With the government banning tenant evictions on COVID-19 affected rental arrears tenancies up to the 29 September 2020, how can landlords juggle the cashflow of their investment property during these unprecedented times? We understand that most of Brisbane’s investment properties are owned by a family that has one investment property secured by a mortgage, so any reduction in rent during this time may affect the cashflow management of the property. Here are some questions answered by Emily Williams, our new Business Specialist at Calibre Real Estate:
Should I ask if my tenants require a rent reduction?
We empathise with those financially affected by COVID-19 and acknowledge that almost every industry has been affected in some way, some moreso than others. However, we suggest holding off on offering tenants a rent reduction or rental freeze and continue to follow the usual rent collection procedure.
Why? We see two reasons at this stage. The first reason is your landlord insurance.
Will Landlord Insurance cover my property during this pandemic?
Here are 3 quick Q and A’s from the team at Aon Insurance:
Q. Can rent default be claimed if the tenant is unable to pay rent due to COVID-19?
A. Yes, this is claimable under the rent default section of the policy. Please refer to the Landlord Insurance PDS.
Q. Can a shortfall be claimed if the landlord and their tenant mutually agree to a reduction in the weekly rental payments?
A. No, the difference in weekly rent is not claimable as this is a mutual agreement between the landlord and tenant.
Q. Can rent default be claimed if the landlord and their tenant mutually agree upon a suspension of their rental payments?
A. No, as this is a mutual agreement between the landlord and the tenant.
We have also noticed that many popular landlord insurance policies as of the 3rd April are in embargo, meaning that they are no longer accepting new landlord insurance policies due to COVID-19 pandemic.
The second reason is a rent reduction could impact the stimulus packages released by the Federal Government and the temporary relief package that the QLD Government has announced, offering up to $500 per week for up to 4 weeks until the Federal Government stimulus packages kick in.
Whilst waiting for the Government packages to be rolled out, this is a good time to speak with your bank and your accountant to see how this may impact this financial year.
Agencies are requesting tenants to prove their financial position by showing job loss or reduction in pay, along with proof that they have firstly exhausted all avenues regarding relief packages. The most promising packages to date appear to be coming from the following:
- QLD Government’s up to 4 weeks rent (maximum of $2000), you can view criteria and application process here
- Job keeper and Job seeker packages
- Federal Government stimulus packages
There is no requirement at this stage to offer a rental reduction. Property Managers are required to follow normal rental arrears procedures during this period to ensure our landlords are covered under their landlord insurance. If a rent reduction was offered, you would be required to reduce the bond on properties if the rent is $700 or less per week as the maximum bond amount is four weeks rent.
Should landlords freeze mortgage repayments?
Banks have agreed to offer landlords a mortgage repayment reprieve for up
to six months. We recommend you speak with your accountant prior to doing so, as generally when the 6 month period has expired, it could result in charges being added to the loan. With RBA announcing a second rate cut in March, the official cash rate is now at an all-time low of 0.25%, now is the time to contact your bank about all available options including a rate reduction. Canstar reveals there is a large gap in the mortgage space between the interest rates available at the moment, the most competitive rates are sitting around the mid 2%, so it is definitely worth a conversation with your bank.
How will maintenance issues be addressed during the pandemic and social distancing?
At Calibre, we have asked for tenants to continue to repair emergency and routine repairs as soon as they become aware of the issue and to send through photos and log the request through our online portal. Our main office, unless there are further restrictions implemented by the Government, is still open and allowing trades to collect keys with additional hygiene procedures in place.
My tenant is moving out and I need my property released ASAP. Will my investment property still be advertised and shown?
Yes! Calibre is still conducting private inspections on all properties. We are armed with hand sanitiser and enforcing social distancing restrictions at all properties, only allowing up to 2 people to go through a property at any one time. Calibre is still leasing properties on average, 3 times quicker than the Brisbane average, which is great news especially in this climate as landlord insurance does not cover rent loss due to market fluctuations.