If there is one lesson landlords and would-be property investors should learn from the ongoing COVID-19 pandemic, it would be to always plan for the worst.
Saskia Wrobluskie (pictured), CEO of Advantas Property Group, said the unfolding impacts of the pandemic on the housing market serve as a good reminder for landlords to constantly assess every aspect of their investment, including their portfolios, the overall market performance, and their current mortgages.
"The investors that have been proactive in keeping their team of professionals close and in review are the ones that won't be impacted as much," she said. "The good news is, it's never too late to start a healthy habit and with the end-of-financial-year in sight, now is a great time to do just that."
Responding to potential changes
Landlords, particularly in locations where certain sectors are severely impacted by the outbreak, should expect vacancy rates to increase.
"You will need to be competitive with rent in order to avoid long vacancy periods. Ensure you are using the notice period given from your tenant to market your property effectively to lease promptly," Wrobluskie said.
Given the current climate, she said it is a must for landlords to assess the finances of their potential tenants thoroughly.
There is also a recent shift in trends that landlords should be aware of. These new and emerging trends in the wake of the pandemic will change the way tenants look for a potential home.
"Tech-savvy homes with access to fast internet, study areas or office are going to be at the top of search criteria," Wrobluskie said.
In addition to these changes, landlords should also be aware of the changes the outbreak will bring in managing their own finances.
Protecting their finances
States are starting to reopen their economies, with restrictions being gradually lifted. These signal the impending termination of financial support such as the JobKeeper and JobSeeker payments and the banks’ mortgage deferral option.
Given these, Wrobluskie said it is crucial for landlords to recognise that the economic impacts of the outbreak are not completely over and that they should plan ahead as if the pandemic were to hit again.
Cash flow, she believes, is and always will be king in business and in property investment, making it critical for landlords to find ways to free up their budget.
"Spread out other expenses like council rates, water, strata or body corporate fees by paying them in agreed increments rather than in one hit," Wrobluskie said.
It is also a prudent move to speak with banks about options to switch to interest-only payments to help their cash flow.
Dealing with tenants
Given the impacts of the COVID-19 outbreak on the jobs market, landlords are expected to look after their tenants who might not be able to afford full rents. Wrobluskie said with the moratorium on evictions currently in place, landlords have the responsibility to negotiate with their tenants about rent payments.
"Landlords should contact their local residential tenancy authority to see what grants, rent relief and resources are available to them," she said.
It is essential, however, to properly document the agreement, leaving no uncertainties in regards to the terms and conditions of the rental deductions or waiver.
"I would strongly urge landlords to approach each circumstance from a place of compassion. There is only ever a small minority that may try to take advantage of such terrible circumstances, but the majority are not," Wrobluskie said.
Communicating with insurers
When negotiating rental payments with tenants, landlords must consider their insurance policy.
Wrobluskie said agreeing to a reduced rent before speaking to an insurer might put the landlords’ ability to claim rent default at risk. This makes it necessary for them to read the fine print of their insurance policies.
"Rent default claims are typically triggered by events such as tenants unlawfully not paying rent or abandoning the property during the lease," she said. "If you are going to consider rent reductions, then a call to your insurer to better understand your position would be wise."
Wrobluskie said landlords who are planning to get insurance should, at the onset, make sure that they understand the coverage of their policies. For many insurers, entitlements are treated on a case-by-case basis.
"When it comes to the loss of rent, they generally want to see you have attempted to mitigate your loss. In the case of the pandemic, it is likely they would want to see communication surrounding payment plans," she said. Every policy is different, so it is critical to talk with your provider and read your product disclosure statement."
Seeking help from banks
Landlords should also keep in mind to ask what options are available for them, especially when speaking with their banks. In planning how to future-proof their assets, Wrobluskie said landlords should ask their banks and financial providers the following questions:
- Are you able to defer payments if required?
- How long is this option available?
- What happens to those payments when deferred?
- How much interest will be accrued?
- What are the criteria to qualify for hardship concession?
- Do you have the ability to switch to interest-only defer the principal amount to minimise additional costs across the life of the loan?
For Wrobluskie, it will be beneficial for many landlords and investors to reach out to professionals to be able to mitigate future risks.
"From the right lenders, landlord insurers, property tax accountants and of course proactive and experienced real estate agents. Just like a business, it takes a team of professionals to get the best result," she said.