As the damage of COVID-19 continues to mount, there are steps property investors can take now to ride the financial pain.

Nila SweeneyReporter

Mar 28, 2020 – 12.00am

As the economic fallout of the pandemic worsens, landlords are facing the prospect of financial stress amid rising job losses and rental arrears.

While the federal government is yet to announce the measures around tenancy, the The Australian Financial Review has reported that one option being considered is giving landlords tax relief in return for waiving or reducing rents.

Landlords are urged to reduce or freeze rents as the economic fall out of the pandemic worsens. 

On Wednesday, the NSW Parliament passed an amendment giving the state government the power to ban evictions for six months and freeze rents.

In Victoria, Premier Daniel Andrews has flagged some measures to protect landlords and tenants.

As the damage of the pandemic continues to mount, there are steps landlords can take now to ride the financial pain.

Get an income tax variation in place: Margaret Lomas, founder of Destiny Financial Solutions, says landlords should consider getting an income variation in place as soon as possible to help boost cash flow.

“Many investors wait until the end of the year to claim their deductions. Now would be a good time to change this so that the benefit of those deductions are received every payday,” Lomas says.

“If any landlord makes the decision to reduce rent in response to a request from a tenant, then this request to vary tax needs to be amended. For someone on the top rate of tax, this can mean that 45¢ of every dollar in reduced rent is received back every time they are paid by their employer.”

Consider reducing your rent: Look at reducing or freezing your rent for three or six months with no penalty to the tenant, says Victor Kumar, property investor and buyer’s agent at Right Property Group.

“This allows the landlord to collect the rent when the tenant gets back on their feet. They can then work out a payment plan to pay off the arrears,” Kumar says.

Deal with rental arrears promptly and appropriately: If the tenant goes into arrears, the landlord must decide whether to treat it as a normal arrear, or due to the COVID-19, financial distress, says Zoran Solano of Hot Property Management in Brisbane.

“If this is a normal arrear, it should be handled as per usual. Your property manager should follow the standard arrears process governed by your state,” he says.

Landlords’ insurance generally covers rental arrears, but it’s a good idea to call your insurer to find out whether a pandemic is covered or considered an exclusion.

“Ensure that your managing agents are following procedure in terms of the notices given to the tenants in the case of arrears and non-compliance of already standing tribunal orders,” says Kumar.

“The reason for this is that, if the property managers don’t comply, then the insurer could say the procedure hasn’t been followed and they could decline the claim,” he says.

Make sure your landlord protection insurance has been renewed and check what you’re protected for, says Ben Kingsley, chairman of Property Investors Council of Australia (PICA).

“Your landlord insurance is your defence strategy that you can call on if you’re facing with rental arrears and tenant damage,” he says.

Prioritise cash flow: Rather than looking at cash flow in terms of just the property or the tenancy, look at the entire household budget, says Kumar.

“Get rid of all those subscriptions that you’ve never used, but haven’t gotten around to cancel,” he says.

“Look at all of your discretionary spending and cull them. Vary your payment arrangements on council rates, water rates, and even strata levies. Rather than paying annually, spread it out to monthly, to even out your cash flow.”

Review your lending: If your property becomes vacant or your tenants stopped paying rent and you’re also struggling, consider pausing your mortgage repayments, says Adrian Raftery, author of 101 Ways to Save Money on Your Tax – Legally.

“You could apply for a mortgage holiday where the banks will let you pause your repayments for up to six months if your financial difficulty is due to the pandemic,” he says.

Make sure you seek mortgage repayment pause under the COVID-19 relief rather than financial hardship relief because the latter will impact your credit rating.

However, Raftery warns that mortgage repayment holiday will inflate your mortgage because the interest charges continue to accrue and it’s added to the loan amount while you’re not making repayments.

“The bigger your loan balance, the worse the interest payment is going to be. With compounding effect on interest rates, you will end up with a much higher repayments when the mortgage holiday ends. Financially, you’re potentially getting yourself into a difficult situation.”

Instead of pausing the mortgage, Raftery says landlords can also look at converting their loans to interest-only for a period of time to help boost their cash flow. On an average $600,000 loan at 2.91 per cent interest over 30 years, this equates to an extra $1046 cash available each month.