How property investors can keep tenants onside during COVID-19

author-avatar By on August 13, 2020
How property investors can keep tenants onside during COVID-19

Photo by Bewakoof.com Official on Unsplash

COVID-19 has shaken up many aspects of daily life, and the property market has not escaped unscathed, with both renters and owners affected in different ways.

The Domain Rental Report for the June quarter (April, May and June) found a massive decline in national rents due to coronavirus. The national median unit rental price fell by 3.2% (worth $15 per week) to $447 - the biggest fall in 15 years - while the national median house rental price fell 1.2% to $446 per week.

Data from CoreLogic's Quarterly Rent Review for June also shows a changing trajectory for the rental market, with rent values declining 0.5% over the quarter nationally - the second largest recorded fall since the September 2018 quarter.

No matter which set of data you look at, the rental market has become much more fragmented in recent months as prices fall.

“With weaker conditions for units compared to houses, tenants have a better chance of nabbing a cheaper unit," Domain Senior Research Analyst Dr Nicola Powell said. 

"Rental prices fell across most major capitals, illustrating no city was immune from the impact of coronavirus, with Sydney and Hobart units recording the steepest quarterly fall on record.

“Tenants now have the novelty of choice. The rapid rise in advertised rentals has put pressure on rents. Tenants are using this as bargaining power to negotiate a deal while landlords compete to lure them."

Buying an investment property or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for investors.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
GET A FULL OFFSET ACCOUNT FOR NO EXTRA COST

Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
GET A FULL OFFSET ACCOUNT FOR NO EXTRA COST

Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
VariableMore details
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
VariableMore details
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of September 27, 2021. View disclaimer.

However, this certainly does not mean that tenants have all the power. The coronavirus crisis has wreaked havoc on the job market, with those who rent particularly hard-hit, as renter-heavy sectors like hospitality and retail have felt the effects of lockdowns and restrictions most keenly.

Analysis of data from the Australian Bureau of Statistics (ABS), Australian Taxation Office (ATO) and the Productivity Commission by The Conversation found 2.5 million Australian households rent privately, and just over half are in the bottom 40% of households by income. Even before COVID-19 struck, about one-third of renters were low-income households paying more than 30% of their income in rent, a situation that’s likely even worse now.

About one in four renters are unable to pay their rent on time, according to an Australian National University study, and despite extensions being made to policies like JobSeeker and JobKeeper, many will still be fearing an upcoming economic cliff, which could, in turn, have dire effects on the housing market.

With many renters unable to rent and inevitably moving back home, and others in search of properties offering cheaper rent, some landlords may be fearing the loss of their tenants.

To discover tips on how landlords and property investors can keep their tenants happy during COVID-19, Savings.com.au consulted Shannyn Laird, the Head of Customer Experience at digital property management platform :Different.

[Read: :Different, the online property management tool]

Tip #1: Don’t assume a yearly rental increase

Many landlords increase their rent on an annual basis to keep up with market conditions, or to keep up with increasing costs like maintenance, council rates and insurance. However, Ms Laird advises against doing so at the moment.

“In the COVID-19 market, increasing rent can come across as tone-deaf and be detrimental to the relationship with a good tenant, particularly if the increase is unwarranted,” she told Savings.com.au.

“At an uncertain time like this, it’s much more powerful to either keep the rent as is or even offer to reduce it, to encourage the tenant to stay put.”

Shannyn2

:Different’s Shannyn Laird. Picture: Linkedin.

Landlords and tenants were encouraged by the government to come to agreements on rent reductions during the pandemic in circumstances where full rent couldn’t be paid. However, only a small number of landlords appear to have done so, with Better Renting recently finding that of the tenants who lost income as a result of COVID-19, 50% asked for a rent reduction but only 9% received a satisfactory rent reduction. 

“I have no idea how we would ask for a rent reduction. We are on a month to month lease and are already worried about eviction, as it has been on the cards for some time," one such renter, Jasmine from Victoria, said. 

One renter, 'Wanita' from Western Australia, asked for a reduction, but was only offered a trivial reduction. 

“(We) Let the landlord know that due to the events we could only pay so much….They offered a $5.00 a week rent decrease,” she said. 

Keeping the tenants’ rent steady or offering to reduce it may be more beneficial in the long-run, at the cost of some short-term losses.

“While it might look appealing to be getting the market rate for your property, landlords need to consider the very real prospect that they might not find someone to move in as quickly as they’d like, meaning they would have to wear those costs themselves,” Ms Laird said.

“Prioritising your tenant’s needs might mean a reduction in your weekly rental income, but in the long run - both you, your tenants and your property will be better off.”

[Read: What landlords can do if their tenant can't pay the rent]

Tip #2: Treat your tenants properly

It’s also vital that you continue to treat your tenants with respect, and Ms Laird says you should address their needs as you would one of your friends or colleagues.

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner-occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services

Rates correct as of September 27, 2021. View disclaimer.

“Evaluate the reasonability of the request and act accordingly and fairly. Address maintenance when first reported, not when it’s convenient for you,” she said.

“Maintaining the property well tells the tenant that you care about their state of living because you care about their home - even if technically, it’s yours.”

[Read: A guide to tenants' rights for landlords]

Tip #3: Kindness goes a long way

If you want to keep a tenant in the property beyond the COVID-19 era (who knows when that will be), then it might help to forego some of the transactional aspect of the tenant-landlord relationship every now and then, especially if they’ve continued to pay most or all of their rent during the pandemic.

“When COVID-19 hit, we had a landlord ask us here at :Different to send all three tenants a $250 Woolworths gift card as a way of saying thank you for still meeting their rental payments in full. Similarly, I had another landlord send their tenants flowers and champagne when they were having a new baby,” Ms Laird said.

“Little investments at the start will often mean a greater return on your investment property at the end, because the tenant feels empowered to do the right thing by your home.”

It’s important to remember too that the tenant is still a human being leasing out the home, especially during difficult times.

“The home is an emotional element of life and injecting a little emotion into the process can go a long way on both sides.”

[Read: How much rent should you charge?]

Trend of falling rents to continue

As a property investor herself, Ms Laird believes the trajectory of rent prices will be a downwards one for a while.

“It’s going to continue because people aren’t moving and don’t want to move. Borders are shut, businesses aren’t hiring as actively and people aren’t travelling,” she said.

“There really is no reason for people to move, and therefore the demand for properties is going to remain quite low. I anticipate the rental prices will continue to fall, perhaps not in a consistent downward trajectory, and it could quite potentially be erratic - but they will continue.”

So rents are likely going to be lower for a while, and with so much of the rental demographic being adversely affected by COVID-19, now and in the future, Ms Laird says it can be more financially prudent to accept a short-term rental reduction in order to keep a tenant compared to the alternative of finding a new one.

“Landlords and even real estate agents can often underestimate the time it takes to lock in a new tenant, particularly in this market. As I mentioned, no one is actively keen to move during this time. If they can, they want to stay where they are to avoid unnecessary disruption,” she said.

“If they can, they want to stay where they are to avoid unnecessary disruption. For a landlord, making a small adjustment of $125 a week, for example, is going to be more palatable than having to fork out $900 a week towards the mortgage for a series of weeks, while your rental agent looks for a new tenant and screens them properly.”

“…The price you'll rent to a new tenant is likely going to be similar to what your current tenants were requesting, with the added costs of vacancy and leasing.”

Savings.com.au’s two cents

If your tenant asks for a rent reduction, instead of flatly rejecting it, it might be worth listening to their request and accepting it as long as the request is reasonable. If a tenant can’t afford rent then they’ll probably just move somewhere cheaper, and might even fail to pay any rent for a while, depending on how dire their situation is, and getting some rent temporarily is better than getting none. This is especially true if your property ends up empty for a while, as finding a new tenant can be even costlier.

It could help to read our guide for tenants on how to properly request a rent reduction. Although this article is aimed at tenants, it gives an idea of how much of a rent reduction a tenant could reasonably ask for. For example, if their income has been reduced by 30%, then they may ask for a 30% rent reduction as long as they provide proof. It also provides an example of how tenants and landlords could correspond during the rent reduction discussion.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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