Birthdays, vacancy rates and vaccines

This time last year I celebrated my 41st birthday in iso. Melbourne was 24 days into the now-infamous 113-consecutive-day Stage Four Lockdown. We had only four reasons to leave our home: exercise, shopping, permitted work and COVID testing.

Celebrating anything during this time was novel. Facetime and Zoom replaced the family gatherings to sing happy birthday. Uber Eats (what a business by the way) delivered your favourite birthday dinner and if you went that little bit extra, you also got ‘Cake Mail’ to deliver an amazing birthday cake to your front door. It was a little bit cute and a little bit weird!

At the time, I remember thinking this was going to be a memorable birthday. Locked inside, sitting at my kitchen bench looking at my friends and family on my laptop screen whilst they too were locked inside. We all talked over each other having not yet learnt the appropriate Zoom etiquette, and let’s face it, if you are ethnic like me, you still haven’t really grasped that concept.

Yep, 2020 iso birthdays were going to be a recollection and topic of conversation for years to come.

This week, as the earth orbited the sun, I celebrated my 42nd Birthday.  In iso. Again. Only this time, Melbourne is joined by Sydney in lockdown and there are only five reasons to leave home. Exercise, shopping, permitted work, COVID testing and to get vaccinated.

Without sounding ungrateful for all the beautiful efforts my family and friends have gone to make my birthday special, this iso birthday isn’t one I want to remember. This year, I received one less phone call for my birthday. We lost my father on 30 December 2020. For me, and so many of us dealing with our own pain and suffering, the past 12 months will only be memorable for being some of the most challenging days we’ve ever experienced.

18 months on, NSW, ACT and to some extent QLD, are getting the repulsive taste of lockdown life. The suffocating restrictions, the disruption to businesses, the loss of employment, the mental strain, the challenge of home-schooling and the disruption to our VCE and HSC students. I think I speak for all of us when I say that this ‘unprecedented time’ has exhausted us. We are all COVID-fatigued and want our lives back.

Whilst our country navigates towards our version of ‘freedom day’, unfortunately we can’t just sit and wait. We need to keep evolving, strategizing, and diversifying to get through to the other side.

As tough as the past 18 months have been, it’s also amazing to see the incredible innovation that not only we at Blue Wealth have implemented in our own business, but businesses all around us. Innovation and development has effortlessly integrated into normal life. Click and collect. Remote fitness classes. Online teaching. Telehealth services. Culinary classes. Virtual entertainment. The list goes on and on. These are all by-products of pre-COVID businesses that were forced to innovate to survive.

This time last year the impacts of lockdown saw an enormous increase in the vacancy rates in Melbourne. Some postcodes spiked to as high as 16.5%. The impact of the high vacancy has, unfortunately, put a lot of downward pressure on rents. Since Feb 2020, Greater Melbourne rents have tapered back almost 13%.

Just like businesses, landlords too have had to innovate and strategise to not only attract prospective tenants but to keep the ones they have.  Across the board, our clients’ reductions were on average only 7%. This was done by offering options to tenants. We helped clients renegotiate leases by offering once-off payment incentives or slight rental reductions to entice lease renewals. We used these strategies proactively to avoid vacancy and loss of rent and it worked!

Whilst we have seen an improvement in the vacancy rate in Greater Melbourne over the past 12 months (from 4.7% down to 3.5%) this, unfortunately, does not mean that we are at pre- COVID levels. Sourcing tenants is still a big challenge that will remain for a little while yet.

In a recent conversation I had with one of our clients, who understandably wanted to increase his tenant’s rent from $350pw to $360pw off the back of seeing this improvement, was quickly taken aback when I told him that a $10 increase could potentially cost him over $3,000!

Increasing the rent by $10 can do one of two things, add $520 to your annual rental income, or lose you a tenant. Losing a tenant means that you are now left with having to re-market your property. Marketing costs, even at Blue Wealth mate’s rates, will still set you back around $250. On top of this, you now run the risk of a potential vacancy. On average, properties are taking 8-10 weeks to re-lease. That’s a potential loss of $2,800, and then there are agents fees of approx. $385. So, increasing your tenant’s rent $10 a week could potentially cost you $3,435! Not a risk-reward ratio we’re comfortable with. With cashflows strong now off the back of record low interest rates, there really is no need to take unnecessary risks with our tenants. Our thousands of clients, with thousands of properties across Australia, have a very impressive vacancy rate of under 1% and we want to keep it that way!

Whilst I understand the need to get back to pre-COVID rents, we simply are not there yet and every decision you make as an existing landlord needs to be well thought out. If you’re in two minds please reach out to us and we’ll help you make an informed decision!

I’ve always endorsed good property management, and in this environment, you simply get what you pay for. A good property manager should help you to be strategic in holding your tenant. A good property manager should know first-hand what government incentives are on offer to not only help you but also your tenant. If yours isn’t doing the right things, let me know and I’ll find you one that will.

Right now, given the situation we are seeing in NSW the state government is offering tenants who qualify for rental grants up to $3,000 [CLICK HERE FOR LINK].

In Victoria, the state government is offering individual support for anyone that has been impacted by the ongoing lockdowns [CLICK HERE FOR LINK].

It’s so important to know what help is out there. If it’s a way to hold onto your tenant longer, then any assistance available needs to be explored. If your tenant doesn’t qualify, look at your bottom line. Work out what help you may be able to offer your tenant to keep them for a further 12 months or even 6 months. As many of you know, if you’re on an average income, a $40 weekly reduction doesn’t actually cost you $40 per week. It actually only costs you $23 a week. How could that be? Well you’re a property investor, which means you’re getting tax deductions. A reduction in income (rent) gets you a bigger tax return! Remember that cash-flow spreadsheet we did for you when you first bought?

If your tenant, unfortunately, vacates due to COVID, know the market and make sure your property manager has their finger on the pulse. Make sure their marketing looks right. Is the copywriting on point? Can they use virtual tours or virtual furniture to attract tenants visually?

Right now, there is no room to be stubborn or lax. If you’re not getting the prospective tenant interaction, then either your property manager’s marketing is terrible, or you are priced out of the current market. You and I both know what potential your property has. We know what rents were like pre-COVID and we know this is a short-term challenge. Knowing the market and coming swiftly in line with it will save you your hard-earned dollars.

Remember the big picture. Remember why you invested. Ultimately, it’s about growing your wealth. We’re in a once-in-a-generation period of low interest rates and solid rents relative to those rates. Let’s make sure we keep our eye on the prize and make the right decisions along the way. Just remember that the rent in not intended to make us rich. It’s just there to help us hold the property long enough for the capital growth to make us rich!

As always, I’m here for you if you need to bounce an idea, talk about your current rental situation or even just to get some advice. Always feel free to reach out via email or phone.

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