Investment property expenses are rising but this doesn’t mean your rent roll has to shrink. Here’s how to ride out the storm.
Remember the good old days of the pandemic, when interest rates were low and people had money to spend?
You might shudder at the recollection of lockdown stress and high vacancy rates but those low interest rates do seem like a dream after a year of consecutive increases.
If you manage a rent roll, you may notice rental property owners are starting to feel the strain because of rising costs. They are impacted by higher interest rates, concerned about incoming changes to tax and land levies and also trying to deal with increased living expenses. Meanwhile, there is talk of rent freezes, which could make holding onto a rental property even more difficult. And to make matters more complicated, many rental property owners are still coming to terms with the expenses required to ensure their investment is compliant with recently introduced standards.
Real estate agencies have always considered property management to be ‘bread and butter’ but you may be hearing from investors who are thinking of selling or have realised they have no choice. If this has you worried, keep the following in mind.
High interest rates are temporary
The Reserve Bank uses interest rates to try to control inflation. After a year of increases, it has kept rates on hold for the last couple of months so it can observe what is happening to the economy. While rates are still high, this has at least given people some breathing room. Signs indicate inflation is beginning to recede and this means rates will eventually drop again.
If you have clients who say they can’t afford their repayments, remind them these high rates won’t last forever. You may also have mortgage broker contacts who can help investors to refinance their loan and pay less.
Many compliance costs are one-offs
The compliance issue created by new rental property standards in Victoria is another problem adding to expenses, but it can be solved with education and collaboration. Remind your property owner clients many of the costs are one-offs and are worth it to provide a better quality home to renters.
Where there is a will, there is a way
Selling an investment property because of holding costs doesn’t have to mean opting out of the market completely. Speak to clients about ‘downsizing’ their investment and purchasing something which makes costs more manageable. This way, you can potentially keep them on your rent roll.
There is room to negotiate as well. If a client suggests they want to sell because of costs, sit down with them and see if you can find ways to reduce them. They may not have raised the rent for a couple of years, or you may be placed to offer them a discount because they have been loyal and are easy to deal with (obviously this can’t be your go-to strategy).
Take advantage of an investment property sale
Renters can be buyers and property owners can be vendor clients. If your agency includes a sales department, you can at least earn revenue from a sale. If you exclusively manage property, create a partnership with a local selling agent and collect a referral fee.
It’s also important to keep in touch. Share a regular newsletter so clients can come back to you the next time they purchase an investment property.
Are we on the brink of a great investment property exodus?
According to CoreLogic, an estimated 1.3 million loans switched from low fixed to high variable rates this year. However, it recently reported only 1.2 percent of mortgage holders are in arrears, which is less than pre-pandemic levels.
It seems a lot of property owners and investors are managing interest rate rises because their brokers have been coaching and guiding them. They are prepared for the additional costs and understand the pressure will eventually ease.
You can look to data for reassurance as well. Domain recently reported ‘distressed property sales’ figures falling, even though average listings are rising. CoreLogic suggested this may be because property owners are selling to get in ahead of an influx of sales.
You may see some of your property owners decide to sell up this year but it’s unlikely to impact your business in a major way. If there is an ‘exodus’, try to see it as more of a changing of the guard and a chance to reset. Savvy investors will always see the opportunity in property, especially if you produce content to educate them about the benefits.