $2200...you would be out of pocket the $200 between it & also to get any money out of a bond you usually have to go through the Small Claims Tribunal (most tenants would fight to keep their money) which takes time as well. You won't necessarily have much luck getting the extra money out of dodgy tenants.
Just quoting in the case of my parents property....the house was left filthy and the carpet was burnt (brand new house prior to tenants moving in so the condition was known). Tenants refused to pay up. Parents had to pay for cleaning to be done & carpet replaced before new tenant moved in two days later. It took nearly 3 months of fighting and mediation with the RTA until they were able to get the whole bond money to cover the costs. They were out of pocket those months until the money came through, and like I said above, they were out of pocket the extra bit above and beyond what the bond covered.