Here’s an interest article our conveyancing solicitors recently stumbled across while researching property trends – ‘Young Australians rent to friends to afford mortgage’.
With property prices in Brisbane and on the Gold Coast soaring to new heights, many young people are finding it incredibly difficult to break into the property market, with the prospect of paying back a mortgage seeming almost impossible.
Many young people have lived in a share house or two growing up, but the dream is always to own your own home. So could the concept of being a landlord and renting out a spare room to a friend work and make owning your own property more affordable?
The article below raises some interesting points on this concept.
It is important though to consider the implications this could have if you are a first home buyer, especially when it comes to receiving the first home owners grant and claiming a first home transfer duty concession
Young Australians rent to friends to afford mortgage:
With high property prices in the major cities, young professionals are discovering that one way to afford the mortgage is to become a landlord and rent to friends.
Mark Parncutt, a 27-year-old software engineer from Melbourne, owns a two-bedroom apartment in the Melbourne suburb of Richmond. He rents out the second bedroom to a friend. “We were friends before we became flatmates,” he says. “We get along really well and it helps me pay down the mortgage quicker which I’m really keen to do.”
It sounds like the perfect arrangement, sharing your place in return for a step up the property ladder, and who better to trust in your home than a good friend?
“Tenant selection is of critical importance when renting out your property and finding good tenants is not always easy,” says Demelza Berry, a lawyer and property manager from real estate agency Pinnacle Sales and Management on the Gold Coast. “This is often why clients turn to renting to a friend or family member – better the devil you know.”
But with the financial transaction comes a different dynamic and the realisation that when it comes down to it, only one person is really in charge.
Renting to friends can go two ways, explains Marcel Dybner, head of property management at Melbourne real estate agency, Besser and Co. “It is either totally hassle free or it causes problems in the friendship,” he says.
“We had a situation where one couple moved out of their home and decided to rent their property out. They had some friends who moved in and there were issues from the start. We’ve also had issues where tenants didn’t pay their rent on time and that has also created issues between both parties, more so than the normal tenant/landlord relationship.”
“Renting to friends can make for an awkward situation,” agrees Andrew Trim, managing director of Johnson Real Estate. “Just because they are your friend, it does not mean things won’t go wrong. They might not pay their rent, or worse, they might trash the place. When such situations arise, it can be very difficult to confront them due to your existing relationship with them.”
Donna Pouw, 25, from Melbourne rents a room to her friend Alex, 26, in her apartment in Melbourne’s South Yarra. Pouw, who works for a communications agency, says the two friends get along well and there haven’t been any issues. “We’re pretty honest when the television is too loud or the dishes haven’t been done and remember that we’re not telling each other off to cause a fight but telling each other to make the house a nice space to live in.”
However, Pouw, says that she doesn’t have a written contract with her friend “other than what we communicated via text before she moved in to confirm the conditions”.
The lack of a formal lease agreement is one of the main reasons why the landlord as a friend arrangement can go badly wrong, says Berry. “It is easy to be casual about this when renting to a friend. No formal lease agreement equals no enforceable terms in the event that something goes wrong. I have a client who once rented to a friend who damaged his investment property. My client was unable to claim on his landlord’s insurance as there was no formal lease agreement in place.”
“Time and time again I meet people who have chosen this path and it ends up not only ruining the friendship but results in financial loss too,” Berry says.
As well as getting a formal lease in place, Berry recommends setting up a security deposit. “Again this is something people feel uncomfortable asking for when renting to friends.”
She also recommends being clear about rental amounts and due dates for payment.
“Often these are not properly discussed when people rent to friends. This can result in a landlord having to chase their friend for payment of rent which is often awkward to say the least.”
Avoid arguments about who pays for what by being upfront about bill payments too, says Berry.
Andrew Trim suggests that if you decide to rent to friends it makes sense to use a property management team. “Friends don’t necessarily always make the best tenants or roommates, so it’s nice to know that there is a buffer in the situation should the living arrangement turn sour. Many good friendships have turned bitter due to not having a property management team in place.”
Article written by Sandy Smith and originally published on domain.com.au.