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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:
Your tenant may also be eligible for a support payment, including the Jobseeker or Jobkeeper payments.
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.
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:
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:
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.
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.
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.
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.
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.
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.
Managing your daily finances can help you get through this difficult time. You'll be glad you did it.
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