Buying from my landlord? Need advice...

Hi folks,

I have been renting a two-bedroom, single-level terrace house in a well sought-after area of Melbourne for nearly 9 months. A few days ago the landlord contacted me letting me know that he is putting the house up for sale and offering me the opportunity to purchase it via private sale, or else he'll put it up for auction.

To make things more complicated, the landlord is a personal friend who has been connected with my family for a long time. As such, I know plenty about his situation and he knows plenty about mine, including how much money I have, my fondness for the area, my interest in buying, etc.

I'd be really grateful for some advice on what approach to take with this situation. Here are several details / considerations / questions:

• Should I try to buy privately or let it go to auction? Why?

• Price: My landlord hasn't given me an asking price yet, but has indicated that he will do so in the next several weeks.
  • How should I go about evaluating the price?
    • Domain's automatic property valuation app gives a range of $1.1 million to $1.5 million, with $1.3 million as the midpoint, though based on recent sales I think she'll ask for at least $1.5 million.
    • Should I arrange for a professional valuer? Should I invite a few real-estate agents to give me an approximate value? What's best approach?
  • How should I go about negotiating it?
    • My landlord knows how much money I have and what I can afford, so that's working against me. That recognized, what strategies can I use to negotiate the price lower? Things I can think of:
      • Offering short short settlement (we're pre-approved for well above the likely selling price)
      • Buying as-is saving him the cost / time to do basic repairs, cosmetic sprucing up, etc
      • Purchasing directly through him, without an agent, saving him costs on agent fees, commission, advertising, etc, and hopefully having those savings (or some of them) passed on to me
• Valuation:
  • Is it worth it to have a professional valuation done? If so, who should I get to do so? Any specific recommendations in southern Melbourne? What should I expect it to cost?
  • Should I ask real-estate agents for their opinion on the value? If so, how should go about asking them? Should I expect to pay them?

• Building and pest inspection:
  • Should I have a professional building and pest inspection done? I'm assuming the answer is yes. If so, what should I expect, what will the cost be, and is there anything specific I should ask for? Do you have any recommendations for specific people to do it?

• Loan: I expect the asking price will be about $400,000 - 500,000 below what I've been pre-approved for. The house is lovely, and in a great location, but not my dream house and not feasible as a family home without building a second level in the future. Should I buy it anyway, or should I stretch to the maximum of my loan pre-approval and try to get a dream home.

• Investment strategy: I'm likely to be out of the country for the next several years, so my plan has been to buy before I go and rent the house out while I'm away. Then upon return I would either make it a principal place of residence until I have money to buy something bigger, or rent for myself elsewhere and continue renting out this property negatively geared as an investment. Does this make any sense? What should I be considering here?

What else am I missing here? Any and all thoughts, suggestions, criticisms, are welcome.

Thanks,
FFTB

 

Plenty of options for you.

• You may wish to share in the cost of a valuer & negotiate around that price. As there's no agent involvement this will save him $$
• Failing agreement, you can still buy at auction but you run the risk of missing out if you think it would sell for higher on the open market.

 

Thanks Scott.

Good advice on proposing to share in the cost of the valuer and negotiate around that price. It's going to be interesting to see what price the landlord proposes, and on what basis.

What's unclear to me at this point is his reasoning behind considering a private sale. Good houses in our area are few and far between and sell like ice-cream on a hot day. My best guess is that he needs the money to buy another investment elsewhere.

 

I would suggest you get your own valuation done and go from there. Maybe first work out whether you are serious first.

 

Yes, I received similar advice from a friend. What's the right way to ask an agent to do this? Should I expect to pay them? Is there any risk they might figure out who the owner is and try to follow-up with him?

 

This, I'd just go pay for my own valuation - can't remember what I paid for one a few years, back - i think $500 or so. I'd only disclose it later if his price is a lot more than the valuation.

 

Why would you bother getting agents through to give their opinion, and not pay for a proper valuation?
What would be in this for the agents, and wouldn't there be a risk they go and hit the owner up for commission?

If the price is ok, and you are planning on staying there for at least 6-12 months, why not buy it and rent it out while you are away? At least it will be CGT free if you want to sell it when you get back.

I'd like to buy the house I am currently renting, but the owners (who are family and live next door!) have no real motivation to sell. My plan is first up find out if they are at all amenable to the concept, if not I'll have to abandon the thought. Second would be to agree on a price. I would get at least 2 valuations. There is no point trying to get it for "cheap" - that would be doing family a dis-service. Equally I would not pay above market price as that is just silly I would be looking for a mutually agreeable price, and if that can't be found no drama. No need to bring emotion in to it!

Cheers,
Inertia.

 

My thoughts too, if the agents can sniff out an easy sale + commission they would be all over it.

 

Great comments above. Thanks everyone.

At this point it sounds like I should go ahead and have a professional valuation done. Can anyone recommend a good valuer bayside in Melbourne?

 

As part of their preparation for meeting with you the agent wouldpull the ownership details from RP Data.

 

Right. I did not realize that. Important information indeed!

 

You are looking into i too much. The owner can ask anything he likes. He will probably give you a discount because you pay rent and he saves on agents commission.
Valuations are usually under the real value. Don't tell any agent as you might lose the purchase.
Do you own research. Their are heaps of sites that will give that will give you previous sales prices.

 

A bigger issue might be that isn't your "dream house". There is a chance that extending up might not be possible, or might be more expensive/hassle than you thought. You might end up regretting the purchase, if a better property comes to market.

 

Sounds like you know each other quite well within the family network,the question to ask is how many others within the family would also like the property,and myself i would not go near any real estate agents,no wait till an auction,someone always pays more then you will want too pay
the very simple way would be just pay the small fee,and have the place valued ,then when you know the value range,then just sit down and talk,those that need to know,know,the rest don't need to know anything,i just hope you never played Monopoly as younger people..imho..