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What do you do if your tenant loses their job during the coronavirus pandemic and can't pay rent? At the moment, you can't evict them if they've lost their job because of coronavirus.
You do have some options in the form of mortgage support if you can't make your own loan repayments, and land tax relief. But you also have obligations to your tenant. Here's what you need to know.
To protect people from homelessness during the crisis, state and territory governments have enacted moratoriums on evictions for renters who have lost income because of COVID-19.
The details vary by jurisdiction, but you'll have a hard time evicting a tenant at the moment if they can show that they've lost income because of the coronavirus pandemic. But there are two important things to note:
The moratorium covers evictions only. It doesn't mean tenants are free of their obligation to pay rent, only that you cannot remove them from their home at the moment.
Evictions can still take place for other reasons, such as a tenant damaging the property. In this case, you will still need to follow the legal procedures for initiating an eviction.
You may also have a legal obligation to negotiate with your tenant to come to an arrangement on the rent. This could take the form of reduced rental payments or a temporary pause on payments.
If you and your tenant are unable to reach an agreement, then you may have to take the case to your state or territory tribunal. Some jurisdictions are fast-tracking these disputes to get them resolved faster.
Tips for negotiating with your tenant
Use your agent if you have one. If you have a real estate agent or property manager, then let them do the talking: that's what you're paying them for. But remember that they represent you, so make sure you know what they're telling your tenant on your behalf.
Negotiate in good faith and be fair. If your tenant has lost their job and is struggling to pay rent, then you need to be fair with them. Try to come to an arrangement that works for both of you.
Know the rules in your state. Every state and territory has slightly different rules on evictions and rent negotiations during the pandemic. You should know what you can and can't do before communicating with your tenant.
Mortgage hardship support and repayment deferrals
If your tenant can't pay the rent then you probably can't pay your investment loan. Regardless of your tenant's situation, missing repayments on your mortgage is a problem only you can deal with.
Here are some tips:
Keep making your repayments if you can. This is obvious, but simply stopping repayments will harm your credit and put your investment at risk.
Dip into your savings/cash buffer if you have one. Investors should always have extra cash to cover sudden investment costs such as urgent repairs or a period of time where the property is untenanted.
If you have no means of covering your repayments, then talk to your lender. Do this before you miss any repayments. Your lender will have hardship support options, some specific to borrowers impacted by coronavirus. This includes temporarily reducing or deferring your repayments (we have more on this below).
Should I pause my repayments?
A pause, deferral or "holiday" on your mortgage repayments can buy you some financial breathing time. Essentially, you negotiate with your lender and you stop making repayments for a period of time, usually three to six months.
During this time, your lender will likely charge interest on the repayments that you've missed (this is generally a relatively small amount extra). After the deferral, you will have to make up the missed repayments. There are two ways you can do this:
Increase your repayments. If you want to finish your mortgage within the original timeframe of the loan term (for example, 30 years), your repayments after the deferral will have to increase.
Extend your loan term. You can keep your future repayments the same by extending the loan term. For example, you have a 30-year mortgage and you pause your repayments for three months. Then you extend the loan term by an extra three months. This will cost you slightly more in interest over the long run.
Should I switch to interest-only repayments for a while?
If your current investment loan has principal-and-interest repayments, then you have another option: switch to interest-only repayments. This will make your repayments significantly lower and it makes it easier for you to cover your loan obligations.
The catch? Interest-only loans mean your later repayments will get bigger, as you'll need to repay more of the actual loan principal. You end up paying more in the long run in order to save some money in the short term.
Can I cut my costs by refinancing my investment loan?
Interest rates are really low at the moment. So comparing investment loans and switching to a lower rate will make your repayments more manageable.
But it's hard to refinance if you're struggling financially. So considering switching only if you're confident that the new lender will accept your application. If you need more help with this, consider talking to a mortgage broker.
Land tax relief
Several Australian state governments have passed legislation to provide land tax relief to landlords affected by the coronavirus. This includes NSW, Victoria, Queensland and the ACT.
The tax relief typically comes in the form of a discount or rebate on up to 25% of your land tax costs, but only if you pass this discount on your struggling tenant. While this is a relatively small form of relief, it's worth investigating.
Check with your state or territory government's website for more information.
Can landlord insurance help?
If you're currently insured
If you already took out landlord insurance prior to the coronavirus pandemic, and rent default cover is included in your policy, then you might be able to make a claim.
Policies usually require an eviction notice before the benefit can be claimed. However, some insurers are waiving the requirement or making assessments on a case-by-case basis. Contact your insurer directly to find out for sure.
If you haven't taken out a landlord insurance policy yet
Investors who haven't yet taken out landlord insurance are probably out of luck. Most insurers have stopped offering landlord insurance. Insurers who do offer these policies may not cover you for tenant default at the moment, so you'll need to research your options carefully.
Please know that whatever financial and emotional stress you're suffering, you are not alone. Call Lifeline Australia on 13 11 14 if you need help.
Need to save some quick cash?
If you're struggling to keep up with your finances, you're not alone. You can save plenty of cash by doing some simple life admin and going over your bills and everyday expenses. Even switching credit cards or downgrading your mobile phone plan could save you some money.
Richard Whitten is a senior writer at Finder covering home loans and property. He helps everyone understand the ins and outs of mortgages so they can make smarter property decisions. Richard trained as a high school English teacher but found it easier to manage personal finances than a classroom full of kids. Before joining Finder, he edited textbooks and taught English to office workers in South Korea. Richard has a Bachelor of Education and a Graduate Certificate in Communication.
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