Expert Advice with Helen Collier-Kogtevs, 23/03/2020
Who would have known that things would change so rapidly just over a weekend and lead to all of us in complete lock-down?
In fact, on Friday, I had just parked my car in the garage from picking my daughter up from school, when a headline popped up on my phone… “Government to protect tenants from being made homeless”.
Upon reading the article, it was vague and ambiguous due to it only just being announced by our Prime Minister Scott Morrison.
My first thought was…
What does this all mean for all investors?
Since Friday, I’ve have received numerous emails from readers asking a variety of questions with potential ‘what if’ scenarios.
I’ll share this one from Sam. He writes:
Hey Helen, Hopefully the government will assist tenants with rent.
The banks are talking about pausing home mortgage repayments for 6 months, although interest will still accrue over that time and will be added to the loan balance.
I hope they do not expect landlords to give tenants free rents..... I will be very unhappy if we need to do that 🙁
Do you think they will enforce landlords to not charge rent, or delayed rent? Or will the government assist renters to continue to pay their rent on time. If they allow tenants to not pay rent, at the end of all this the landlords will be at a loss and the tenants won’t be out of pocket.
I can understand that it’s a big thing for everyone.
What’s your take on what might happen?
Thanks for the question Sam.
My heart says, yeah it will be great if the government helps tenants, but my head says, this could be a major problem for investors and until we know the details, who knows what direction this will go in.
Like any other investor, I don’t want to be lumped with mortgage repayments on an investment property whereby the tenant can’t pay the rent. Yes, I have buffers in place to sustain this for a period, but I know that there are so many investors who could not sustain this long term.
This potentially has ‘disaster’ written all over it.
This morning, I called my Insurance Broker, Sofia Kotanidis, wanting to get more information on how insurance companies will handle claims made by landlords under their landlord insurance policy, should tenants not pay rent. And according to Sofia, the policy stands as is:
“Residential Landlords policy covers the Insured Landlord at the Insured Premises for Loss of Rent due to Tenant Default.
A Tenant might Default on the rent due under the rental agreement for a number of reasons, it is important that Property Managers follow the appropriate steps when this occurs (issuing arrears notices, notices to vacate etc.).
If a Tenant falls into financial hardship and Defaults on the rent due under the rental agreement, Our Policy will respond as per the Policy Wording and Policy Schedule. The cause of the financial hardship will not affect the response of Our Policy. Every Claim is always assessed on its own merits and facts.”
If you are covered for loss of rent, then once you use up the bond money, the insurance company is still technically obliged to pay landlords for the loss of rent up to what ever amount is in the policy. And if the tenants don’t leave, well, some landlord policies also cover squatting for up to 52 weeks.
Even with landlord insurance, this is still a crap position for any investor to be in!
The Good News… well, as good as it might get in these times…
I believe the government will step in to deal with this issue. I believe this is where payments to tenants to cover the rent will kick in and if they don’t, then this is where the banks will be focused to support investors by pausing repayments for a period of time.
I get that interest will still be due however delaying interest payments for a period, is better than foreclosing, so in these tough times, we all will need to go with the flow and keep a level head about things.
The government seems to be committed to supporting all Australians during these unprecedented times and having buffers in place is more important than ever before.
I am now starting to look at reviewing my interest rates – especially the long-term rates.
Currently on some of my loans, I’m paying 3.65 interest however the 2-year fixed rate with some of the major banks is 2.88% or 2.89%.
My hunch is that banks are not going to continue dropping the variable rate, even if the RBA does. Instead, I reckon the banks will drop the long-term fixed rates and make it easier for investors and homeowners alike to switch to Interest Only. The big push (from the past) to have everyone on Principle and Interest repayments will be relaxed, giving borrowers under financial stress, the opportunity to switch over to interest only.
I know that some of you are nervous about your landlord policies so contact your Insurance Broker or insurance company to get an update on your policy and where you stand.
Educator | Investor| Speaker | Best-selling Author
Helen Collier-Kogtevs is the Managing Director of Real Wealth Australia, a leading education and mentoring company for real estate investors. Not only is she a highly successful property investor and an educator, but also a best-selling author, and a philanthropist.
Helen is particularly passionate about helping people, especially people who are keen to create wealth and make a difference in their lives, and she has been mentoring thousands of new and experienced investors in their pursuit of wealth creation through property.
She founded Real Wealth Australia to mentor investors create wealth and financial freedom by focusing on helping them build an investment strategy to fit their individual goals, rather than focusing on one particular investing method using her successful “10 Properties in 10 Years™” system.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.