Episode 134 | Property Investing: rental market & the current trends | Lisa Indge, Let’s Rent

The market has shifted back to the owner occupier property, but what does the current vacancy rates indicate about the investor demographic?
Welcoming back managing director of Let’s Rent, Lisa Indge, who we spoke with back in Episode 56 about the oversupply of the property market and tips for investors. In this episode Lisa highlights how the investor market has been adversely affected by COVID, and how the mainstream media has been trying to ring bells announcing the myth that the property market is on the verge of ‘collapse’.

Here’s what we covered:

• What types of investor stock was most affected by COVID?

• Why has the inner city property market had the greatest spike in vacancies?

• How the exodus of tenants on visas has opened up the rental market?

• Has the development of new builds added more stock to the current rental market?

• What is the current vacancy rate?

• The current legislation around rent relief.

• What can landlords do now to make their property more tenable?

• How renter preferences have adapted with the work f?

This weeks Dumbo:

• Buying property without a sink and other appropriate facilities

RELEVANT EPISODES:
Episode 56 | Lisa Indge
Episode 126 | Stuart Wemyss
Episode 133 | Alice Stolz

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Send in your questions to: questions@theelephantintheroom.com.au

EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded on 3 June, 2020.

Veronica Morgan:

Coronavirus has hit property investors pretty hard and some harder than others. In this week's episode, we're going to get an insider's perspective and discover what types of investment property has proven to be the most vulnerable to the pandemic. And what has been the most resilient

Veronica Morgan:

Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent boss, cohost of Foxtel's location, location, location, Australia, and author of auction ready.

Chris Bates:

And I'm Chris Bates It's mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal box. We always recommend you engage the services of a professional

Veronica Morgan:

We're joined today by Lisa Indge, principal of Sydney, property management specialists, Letsrent. Lisa is also an active member of the REI new South Wales property management chapter, which gives her a broader insight into what's happening with tenants and landlords beyond the inner Sydney market. I invited Lisa to come and talk with us, following a conversation I had with her last week about some fascinating human behavior that has effected vacancy rights. If you were interested in the lay of the land in other cities, please don't tune out. Much of what's been happening locally is relevant to other locations. Hello, Lisa.

Lisa Indge:

Hi. How are you?

Chris Bates:

Hi, Lisa. Good to speak again. And you too. So property investors were immediately impacted by the law. And so what landlords would you say have been the most effected.

Lisa Indge:

Landlords in the inner city have been most effected and that are most effected because of the jobs that people hold close to me. So such as in hospitality, people who work at airports, for example, as, so you can imagine there's no students in the inner city either. So those share house type locations, such as Redfern Darlinghurst also around Darlington as well. We're finding that those properties are quite difficult to re rent and we're, we're really offering those tenants rent relief as well to, to maintain those tendencies.

Chris Bates:

So when you say people in share houses, so you're talking like, you know, a group of few, a few friends, et cetera, or bigger, bigger properties, like three or four betters that are harder, they're harder to rent out if the tenants leave at the moment, is that what you're saying? Or is it more the apartments?

Lisa Indge:

No, it's absolutely houses that are most effected in the inner city areas, but it's true to say that a lot of the demographic close to the city have been most impacted. And so it doesn't really matter if it's a house or an apartment. We're generally seeing that if we're going to market that rent rents are declining by between eight and 15%.

Veronica Morgan:

So with the share houses, are you talking about, is there a demographic that sort of like young people who might be students or might be working in hospitality, who aren't earning as much money they're paying fairly cheap rent because the houses themselves aren't that well maintained or they're pretty old and decrepit in many cases. And I remember, and Lisa actually was my property manager when I first bought my house in Newtown where university students were living in it and I bought it to renovate.

Veronica Morgan:

And for a period of time there, those tenants were still there. I would imagine I would have found that really difficult to rent that house in the condition that I bought it in is, is that one of the factors that goes into this Lisa, that, that these houses, these share houses have been, or landlords have been able to get away with not necessarily maintaining these properties because it's been cheap rent and now those tenants aren't around,

Lisa Indge:

They are around Veronica. And it's, that's a great question because we haven't seen that much movement of tenants, perhaps younger people moving home. And it just depends what sort of government relief that they are receiving as to whether or not we're able to maintain the tenancy. So for example, if we're talking about people in hospitality who are perhaps foreigners who were not going to receive any support, well, those are the people that have actually already left Australia. So if those properties are coming back onto the map, absolutely. If they're not in great condition or who is going to rent them, there are no students around the likelihood of hospitality. People moving from one house to another is slim because if they don't have a job or they're on job keeper, then they don't really stack up as a potential tenant.

Chris Bates:

That's a really good point. You said there around people leaving Australia you know, cause a certain parts of Sydney, you know, certain countries and demographics are very common to be the, the, the renters, I guess like in Bondai might be English and Irish, et cetera. Have you seen it? It's been a big reduction in kind of people here on sort of holiday visas and have all gone home.

Lisa Indge:

Oh, without question. And I think that the area that you referred to Bondai and around the beaches has particularly been affected. But obviously we have a very high proportion of foreigners in hospitality. So because of a lot of those people leaving the, the number of people looking for rental properties has obviously declined.

Chris Bates:

Yeah. So it's a bit of a double whammy, not only the country that they haven't got here, but we'll start in the industry of most effected in terms of the kind of new stock hitting the market, as well as have you seen that? You know, there's really a lot of towers in the process of getting built. They're still, they're still completing and they're still hitting the rental market. Have you seen that really impacts certain pockets?

Lisa Indge:

I personally haven't in our portfolio we don't tend to manage a lot of new stock and there's a reason for that because often the developer does a deal with a particular real estate agency. But there's no question that any new stock coming onto the market is not going to achieve the same sort of price that it would have previously. And that's simply due to the, the overall market adjustment.

Veronica Morgan:

It's funny back in episode 56, we interviewed you Lisa and we talked back then about vacancy rates. And we also talked about the fact, so that was in February, 2019 and we were discussing then about the rising vacancy rate in Sydney, which was really coming off the back of a lot of this new development and, and how that there was a ripple effect because, you know, you've got concentrated hundreds of new apartments coming on.

Veronica Morgan:

And of course that then bleeds into surrounding suburbs and even suburbs, a few suburbs away impact on the rate currency rate and, and putting a dampening effect on rents across the city. Really. So, yes. And I, and I'm not asking you at that point, you know, how long does it take for, for that new stock to be absorbed into the general marketplace? So is, I guess we hadn't really quite recovered from that. Had we, when this hit well,

Lisa Indge:

When you look at vacancy rates in Sydney, they've been steadily rising from about 2017. So whether that's due to new stock, I mean, I would have thought it is due to new stock. And just to sort of digress slightly. One of the areas that's been hardest hit is, is the CBD, which does have a lot of movies stock. And the vacancy rate in Sydney CBD is 14.8%. One of the committee members has has a portfolio based entirely around new stock. And he's vacancy is about 30%. So it's been very hard hit.

Veronica Morgan:

Yeah. I mean, cause the thing is that with the CBD, for instance, you've got student accommodation, obviously you've got a lot of, you know, some new stock or I'm sorta trying to think where has been the new buildings other than something Barangaroo. Oh, okay. Of course. Drink water all along there. Yeah. Okay. So you've got sort of overseas students and whoever that we're targeting at in terms of renting those properties out, but you've also got the Airbnb market too, don't you? Yes.

Lisa Indge:

Very, very true. And obviously, you know, when I spoke to the guy who owns the portfolio with new properties specifically in the city, but other areas as well, you know, he, he's just saying nobody wants to move to the city at this point in time. So if you're already living in the city, okay, that's fine. But why would you move into the city? Well, certainly a couple of months ago there would be no reason to do so.

Veronica Morgan:

Well. Yeah, because you're not, you don't need to have an easy commute to work. Do you?

Lisa Indge:

You don't. And I think that there's been a shift in people's thinking as we've all been reading in the press as well, and obviously experiencing ourselves personally, is that the opportunity to work from home is there. And it's probably going to remain part of people's work flexibility going forward.

Chris Bates:

You said there's one interesting behavioral change there that people potentially don't really want to live in the city. Cause they're not going to work there. What's some of the other behavioral changes that you've seen, like have people be more, you know, I guess not preferring to kind of move in with number of people like they're wanting more one bedder and studios because of, you know, in code they have to share apartments with three or four people. And that was a nightmare.

Lisa Indge:

Yeah, no, I haven't seen that. I must say, I don't think people are reticent to move in with other people. I just think that if people are able to maintain where they're living right now, that that's going to be their preference, unless they've been hit very hard financially. And in the example of that might be someone who has actually been made redundant for example, in the fashion industry which has been very hard here who, who just doesn't have the capacity to pay the rent going forward. So they're the types of people that are actually moving and they're probably likely to be moving further away from the city.

Chris Bates:

Yeah. And then you've got, I guess, migration as well. So it's kind of lots of different strings to this, you know, you've got Airbnb more hitting the market, new stock mass, you know, foreign is kind of moving back overseas. You know, cause they're not getting any support, no one really coming in

Lisa Indge:

That's right.

Chris Bates:

Know problems here with, you know, supply, not being able to rent out what are some of the challenges you're saying on the property management front in terms of, you know, people who have lost their jobs or people who income has been re reduced, how are you kind of managing these kinds of tricky situations where you've got kind of conflicting interests,

Lisa Indge:

Very carefully Chris, and with a great amount of responsibility, I think on our shoulders in terms of trying to mediate appropriate outcomes between both tenants and owners who are probably affected in one way or another. And I say one way or another, because it might not necessarily be financial. It might be you know, an emotional impact as well. And certainly in the early stages of COVID, we saw that people were frightened. They were anxious, they were, some people became aggressive. And I'm really talking about tenants in, in, in this context because they didn't really know what was going to happen. So I think that is absolutely understandable. And the impact on landlords has certainly been there as well. So we S we had one situation where a client lost her job. Her husband lost his job. They had a mortgage on the house that they were living in, and the tenant is asking for rent relief, and that just was not in a position to offer that.

Lisa Indge:

So it was a really stressful and emotionally charged negotiation between the two parties. And, you know, I certainly took on board my responsibility to ensure that the information that we would be being provided was valid and that the tenant did actually qualify for rent relief. Now, in this instance, I'm not going to deny there was some difficult conversations with, with the tenant, but he didn't qualify in the end. So we were able to jump out of that situation, say to the client, look, no need to be concerned. You're not actually required under the legislation to offer belief.

Chris Bates:

So let's go there on the legislation in terms of determining what is actually qualifying. And what's not because I'm sure there's probably a lot of misnomers around it.

Lisa Indge:

I'm pretty sure they would be, look, I, I was actually quite pleased with the the way that the legislation was structured because it gave us some guidelines. And I think, well, I don't know if anybody is aware that the sorry Queensland came out with their legislation after new South Wales. And there was an absolute uproar because there was no measure of effected household income. So in new South Wales tenants have to prove that their household bin has, sorry, their net household income has been affected by 25% or more. And that's sounds easy, doesn't it? But it's not necessarily that easy. And I'll give an example where you've got a situation where you've got a sole trader who qualifies for job key car. But actually the net result on their household income is actually a decline of only 11% because yeah, so let's say their income line

Veronica Morgan:

Job keeper would actually top up there. Right.

Lisa Indge:

Awesome. Of course, as you're aware, Veronica, there are some situations where when a tenant is receiving job keeper, they're receiving more income than they have received previously.

Veronica Morgan:

Hmm. Yes. Some casual workers have, have a better off under job keeper or job seeker. Yes. So, yeah, so you're right. So how to measure that. So, and I know that there was an uproar in Queensland, there was a big petition. And I understand that that was yeah. Was actually subsequently changed.

Lisa Indge:

It was.

Veronica Morgan:

Um but I know, and I guess this is legislation on the fly, isn't it? I mean, you know, we can all remember basically end of March early April when it was just daily changes, daily announcements the federal would make an announcement state, so then got to legislate to an act, all that stuff. And then in the wings, you've got property managers being asked questions by both their landlords and their tenants as to, well, what does this mean for me? And, and I think what you pointed out there, interestingly enough, Lisa, about your example with the tenant that was under pressure and had had their income impacted, and then you've got the landlord and their family also impacted there's some landlords that have got more capacity to help than others. So there's a bit of an unequal system as well.

Lisa Indge:

Right? Absolutely. But I would say overall and the RER committee members have also confirmed this, that landlords have been very generous in, in these situations and we feel, or certainly feel that with the 25% qualifying figure, that there's been an acknowledgement by the government that people's expenses have reduced as a result of the shutdown on the 23rd of March.

Chris Bates:

Have you seen just tenants coming back to you and negotiating a bit of rent meet contract, just because they know that the power is with them a little bit, you know, they can pay a break fee, but you know, if they wanted to re rent that apartment out right now, it's sort of it being $70 a week, it's five 50, let's call it. And so, you know, they feel like they're paying over the odds in rent have like, have you seen that happening a little bit with people are just trying they're locking, reducing their rent.

Lisa Indge:

Absolutely. Chris I'm sure that's cause yeah. Yeah, we have. And it's quite interesting really, because we've simply said to those tenants, well, you signed a contract. And therefore the rent remains the same because we, although I do think that the overall rentals that we will achieve or the level of rental that we'll be able to, to achieve going forward will be affected. I suspect. And I certainly hope that we'll see a shift. Once we open up again, obviously there'll be more demand. So one would expect rents to actually move up slightly again, but maybe not to the levels pre COVID.

Veronica Morgan:

So what can landlords do? I mean, other than the obvious, I guess, you know, make sure their property is very well presented, et cetera, et cetera, shaming, they bought a decent property in the first place. What can landlords do to make their property more appealing to tenants if they find themselves with a vacant property. Now,

Lisa Indge:

If the landlord's in a position to perhaps repaint re carpet, same things that we've talked about previously, Veronica cleaning up an apartment and making sure that it's nice and fresh is going to be the best way to attract new tenants, if something is tired and it's really in need of some TLC then it is certainly going to be one of those properties that is most effected by the downward pressure on rents.

Chris Bates:

Yeah. So times like nappy will flock to quality, right? So, cause there's more than there's lots of choices. And so if it's not really the quality properties out there right now, then you kinda, it's a race to the bottom a little bit. Have you seen some massive rent reductions? You know, I know you said that roughly about 15, 20% potentially, but have you seen some really big rent reductions in some of your properties?

Lisa Indge:

Can I just correct you there Chris? I said eight to 15. Alright, sorry. That's okay. We don't want the market is not collapsing. We are renting properties and I think the press have ramped up what we're seeing on the ground, to be honest. Yes, we are seeing adjustments, probably the price range that's most effected is between about 800 and 1800 a week. And with that, those properties are probably renting for between a hundred and $150 a week, less than what they were pre COVID.

Veronica Morgan:

That's quite a big price band though. Isn't it? From eight to 1800, there's quite a big disparity in the types of property. I mean, I imagine at one end you've got sort of the 800 and you've got a fairly, pretty nice two bedroom apartment or maybe a three bedroom apartment right up to 1800 would be a house potentially, you know, in a good suburb with a family that could live there.

Veronica Morgan:

So there's, there's quite a spread and the type of tenants that would go for that sort of property. Very true. Does that make the difference? I mean, is, is, can you see, is there any sort of, can you sort of say, right, well this, this type of person in this type of suburb, this type of property that is going to be more impacted or it has been more impacted than that type of property and that type of suburb, is it that easy or is it more granular?

Lisa Indge:

I think it's much, it's much more granular than that. Veronica. I think that it's all very well to look at vacancy rates, but the reality is that when you look at properties on a granular level, your seeing you've got to look at each one individually, you know, what road it's in. You know what, yeah. Even to the extent, you know, what condition it's in does it have air conditioning, for example, and that's a big factor at the moment you know, that the quality of the body itself. And so the, the way that it is positioned within a suburb or within an area,

Chris Bates:

Yeah. He's like in a hot market, you know, you get to on a property and it's a new listing to rent and there's a queue out the door before the property manager's there. And it's a bit of a, and you know, there's six applications on that day, et cetera. So people overlook those things and they're just desperate. They've got to move out of another property. They're not, they're uncertain. So a lot of those things happen. Anecdotally, I've heard that some people are moving back in home with their parents. I'm sure. You know, especially, you know, the twenties to 30 year olds, I guess. Have you seen that impacted as well with some of your properties, you know, relisting and that person said, well, I'm not going to renew it because I'm going to move back home.

Lisa Indge:

Very few. Yeah. I think, you know, once someone moves out of home, they'd have to be pretty desperate to go back. Well, though, I must say.

Veronica Morgan:

Very recently, we actually bought two properties in the last week. And both of them, was it interesting, the fact that an I had no idea that about this before we bought them was only after we were bought them, that the vendors sort of shared this one, there was a five bedroom home. They lived there for 37 years. They decided five weeks earlier to put their property on the market because they just realized they wanted a change. And I think sort of covert is his or the lockdown. I should say his spurred a lot of us to sort of rethink what's important to us. And they realize that at their age, you know, they wanted to free themselves up a bit so that they've got more time to do other things and so more money to do other things, but they'd had three of their adult children move back home with their partners and grandkids through the lockdown.

Veronica Morgan:

And that was a deliberate decision because they, they wanted to actually be locked down together. And then there was so I'm presuming that, you know, the adult children didn't necessarily relinquish a tendency. I'm not sure whether that happened or not, but they probably just locked up their own homes and moved in there. So that was a family decision because they wanted to be close to each other. And then another one we bought two days later where they had at the very beginning of the lockdown, we're going to list their property then decided not to, and then ultimately started to do it again. And their reasoning was that they'd had their, two of their adult children move home during the lockdown. And then they realized that when the restrictions ease and their kids moved back out again, that the house was too big for them and they didn't want to be alone in their house anymore.

Lisa Indge:

So it was sort of an interesting, I had never perceived that. You'd be, you'd be thinking that, that people on the verge of retirement or closer, you know, closer to retirement would start thinking about downsizing at this precise time because of COVID. Okay. I can understand that because I think it's made people think about their priorities. I have clients where their children have moved home as a, as a result of COVID. Some of those have come from overseas and therefore it's obviously convenient to move back in with their parents for a period of time. But, but overall, I think haven't, we all started to think about things differently. Haven't we all started to decide our priorities, particularly from a family perspective.

Veronica Morgan:

It's very true. And what, what I thought was interesting, particularly these two examples was that it wasn't a financial decision that made the kids move home. It was, it was a lockdown decision and yeah, and if you don't like your family, you moved out for other reasons and there's no way in a million years, you get a rush back. Exactly.

Veronica Morgan:

Don't forget that you can access the transcript for this episode on the website, as well as download our free fall or forecast report, which experts can you trust to get it right? The elephant in the room.com did I, you, we love hearing your questions and we're planning more listener Q and a episodes. Please send your questions in. You can send them via the website, which is the elephant in the room.com today. You or directly via email to questions@theelephantintheroom.com. Did I, you,

Chris Bates:

One of the interesting things you mentioned early on, which we kind of just scooted over was around the work from home sort of renters preferences potentially are changing in terms of, they need some space to, you know, set up the laptop, not on the kitchen bench, et cetera. Have you saying that, you know, that's really come up the priority list of what the rent is, preferences are you know, quite significantly, or do you think it's a little bit too much hype?

Lisa Indge:

Alright. I think we'll see that later. Chris. I think that for now people are kind of bedding in really, and those decisions I think will be made later. And it will also depend on how employers respond to that aspect of people working as well. I think that's probably more of a longterm shift rather than what we will see in marketplace right Now. But certainly if people are in a position to move like that, you know, they've got good jobs, they're able to financially handle the moving costs, et cetera. It's a good time for them to move because obviously there is a, there's some bargains on the market.

Chris Bates:

Yeah. I like how you're answering that. It's not right now. It might be in the future. Cause I think a lot of people that are so certain that the work from home things are going to stick and that employers are definitely, you know, on mass going to change all their work based policies and allow people to work from home, you know, 60, 80% of the time, it very much likely could happen on mass and it's looking like that, but we don't really know yet. And so I think it's it's, it's pretty and people are investing with certainty knowing that this work from home, movement's going to be, everyone's going to be doing it. And you know, in 12 months time just gotta be a little bit careful. I don't think it's really certain yet.

Lisa Indge:

I don't know either. And I think as an employer, myself, there are certain things that you have to consider about people working from home. And, and the responsibilities that you have as an employer. It's not the supervision so much. It's okay. Well, if someone is working from home and they're using their own electricity and they are you know, sitting up their own spaces, for example, what does that mean for the employer? What, what responsibility does the employer have to reimburse those costs?

Veronica Morgan:

So I'm curious to know, obviously, you know, there's, there's properties available for rent at the moment, if you've got high vacancy rates. So obviously those properties are out there available for rent, who is actually looking for new rentals in this current market.

Lisa Indge:

People with stable jobs. And if, if you think about the industries that have done well during this period, there, there are a number of people in the medical industry, for example, or it have done very well. So those people are certainly looking for opportunities to improve their, their lifestyle by, by moving to a better quality property and potentially at at the same price of rent that they're currently paying.

Veronica Morgan:

So that's more the motivation then for people who were actually looking for a rental at the moment, it's really about improving their training up, improving their, what they get for their money.

Lisa Indge:

Yes. But then if you think about our portfolio, which is close to the city in a West Eastern suburbs loan or shore, those types of people are or the people that we're dealing with. And obviously with the average rental on our portfolio being eight 50 a week we're certainly not seeing that the people who are in financial distress, moving to a cheaper property, I know it is happening. Of course it's happening, that's logical, but I'm not seeing a great number of those people. And so they'll

Chris Bates:

Say, yeah, it's July now you know, two months time, job capers potentially going to be finishing how is that going to potentially play into the rental reductions? Because if people have been successful in qualifying, because they've had a 25% drop in household income, which I think is the rules, how long does that, how much rent deduction do they get? Is it equal to how much their income has dropped or does it last forever? What happens if their income drops even further or it goes up like, how are all these future challenges with rentals going to be managed? Is there like a set structure?

Lisa Indge:

Absolutely not. I think that's part of that is that we have negotiated every tenant who's come forward to, to request rent. Relief has been negotiated individually is not, it's not about a blanket solution. And, and there isn't for obvious reasons because, you know, you've got those sole traders who are getting job keeper. You've got people who don't qualify for job keeper and job seeker. You've got people whose, whose wages have been cut by 20%. We've got tenants whose commissions have just not been paid, which I thought was quite interesting. I didn't think that was legal. So, so in terms of where we go forward, when we came into this at the beginning or end of March, and we looked at what we would need to do to manage these situations, we didn't have any legislation until the 15th of April. So we were flying blind at least until that point.

Lisa Indge:

So once we got that first piece of legislation, again, everything was so uncertain that we were actually negotiating quite short outcomes. Let's say four weeks as it's gone on, we've actually ended up negotiating longer periods of relief because it's quite obvious with the shutdown slowly being reversed, that people are not going to be getting back to jobs normally in a short space of time. I think when you look at job keeper perhaps coming off offline in September, we, we don't know the answer to that yet. In my opinion, really is it comes down to how much of a return to normality. We will, we will see by September. And what I mean by that is hospitality workers are not going to get back to normal until there are no social distancing requirements within those venues. So unless we, by the time we get to September, we wear that to no distancing.

Lisa Indge:

Then there will be an impact on people's employment, retail in hospitality. And, and of course, then we have the travel aspect. So, so there's going to be, I think, a longer period of getting back to normal, but which is obvious, right? But there's long time between now and September in terms of what's happening in Victoria. We just don't know what's going to happen here. And we're, we're being told that cases will increase, but we're not seeing that in new South Wales at this point in time. And then we've seen this spike spiking in Victoria. So there's a lot to play out between now and when job keeper is supposed to come offline,

Veronica Morgan:

I think the situation Victoria, and of course, we're, we're recording this the very beginning of July. You know, I think there was this morning, I saw this something like 32 suburbs in, in Melbourne that lean, locked down now. And it's a good warning for us, all that, you know, because a lot of people have been saying, Oh, post COVID we're in post COVID. Now. I was like, well, actually, no, we're not. We're just Paul Williams in new South Wales anywhere with post lockdown. But we definitely not post COVID. This is actually a real thing we're going to live with until either there's herd immunity or there's a a vaccine or treatment. The thing is that with the herd immunity who was it? I was listening to something recently. There's something like in America and UK that even with the sheer amount of cases that they've had, they're still any, it's something like 15% of people have actually got immunity.

Veronica Morgan:

So it's pretty devastating strategy to go down that path, thinking we're going to get herd immunity. So I think that we have to accept that life is not going to go back to normal for some period of time and definitely not before September. So then it's a matter of, of accepting that there are going to be some people that are going to be impacted longterm, whereas other, and the knock, the knock on effect of that, the domino effect of that. Have you sort of done any, I mean, I'm asking you a completely off the cuff here and you probably have no idea, you know, you may or may not have an idea, but have you sort of identified a proportion of your your property management portfolio that is going to be hit post September or have continued pressure on it? Have you, have you done that?

Lisa Indge:

Oh, it's pretty hard to do that, but we certainly would. My opinion is, okay. So if you look at our portfolio, we manage 500 properties about 20% of those tendencies actually requested rent relief about 25% of those didn't qualify. And then we had, I would say quite a small proportion of those probably 10% where they were quite drastically affected and the rest of them were, you know, moderately affected. So I guess when you look at that, my, my view going forward is there's no question that we will continue to be affected, which is likely to be reflected in, in rental levels. Because at the end of the day, it's a supply and demand ratio. If the supply is greater than the demand, well, there's going to be downward pressure on rent and the supply has been affected or sorry, the demand has been affected by so many different things, as we've discussed already around, you know, Chris, you mentioned immigration, there's so many people in this city that actually come from overseas. So we're talking about students as well, without those people coming back into the rental space, the the, the supply is no doubt going to continue to outstrip the demand. So, yeah,

Veronica Morgan:

It's just to do a little bit of quick mess, you know, you said of your 500 properties under management, roughly 2%, if I've got it right. Of the tenants are going to have longterm or have had severe to moderate impact, and that's the tenant side of the equation, then you've got the landlord side of the equation that may or may not have had severe to moderate impact. You may not know that you might not be privy to that information.

Lisa Indge:

I would have you in front to landlords has been on the S on the low side to be fair.

Veronica Morgan:

Okay. And this is important conversation, and I know that we're only talking in a fairly affluent area. I get that, I get that this is you know, this is limited in its application, but To talk to them Um to these numbers and, and, and fact here in terms of personal experience, because there is a lot of fear mongering going on, or

Lisa Indge:

Yeah, absolutely. I totally agree with that, Veronica. And, you know, I can actually speak to that in, in the context of discussing what the other chapter members are experiencing the REI chapter members, because it's very different. For example, our vacancy rate finished up at 2.3% at the end of June. That's quite good. It's good. Hey, happy with that. Yeah, I'm very happy with that. Cause it was my 4% in may. Now when I spoke to members of the committee obviously I referred to the, the guy who is in, in the CBD most affected. But when you talk to property managers in Paramatta or further out, the number of requests for rent relief was actually very low. And for example my colleague in paramount, his vacancy rate is 1% well know we'll be talking about, yes, I know we are talking about a lot of people who have been affected, but it is in, in every city in Australia, it's been condensed to close to the city

Veronica Morgan:

The actual city itself, you know what I mean? And I don't think I've actually ever bought a property in city. So it is interesting and for lots of reasons, and one, one is risk. And seriously, I guess we're seeing that played out at the moment, because if you move out to that in a ring, it's, doesn't have the same vacancy rate as the actual city. Right? Correct.

Chris Bates:

I think you're saying very similar things in Melbourne. I remember I saw some stats last week where, you know, Melbourne [inaudible] South bank we're really smashed in terms of the amount of vacancies down there, because they've got a lot more sort of residential apartments kind of in that inner ring. Have you, have you seen those numbers as well and sort of, do you think it's very similar down in Melbourne? Yeah.

Lisa Indge:

I've actually looked them up. And I Brisbane as well, and it's it's but below a numbers, for example, Melbourne CBD vacancy rate in may was 6.7% in Melbourne North, it was 2.1. So you're seeing that repetition of the inner city suburbs being far more affected and the CBD particularly. And, but this is the thing though. These were always, you know, there've been underperforming as investments for years, you know, this, this isn't anything new. This is just kicking people when they're already down really cause they've already made really bad decisions in the first place. Are you seeing have you seen any of your landlords decided to sell? I'm starting to see that now. I think landlords, some landlords feel that the opportunity is there right now because stock levels are so low. I haven't seen anyone sell for financial reasons. I have got a client who is looking to explore an off market sale because they were so scarred by the rent relief process with their tenant.

Veronica Morgan:

So what happened, can you give you know, obviously that revealing specific details, can you give a story? It tells the story.

Lisa Indge:

Yeah, look, I think this, this is actually, I'll, I'll speak about it kind of generally where you have a tenant because this it's happened in a number of cases and it's a very difficult situation to negotiate when the tenant simply feels that they are entitled to rent relief and they're earning a lot of money. Let's say they're earning somewhere between, you know, 200 and $600,000 a year. And they're all has been temporarily affected that they simply say, well, we need a 50% rent reduction now and we need it for, you know, three or six months. And the landlord is actually not in, is as strong a financial position. And the landlord says, well, a we can't afford that. And B do they qualify?

Lisa Indge:

And the unfortunate point there is that they do qualify. You can imagine if someone, I don't know, let's say that they were a surgeon or something like that. And the hospitals it, and they did elective surgery possibly closed. They actually can't work for, let's say two months. So their income is affected and they can get job keeper. And so when you put all that together, how do you negotiate an outcome that is acceptable to both parties? And unfortunately, there's these people who are on very high incomes who've been affected. Don't find that let's say a 25% reduction in their rent is acceptable. So interesting. Yeah. And I also, to be honest, I think there's a, there's a, there's a personality factor there. We had one tenant who actually just decided to vacate because he didn't get what he wanted, but if you stack the numbers up on what we were offering and what he was going to have to paint a break fee, he was prepared to pay twice as much in a break fee as the deferment that we had asked him to pay. So it wasn't a financial decision at all. It was about winning it will

Chris Bates:

I know tenants potentially just not pay or go into a raise because of this battle though, this negotiation potentially is not really lining up, you know, landlords willing to offer a pretty big discount, but the tenant wants more. And and they just don't pay rent. Are you able to actually keep people out of their homes? You know, it's not, not in a bad way. I'm not saying that, but in terms of where you've got a tenant, that's potentially over many months not paying rent are you able to kind of call to, you know, end it or you actually now you really have to not allow them to.

Lisa Indge:

I know we, we we've certainly we don't call it, kicking people out. Chris, I just need to,

Chris Bates:

It says the why, where it's got a, like, you know, they're really holding the house and they're not paying their rent. And it gets to this real battle over many months, he trying to make something work. And now the only thing is to really, is to go to tribunal, to get them out, you know?

Lisa Indge:

Well, I think, yeah, I would suggest to you that a skilled property manager is experienced at negotiation. I mean, this is a whole other level of negotiation, but I would be disappointed if I wasn't able to manage a tenant out. If that were the situation. We have had tenants who have stopped paying rent because they don't feel that the relief being offered by the landlord is sufficient, but there's a process that you go through of explaining to them what is reasonable and what is not reasonable, what the legislation says, what it doesn't say. We also have a facility that's available with fair trading, which is a mediation process. So when I've, when I've gotten to the point with perhaps someone who is who's being really unreasonable, then I suggest that they contact their trading. And to be fair, fair trading has being very supportive in understanding what property managers are going through and also advising tenants that they are being unreasonable and that they should accept what the landlord is offering.

Lisa Indge:

So we've certainly used fair trading mediation. In fact, I haven't actually mediated. I've just got the tenant to call and, or submit documentation to fair trading and fair trading have turned around and said, I don't know what you're complaining about.

Veronica Morgan:

Is that a change? I mean, have you experienced that before we fair trading?

Lisa Indge:

I think that with fair trading and in Kat that the attitude towards property managers in the past has not been very generous. And what I'm finding now is that when we speak to fair trading, or if we're at net end cat, their their level of empathy is, is much greater and that they appreciate that these are difficult situations. And that we have been put in a position where you know, we're trying to negotiate outcomes that are, that are tricky and also learn new legislation as well as deal with people's emotional States.

Veronica Morgan:

It's very encouraging because you know, there's been a lot of press recent times. I know that, you know, in Victoria there's new tenancy laws in new South Wales, there's been new tenancy laws, I think so in Queensland as well. And there's been certainly a lot of press amongst the, in the property industry to say how unfair it is towards landlords. And it's very tenant focused and I get, there's gotta be a balance. Absolutely. There's gotta be a balance, but it is sort of interesting to see that, that you're in your experience, you're finding there's a lot more support and the attitude through this time, because we, you know, anecdotally once again, and you hear the odd story about tenants refusing to pay rent and then, and then the big fight that comes about that. And, but I would think, and I would like to think that's a minority of people that are trying to take advantage of a situation.

Veronica Morgan:

Yes, I would agree with that. And so what, how, I mean, can you use the word of it and what under what conditions, because wasn't there sort of a, as a stop being put on evictions through these periods basically for six months, couldn't evict from nonpayment of rent, from what I understand, can you clarify that for us? So I can, that's actually not, not quite correct. So what happened when, when they brought the legislation out on the 14th of April, basically there was a stay on issuing termination notices to COBIT affected tenants for that 60 day period. And that 60 day period was designed to enable property managers and tenants to negotiate an outcome. Now, if that couldn't be negotiated by, I think it was the, or what would that have thing? I can't remember the date now. It was mid may, I'm sorry, mid June, mid June.

Lisa Indge:

My apologies. I think it was the 14th of June that we were actually able to issue termination notices again, but that meant that the tenant would have to be over 14 days in arrears. And that we would have tried to have negotiated out an outcome with a COVID affected tenant. So yes, we can issue termination notices now, and we have done, but we also issued termination notices during that 60 day state period, because if a tenant was not able to demonstrate that they work over the affected, then under the legislation, we were still able to issue a termination notice.

Veronica Morgan:

Okay. So did you have, did any of those people actually vacate or did they sort of pull their heads in

Lisa Indge:

A bit of both? Because what we tried to do was not come at it with a sledgehammer. And, and what we tried to do is obviously work with our tenants to let them know that we were trying to negotiate an outcome, but we had one tenant who was the client offered to reduce his rent. This was in Waterloo by $20 a week for the rest of his tenancy, which was six months. And because his housemate had moved out but never able to provide information to us that that was directly related to covert. Then he simply stopped paying his rent. And he's very aggressive, very unhappy with the process generally. And at the end of the day, it was not commercial to keep him in the property because he was refusing to pay rent. So we issued the termination notice, he vacated the property and we will be taking that matter to tribunal.

Veronica Morgan:

I was in Alexandria yesterday, just walking on the street and it looked like the entire contents of an apartment had been basically dumped on the side of the street.

Lisa Indge:

Oh, wow. So pick up right.

Veronica Morgan:

At first it was like, Oh, this is disgusting. And then I was like, Oh dear, that looks like it might be somebody being forcibly removed. Does that happen very often?

Lisa Indge:

No, no. I've been doing this for 16 years and I've actually only been in that situation once and it was a really long time ago. Thanks. Thank goodness. Look, I think, yes, there are probably areas where that is more likely to occur as in, you know, lower socioeconomic areas, but it's, it's pretty drastic to have to evict someone. And I think that from my perspective, it's always better to negotiate an outcome than to actually go to eviction. And that comes around to explain to the tenant that perhaps they need to find a property that is lower in rent to enable them to be able to comply with the residential tenancy agreement, which is going to be a better situation for them overall, because

Lisa Indge:

Who wants to be hassled by the property manager all the time about nonpayment of rent. I think it also comes back even further when you start the process of finding a tenant and obviously finding a good quality tenant who can pay the rent who is actually going to behave appropriately in that circumstance. So for example, if someone's been made redundant, you don't want to be in, you don't want to take them to tribunal foreign eviction. That's just actually a really unpleasant way to finish the relationship,

Veronica Morgan:

Which leads us Perfectly perfect segue to Dumbo of the week. Have you got a property Dumbo for us Alyson that we can all learn from or.

Lisa Indge:

What, like the one, when my client bought a property with no kitchen sink Okay. And then my friend bought a property with no oven.

Veronica Morgan:

Now let's talk about that because you know, in all, in all fairness, she's talking about me in both cases.

Lisa Indge:

So both of those properties have rented out extremely well over the years. And no doubt capital appreciation you've achieved is awesome.

Veronica Morgan:

Well, I did have to buy an oven. So that was an apartment in Bondo beach that I bought some years back who needs enough and never actually noticed that only had a microwave and a hot plate. I didn't actually notice that it didn't have an oven at all. And, but, you know, and a bit like with the house in Alexandria with the kitchen sink, you know, there is a kitchen sink is just in the laundry, which is sort of open and directly adjacent to the kitchen. And you know what, I didn't notice it. The building inspector didn't notice it. It was only when the painter came in to paint it. I went there before you settled on it. And I didn't notice it.

Veronica Morgan:

I didn't even notice it either. You know, it's a gestalt theory where you fill in the gaps, right. There's a kitchen has a sink, doesn't it? So you don't even think where is it? So, but in that case yeah, it was the painter that actually noticed it purely because he needed a sink to wash his brushes. Don't you realize you don't have a kitchen sink in that, in that particular property, I've bought that property always with the intention of renovating it. And I did a tart up as you, as you will recall to rent it out in the short term. I don't know when I'm going to renovate that property, but I'm going to rent it because.

Lisa Indge:

You haven't needed to because we've had it since consistently rented it, you purchased it and we'd think it's in.

Veronica Morgan:

Good condition as opposed to the one in Newtown that I bought that time. But but the thing is with that one yeah, that, that is quite funny because, you know, it's a bit like the, the, the mechanics car, you know, the mechanic would die around with the bomb that keeps breaking down. And, and that's a really good example that even a buyer's agent should actually engage a buyer's agent, you're filling the gaps. Right. And and I guess, you know, you really

Lisa Indge:

To avoid that you have to have a checklist that says, is there, is there a sink in, is there an orphan, you know, like, Oh, it would never happen again, but, well,

Veronica Morgan:

There is a checklist it's on the front page of the contract that say oven.

Lisa Indge:

But I, I think that if you talk about no properties that we potentially manage, that are just like every single time you go, Oh, what it's going to be a problem. There's going to be issues with the Tennessee, there'll be maintenance or it's just difficult to rent because it's got some big factor that is, is is going to be a big cross for tenants. And I think that comes back to Veronica, what you do with looking at quality properties to purchase rather than cheap properties, cheap properties, always a cheap property. And that comes to the rental market as well. So if you've got something that is dark or has you know, there's nothing wrong with a small second bedroom, but it depends on the area that you're in dark and no balcony, I think are two factors that that I'd be really careful off. I haven't joined a property with no balcony and actually it's rented out very well over the years, but the capital appreciation has been, I'd say average.

Chris Bates:

Yup. That's a really good point actually. You know, like if you're going to buy an investment, one of your biggest risks initially is cashflow. And making sure that, you know, you can pay your mortgage and, you know, you're not going to, if there's anything that pops up, you know, you can repair it, et cetera. And so buying a quality asset, you know, you're more likely to get a quality tenant. You're more likely to get competition. And so you can really shoot yourself in the foot by not only getting by a poor asset, but then when you go to the rental market, you know, it gets vacancy, it maybe doesn't rent, you know, damage, et cetera. So

Lisa Indge:

Yeah, high, high turnover as well. And I think that, you know, you've really got to consider those things when you're buying an investment and, you know, the location of the property is key. I know Veronica hates properties on main roads. I think that's that's another one that you would really want to avoid. So there there's, there's some pretty big factors there that you can easily avoid, but I would always caution that if something looks cheap, that there's a reason for it to be cheap. It, it's not that you're getting a good deal. No,

Chris Bates:

I've meant to ask earlier on around the state government providing, you know, additional assistance to renters and landlords I know there's some reductions in land tax, for example, but is there anything else that, you know, people can apply for and then get, are eligible for, and then can receive money from the state government?

Lisa Indge:

I think you're referring to landlords there, Chris. No, that's it. And if you look at new South Wales only 16% of landlords actually pay land tax. Yeah. When you referred to the relief that they potentially receive there are certain hoops that they have to jump through and, and the actual benefit that they would receive is really only a rebate of 25%. So if you're in a city properties, let's say for example, on smaller parcels of land, where the land tax $4,000, you got a thousand dollars in terms of what they might get back, but they have to obviously pass that onto the tenant first and then provide all the documentation to revenue, new South Wales by the covert effected and all of that sort of thing. And I'm certainly seeing that some clients are coming back to me saying, well, if we've only given relief for two months, revenue, new South Wales, don't actually see, that has been long enough. I'm not quite sure why they feel and measure.

Chris Bates:

Yeah, I think in Victoria, it's, you know, I don't expect you to know all the different States, but I think in Victoria that providing up to $2,000, I believe, and I think other States are doing, you know, different things.

Lisa Indge:

That's actually, yeah, that's correct. Chris and new South Wales decided, so that was, that was a a national government directive or piece of legislation. And the States actually had the option of taking it up and new South Wales decided not to. So the REI has been lobbying the government to try and understand why owners in new South Wales aren't entitled to this $2,000.

Chris Bates:

Yeah. If you choose a potentially going to continue, right. You know, especially in Victoria you know, with what's happening and potentially here again, you know, we just don't know. So I think that the whole negotiation around leases and releasing, and you know, you've got your work cut out for some time. I magic has been probably a crazy period for you.

Lisa Indge:

It's been a very challenging period, but I must say I've learned a huge amount during this time. And our team have been absolutely amazing in you know, working from home and being flexible and, you know, stepping up when it was required, because, you know, one of the most difficult things during this period has been renting properties because we had a time where we actually couldn't go into properties that were tenanted. So those properties we couldn't access until they were vacant created a scenario where he had to go, well, we need to get these properties rented as quickly as we possibly can. So I made a, a measure and I was like, okay, well, these properties need to be shown four times every week. So the team was super busy showing all of those properties and the available stock stock increased for us at that time as well.

Veronica Morgan:

Well, it has definitely been a challenging time and it looks like it's not over. And certainly there's going to be onward pressure, downward pressure on rents for a wall, I would say. So look, we really appreciate you coming along today, Lisa and explaining, I guess, the differences. I guess I would say that again,

Veronica Morgan:

I really appreciate you Lisa coming along today and explaining to us how the legislation has been rolled out if you like in new South Wales, but also touching on those other States and understanding to the different areas and types of tenants and types of landlords that have been more effected throughout this whole lockdown procedure. So thank you so much for sharing that with us. Thanks for having me on

Chris Bates:

Thank you so much, Lisa. Yeah. I think there's been lots of fear mongering in the press around vacancies and you don't mind investment property right now b`ecause you won't be able to rent it, which isn't really true. A lot of that comes down to the quality of the asset, et cetera. And there's still people out there needing to rent properties and swapping properties. So, you know, I guess it's kind of dig a bit deeper on here. And then if you are a landlord that's aura or a renter that's been affected, speak to your property manager, I guess is probably the takeaway and actually starting the negotiation rather than you know, put your head in the sense. Definitely. Thanks guys. We want to make you a better elephant rider and this week's elephant rider training is,

Veronica Morgan:

Well, let's pick up on something that we touched on in this interview with Lisa and that is about cashflow for property investors. And Chris, you're better equipped to really, I guess, give us some good tips on this. How can investors better manage their cashflow and what are the things they need to know about before they buy an investment property?

Chris Bates:

So I think there's a few stages as an initial stage, just making sure you can settle on the property and then get it rented out. Sometimes it can take a little bit longer than expected and I might have to tidy some things up and it might not rent straight away, but ongoing that the, you know, there's two sides of the equation. There's the rental income is trying to maximize that every year, if you can you know, being conscious of the tenants needs in the market, but also limit vacancy. So if you can do those two things, you've got rent coming in all the time, that's part of the equation, then it's your expenses. And really the big expense you should always be thinking about is your interest rate. Cause that's going to be your number one expense and whether your investment property is principal and interest or interest only, and that will have a huge impact on your cashflow. And then the final part of it is the maintenance of the property. You know, if you buy a for example, a strata unit and an art deco block, that's well-maintained yeah, there might not be much maintenance, you know, every year, but I guess if you buy like a rundown house, you know, you might need a new roof, new decking. So being aware of your maintenance longterm is, is something you'd need to know before you buy the property. Yeah.

Veronica Morgan:

And there are other costs involved in running a property, the such as insurance, for instance. And certainly if you're paying straddle levies, that's a way of actually budgeting for that maintenance. And if you add in all those types of costs roughly speaking, you'd be looking around 22 to 24% of the rental income typically is the sort of cost allocation for all of those other incentive in there got him say roughly 22

Veronica Morgan:

To 24% of the revenue or the rental income does go out in those other incidental costs in those, those very, very real costs of owning a property. So they're, they've got to be taken into account as well. Yeah. I think a lot of people like to take mental shortcuts. So they'll look at a property and then they'll compare which one's a better property based on what the strata costs. And unfortunately how much that strata costs doesn't really determine which ones are better property or not. It's how much is this sinking fund? What conditions the building in, you know, paying a bit more strata is not the end of the world. And actually sometimes it's a good thing for your longterm capital value. So just be a little bit careful on trying to always minimize costs like shadow costs.