Newbie Questions - Rental

[weera2500]

Hi All,

I have never bought a rental property before but I am considering to take the plunge. My previous experiences have been buying/selling property to live or the ones I have lived in. I'd appreciate if you could please help with these questions that bug me.

1) After I buy a property in the next few months, and then if the market crashes wouldn't I be in real shite? Have you been in this situation before where within a year of you buying a rental the market crashes? What would be the recourse?
2) Once I buy a property, and then a few months later I discover certain issues with the property that I am not happy with (leaks, electric faults etc), how long a time have I got so I can file a case against the vendor for remedial action?
3) Buying my very first property (my first home i.e.) was a big struggle. I had to save hard. But I feel guilty if I go out and buy a rental as I would be preventing another hard working person from getting his/her first home, right?

Thank you.

[PTILoveYou]

1) your mileage will vary depending on the town/city you are investing in. Generally, at this late stage of the boom cycle, be very careful investing in over hyped over priced little dead towns in the middle of nowhere, ie Tokoroa
If you buy now, anywhere, then prepare to brace yourself with any vacancy/negative cashflow from your own wage/income.
Having equity in your rental and revolving credit is another line of 'defence' but I won't rely on that.

2) You can't, generally. Once you buy the place, that's it, you can't really go back to the vendor for recourse. If you buy newly built homes, then yes you can go back to the builder/developer within a certain time frame for product/workmanship warrantees. For existing older houses, you don't have this guarantee.

3) If you feel guilty of making money and try to get ahead and achieve financial freedom, well... what can I say... invest in shares?
There are always those who want everything delivered on the plate to them, or those who complains about life being too hard and never look themselves in the mirror. If you have sympathy for these people, maybe investing is not for you?

I feel that you need to invest more time on learning ie Rich Dad Poor Dad/Andrew King/Dolf de Roos books first. Sooner or later you will find out there are darker side to life (especially how the world economics works) than you see on TV/magazine/internet, I think you will be in a real shock, but right now you are probably not ready for that!

[Monsterbishi]

1) After I buy a property in the next few months, and then if the market crashes wouldn't I be in real shite? Have you been in this situation before where within a year of you buying a rental the market crashes? What would be the recourse?

It depends on your strategy, with any investment, be it the sharemarket, property, tupperware sales, etc you need to be ready for the bad times as well as the good.

There's a thread on here which bears some sagely advice - always have at least money to cover your mortgage payments if your rental is unoccupied for at least six months.

2) Once I buy a property, and then a few months later I discover certain issues with the property that I am not happy with (leaks, electric faults etc), how long a time have I got so I can file a case against the vendor for remedial action?

It is your responsibility to carry out due dilligence at sale time, and for both you and the vendor to adhere to the terms of the sale and purchase agreement. If you find issues with the property afterwards you would be hard pressed to file for anything.

This is why a sale and purchase agreement has two states conditional, and unconditional.

The only recourse you can have is if a condition listed in the agreement was not followed - ie. When we bought our last property, the previous owner didn't pay the rates up to the date of the agreement, even though it was specifically listed in the agreement we found out three months later when the rates bill came in - guess how that ended for them :-)

3) Buying my very first property (my first home i.e.) was a big struggle. I had to save hard. But I feel guilty if I go out and buy a rental as I would be preventing another hard working person from getting his/her first home, right?
Thank you.

Your statement answers the question for you, you worked hard to buy your first property, and you'll work to buy a second property - if you can do it, anyone can - the only thing that prevents someone from getting their first home is their own choices, not yours.

[Bobsyouruncle]

Number 3 is the most worrying sign that you could be in trouble as an investor. You really have to fix your stinking thinking.
Owning an investment property is a very altruistic social service. You can provide a clean dry safe home to someone who could never own one. Guilt over success is a New Zealand vocation but it will kill you.
You are housing people your own government can't afford to house. You're a rock star, an altruistic legend. Learn to think more like this :-)

Of course there is a bonus for you which is:

[FJW]

Hi Weera2500

Good post

1) If you are going to hold it, the market crashing shouldn't effect you adversely. The only issue that could occur if your property is now worth considerably less than what you paid for it the bank could look at calling in the mortgage.

2) Sorry not sure on that one, I'm sure there will be someone on this forum that would know though

Hope that helps

[Bobsyouruncle]

Hope that helps....

[Nick G]

Am also concerned at #3 and I suggest you read "Secrets of the Millionaire Mind", it's a bit corny but really hits the spot at how our mindsets can limit us.

[JAYDNZ]

1) Everyone's biggest fear, especially first few purchases (and I'm only on No2, looking for a 3rd)... Nobody can offer guarantees on this, but if you are in it for the long term, values will always recover eventually... as long as you are not forced to sell during a dip, you'll be okay. Rents are pinned to income more than property value, so your cash-flow should be relativity secure.


2) As per previous answers - No recourse unless it's a new property and in guarantee period. Real Estate Agents are "meant" to disclose everything they know about a propertry, at least if directly asked.... I'm not sure how this holds up after the event though.


3) Something of a moral quandary that only you can resolve. Things to remember: Not all renters are prospective property owners, some people don't have the finances or don't want the hassle or rent because they are only planning to live in the area for a year or two (new job etc). Offering a good quality property, managing it well for a reasonable rent is simply offering a good service and in my book something to be proud of. Also, buyers looking to occupy do have some advantages over investors, especially now with the LVR's etc.

A resource that I highly recommend is "The Property Podcast" - Find it on iTunes or at thepropertyhub.net. I'ts a UK podcast but the advice serves well for any location.

Good luck!

Jay

[weera2500]

Many thanks for the replies guys!