Many landlords are struggling right now. Here’s why

When you hear the word “landlord”, does it conjure up an image of a wealthy property speculator?

In reality, almost two-thirds of Australians who own investment properties earn less than $80,000.

Many are self-funded retirees who live on rental income instead of getting a taxpayer-funded pension.

We know COVID-19 has meant many tenants are doing it tough — that’s why we explained how some renters can negotiate a new agreement with their landlords.

But since that story came out, many of you asked us what help there is for residential landlords.

Here’s what we discovered.

This is the situation for landlords right now

More than 2 million Australians own investment properties. That’s quite a sizeable chunk of the population.

And since coronavirus hit, the Prime Minister has asked them to negotiate new agreements if their tenants can’t afford to pay the rent.

Many have, including retirees Rose and David from Brisbane, who own an investment property in Coorparoo.

“There’s five living in the house and they rang me one day and said three of them had lost their jobs and two had gone to reduced hours,” David explained.

Because the tenants are on working visas, they were not eligible for JobSeeker, so David and Rose reduced the rent from $570 to $370 until they could find new jobs.

“Financially it meant we had to dig into our savings, because the income from the rentals and the pension [from their super] really doesn’t meet our expenditure,” David said.

“I do empathise with people who have lost their jobs and can’t afford to pay the rent. I’ve been in that situation many, many years ago when I was by myself. It can be hard, and I’ve seen it from both sides,” Rose said.

Rose and David are self-funded retirees, which means they don’t get a government pension but rely on their super, their savings and the rental income to live on.

The investment property is paid off, which means they are positively geared and actually paying tax on their rental income.

“There’s no interest on our savings. Interest is 0 per cent on most accounts,” he said.

But the expenses keep piling up and there is no relief on council rates and utility fees.

“It’s definitely going to be difficult in the long term,” said Rose.

What sort of support are landlords getting?

On the whole, not a lot.

Most state governments are offering discounts on land tax fees for landlords who have given their tenants a reduced rate.

But many investors (particularly those in less expensive cities or regional areas) don’t even pay land tax.

For Rose and David, their property is worth less than $600,000 (which is when land tax kicks in in Queensland), so they aren’t eligible for the reduction.

The biggest help for both tenants and landlords is the rental relief Victoria, Western Australia and Queensland are offering, says Eileen Webb, a residential tenancy expert with the University of South Australia.

“It’s a win-win for everybody. It means tenants can pay the rent and landlords get some income coming in,” she said.

And in terms of rates, strata fees and utility fees, in most cases there is no reduced rate available.

Can the banks help?

Sort of.

Most banks are offering to pause mortgage repayments for up to six months for investors with a mortgage.

But while this gives you some short-term relief, in most cases the unpaid interest will be added to your loan balance and you could end up paying more in the long term.

“The interest on that loan is going to keep adding up — they’re not freezing the interest, which is compounding on your loan. That is problematic. Over the life of a loan, that’s a lot of interest to be added to what is no doubt a significant debt,” says Ms Webb.

What about your landlord insurance?

In many cases, landlords are finding their insurance won’t cover lost rent during the pandemic.

“We did buy landlord insurance — they don’t pay for a situation like this,” said Binfeng, who manages his mother’s apartment in Sydney and spoke to the ABC with her permission.

The two-bedroom apartment had been rented out at $900 a week, but in April the tenants asked for a 40 per cent reduction.

When Binfeng offered 20 per cent, the tenants gave three weeks’ notice and vacated in early May, owing rent.

The place has been empty since then, with at least 20 other properties in the building also up for rent.

“We haven’t been able to lease it out, even though we’ve been progressively reducing the weekly rent as time goes by,” he said.

“That property is one of mum’s main sources of income now she’s retired.

“Mum uses the rental income primarily to pay the bills for the home she lives in and also for things like groceries and food.”

Binyu retired to Australia in 2014 after running a general store in Vanuatu for many years.

She doesn’t have super because it wasn’t a requirement in Vanuatu, and because she came here on a contributory parent’s visa she does not qualify for the aged pension.

She lives with her adult son and daughter in the outer north-east suburbs of Sydney.

“Mum’s really stressed out these days,” said Binfeng.

“She’s now digging into her savings not only to pay for her daily needs but also the strata is incredibly expensive in the city. We’re paying about $14,000 a year in strata — that’s not including water rates, council rates and things like that.”

She tried to find work as a cashier, but has had no luck so far.

“I’ve already noticed she’s waking up at midnight and not being able to sleep for a couple of hours. If it really came to that we’d look at trying to sell it and recover what’s available,” he said.

“A lot of investors aren’t super rich and don’t have a huge nest egg to fall back on.”

DISCLAIMER: This is general advice only. If you need individual advice, please see a professional.

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