Borrowing to pay the bond - red flag or green light?

Discussion in 'Property Management' started by Scott No Mates, 29th Nov, 2016.

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Would you accept

  1. Yes, it doesn't bother me as long as the bond has been paid.

    31.6%
  2. No way, too risky.

    68.4%
  1. Scott No Mates

    Scott No Mates Well-Known Member

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    I came across this article today about tenants who for various reasons need to borrow the bond for a new property.

    Linky

    Is it a concern that the tenant has to seek external funding to cover the bond? (there could be 101 reasons eg. needs to get the bond back on the current rental, waiting on payday (for monthly pay cycle, stone broke, money is tied up in term deposit etc).

    As the article points out, as a PM or self-managing owner you wouldn't know where the funds came from when they hit the bank so you don't know if they have borrowed from friends, loan shark, payday lender or credit card cash advance.
     
  2. SeafordSunshine

    SeafordSunshine Well-Known Member

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    REDDY RED flag!
    What happens when the tenants need to pay the electricity?
    Get another loan?
    No buffer?
    Keep saving 'til you have one..
    These loan companies are going to want their money first!
    write a budget, etc etc.
    Are they paying less than 30% of income on rent?
    I would completely discourage this.
    for what its worth:eek:
     
  3. ellejay

    ellejay Well-Known Member

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    Not sure if it's a trick question, and I haven't read the article. As you said, it's more about the reason for borrowing, their financial profile, who they borrowed from (interest rate) and ability to pay back. Not sure how you find that harder to obtain info but that's what I pay agents' fees for and it seems to be working. As long as they're not asking me to loan them the deposit that's even better.
     
  4. WattleIdo

    WattleIdo midas touch

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    Red flag.
     
  5. Joynz

    Joynz Well-Known Member

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    I don't think agents would be able to find out any more than employment status and salary.

    The rest (who the tenant borrowed from, interest rate etc) is private information.

    The article reads like PR for the bond company.
     
    Scott No Mates likes this.
  6. Marg4000

    Marg4000 Well-Known Member

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    Even a tenant who hands over cash could have borrowed it (or stolen it!).
    You never know.
    Marg
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    If DOH charges 25% of household income 30% is a very low pain threshold.

    The most recent stats from housing NSW show inner ring 3 bedroom in Sydney is $910/wk based on bonds collected ie requiring a gross household income of close to $160k if that 30% stress test is to be believed.

    Even the middle ring at $750/wk would require household income of $130k to be stress free.

    At those measures you won't be renting to anybody anytime soon.
     
  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Yes.

    I would be moving onto the next applicant.

    Cheers

    Jamie
     
  9. Lil Skater

    Lil Skater Well-Known Member

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    I've found most people that need to borrow the money (whether that be DHS, friends/family) are the ones to stay away from. I couldn't tell you the amount of times people say "I just need to be approved so I can get DHS loan" or something to that effect.

    The only exception for me would be if they have strong rental history prior. Just because a tenant is eligible for DHS or on a low income doesn't make them a bad tenant, but a lot of undesirables fit in this box.

    This is all assuming we're talking about low income earners. If you need to borrow cash to pay bond and rent when your household income is $130k there's something amiss. $130k isn't much money, but it's still "enough" to expect you would be able to save the $5k needed for bond/rent in the span of a year (give or take) since you last paid the money.
     
  10. Ross Forrester

    Ross Forrester Well-Known Member

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    When looking at a tenant the main factor is how they will maintain the property not the ability to pay the rent. The rent should be a second consideration.

    I would prefer a tenant that was 3 weeks late in rent than one who trashed the house.

    In saying that - if a tenant was financially vulnerable I would rather keep things simple and move on.
     
  11. Ghoti

    Ghoti Well-Known Member

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    Hard to say. All four kids borrowed their bond from Bank of Dad and have since repaid it and not missed a rent payment.

    Sometimes folk just need a hand up rather than a hand out.
     
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