Friday 22 September 2023

Rental investment property blues

Apparently the tenants for my rental apartment have not paid the rent since 24 August, so the managing agent issued a termination notice with termination date 22 Sep (today). If the tenants don't pay the rent that is due, or vacate (give possession), then an application will be lodged with the relevant government tribunal (costing $60) and the case will be addressed in a couple of weeks. We'll see what happens. The tenants could catch up on the owed rent, or could move out and hand the keys to the managing agent, or not do anything -- in which case the application will be heard in a few weeks' time. The tribunal might terminate the lease (in which case the tenants should leave -- but sometimes you have to get the local council 'sheriff' to notify them the move out of the premises). Or the tenants might claim difficulty paying the rent and seek some sort of 'arrangement' to slowly catch up on the owed rent -- which can then drag on for a long time (and the tenants eventually move out owing even more in unpaid rent). Or the tenants could pay the owed rent the day of the hearing, in which case the application is dismissed (and often the entire cycle of falling behind in rent repeats).

In my previous experience having a rental property, it is quite common for tenants to move out without notice when they are many weeks behind in the rent, leaving a mess that needs cleaning up, damage to be repaired, and a two week 'bond' that doesn't even cover the cost of repairs and cleaning, let alone the amount of unpaid rent that is owed. The tenants then often move interstate (or in this case possibly overseas) and you can never recover the owed rent. Then you often have the property vacant for another couple of weeks while looking for new tenants (and paying for advertising etc).

One has to take the 'long view' with such things - otherwise you worry about having to make mortgage intereest payments on a $1MM mortgage at 6.29% while not getting any rental income, and also having to pay strata levy, insurance, council rates, utilities etc.

In the 'long run' rental income should cover *most* (or a large part) of the holding costs, the net negative cashflow and depreciation should provide some tax relief, and the eventual capital appreciation (after paying capital gains tax) *should* make the investment profitable in the long run.

ps. My application for income tax variation (based on the expected net loss from the investment property this financial year) was approved in August, but had not been applied by my employer's payroll department as of last week -- so I had to check with the ATO that the variation approval had been sent to my employer (it had) and then try to contact the payroll department (in HR) to find out why my withholding tax had not been varied yet. I still haven't received an update regarding the 'ticket' I had to lodge (other than an automatic response that it had been received), so I have no idea when my take home pay will start to reflect the reduced withholding tax rate of 11% for the remainder of this financial year.

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