Times are tough for everybody and many renters are likely to be suffering financial stress as a result of the COVID-19 pandemic.
Playing hardball with tenants is short-sighted at the moment. Instead, consider how you can work with them to help them overcome their challenges and at the same time, secure their long-term loyalty.
1. Work out where you stand
Before you help your tenants, you need to help yourself. The approach you take will depend on your circumstances. If you own your property outright, you are going to be able to give tenants who may have a hard time paying their rent on time more leeway than someone who relies on this money for the repayments on an investment property loan.
Talk to your bank if you have an investment property and your tenants tell you they can’t pay the rent. Find out if you can defer your loan repayments for a period. This may be a lot tougher if you have an interest-only loan and you don’t have any equity in the property, or worse, if you have negative equity.
If you are in the situation, see if you can negotiate with your bank to pre-pay the interest this financial year at a lower interest rate than you are currently paying — which should be possible given the recent reductions to the RBA’s cash rate.. Pre-paying the interest will give the bank reassurance you’re meeting your obligations. At the same time, you can claim a tax deduction in this financial year for the amount you pre-pay.
Get on the front foot while banks are in a mood to be generous because they may not be so accommodating down the track. Also be aware interest will continue to accrue on the principal if you don’t pay the mortgage for a period. This means you’ll end up having to pay back more down the track.
Now you have your own financial situation sorted, you can focus on working with your tenant.
2. Remember what it was like to be a renter
Understand what it’s like to be worried about losing your home as a tenant, says Direct Property director Elishah Lusi.
“You’ve probably experienced financial hardship along the way. So be understanding of tenants and their circumstances. Listen to the reasons why they might be experiencing hardship and show compassion in how you respond,” she says.
3. Keep the lines of communication open
Be proactive talking to tenants about their financial situation so you get early warning if they are in financial distress. Check their tenancy application and find out if they work in travel, hospitality or retail, industries hardest hit by the crisis. If closures or restrictions mean your tenants are facing unemployment or significantly reduced hours, you need to know early.
Check in with them to find out if they can still pay their rent if their industry is suffering severe stress. If they can’t pay the rent, you’ll need to work out a mutually beneficial way forward.
“It’s crucial landlords and property managers have open lines of communication at this time,” says Gabriela Ammendola, managing director of property investment firm GA Industrial Commercial.
4. Be prepared to be flexible
Think laterally about your options if your tenants say they can’t pay the rent. One approach might be to give your tenants a short-term rent reprieve in exchange for a tacit agreement they will renew and even extend their lease once the crisis is over.
“Consider deferring rent payments for tenants struggling financially due to the pandemic,” says Marites Idea Novis, director of property investment firm Qfirst Invest.
“If you were planning on putting the rent up, perhaps think about delaying this until the crisis is over,” advises Brendan Clark, a buyer’s agent with The Property Curator.
5. Encourage tenants to take advantage of government incentives
State and federal governments are expected to imminently announce a support package for renters. Encourage your tenants to apply for any incentives available. Then negotiate with them about the best way forward when it comes to paying their rent.
It’s never been more important to look after good tenants, so be prepared to work with your tenants if they are going through a tough time. It’s likely to become more difficult to find new tenants if the crisis deepens.