The reluctant landlord

One of the realities of this current property market is the family home is not selling as quickly as it was. It is not uncommon for the vendor to suddenly decide to withdraw the property from the market and to reluctantly become a landlord rather than take the price hit.

By renting out the home, vendors feel that they have weathered the market. And for some of these by-default landlords, this will be the beginning of a long future as property investors. The original home becomes the rental and off they go on the property ladder.

In the current market, yields have certainly been at an all-time low, but with rents starting to increase there may be some reprieve for landlords and this certainly should be on your mind when you consider keeping a home that you cannot sell.

If property managing seems like an onerous task, there are professionals to help. If your home is in the higher end market, you should speak with companies looking after corporate rentals. Is there a market for your home? I have a number of clients that have chosen for lifestyle to keep the larger home but rent it out with a corporate lease. This is a win-win situation for all.

The decision to keep a property as well as settle on the new home needs to have a number of factors taken into account. Some include: Is it readily rentable in all seasons? What will the shortfall from rent compared with the mortgage now be? Can you afford to service the difference from your own income? Is the desire to keep it purely emotional, or does the property actually have some factors that indicate a good future sale price, for instance a large section that could be subdivided? Who will manage the rental? Can you get mortgage finance approved to keep the old property?

Sometimes it is better to accept that offer $5000 below your bottom price and have a quick, short settlement that doesn't incur further costs to you, although lenders are improving their products understanding that there is this problem in the market.

Mortgage brokers can now help with better bridging loans than those offered in the past. The lender will give you up to 12 months to sell the home and approves the loan assuming a positive end result at normal standard housing mortgage interest rates.

If finances are tight and keeping two houses is not an option, I would recommend that you ask as pessimistic a price as possible for your current home before deciding to buy the new home. If that price is not reached, do not proceed.

If you decide that being a landlord isn't so bad after all, here are some tips for your next property - the one that you seek out rather than inherit.

Generally speaking, advice given by successful property investors focuses on making a good purchase. But a word of caution states that once a bargain, always a bargain. So the homework has to be done.

The importance of the seller's motivation, in this market, is paramount. I had a client recently who did really need to sell, no question about that, but was very reluctant. Once I reminded him of the original price he had paid for the property around 10 years ago and the probable reduced price he could expect to pay for the new home today, he was much happier.

We often have short memories. Buying and selling in the same market certainly has its advantages.

On the other side of the fence, the obvious question for a purchaser currently is: Is now a good time to buy or should I wait a bit longer?

A successful property investor who is in a good financial position makes low offers on properties to unearth the sellers who are in a must-sell situation and will be only interested in buying well.

The major advantage a property investor has over a competing first home buyer is that they will endeavour to keep the purchase practical and unemotive while assessing key simple improvement steps that could enhance the property's rental income, thus increasing the yield.

- NZ Herald

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