NSW Holding costs increasing while rents take a nosedive

Looking over the past few years l can't help but notice the statutory holding costs of my IP's are getting more expensive and eating away at gross rental yields. Even during this years' pandemic, water rates, city-council rates, landlord insurance and strata levies have all increased. In contrast, all of my rents have taken a nose-dive decimating my cash flow. My gross rents have taken a $23,000 PA reduction (spread over 3 IP's). I have also extended rent reductions of 20% to 2 seperate IP's to help financially stricken tenants (approx $10K waived over 6 months). In hindsight l consider this to be a huge mistake. Whilst our government was imploring us to negotiate with tenants for a better outcome (for them), not one of my bills received a reduction, a credit or some sort of off-set. ) ok there was some sort of land tax benefit that benefited a handful of investors) In fact, all bills have increased. It's laughable the banks tried to have us believe they were doing us a huge favour deferring repayments for six months, all the while loan balances (which are secured my a mortgage) increased, creating larger profits. Fortunately, l've refinanced my bank loans and made some interest savings, which offsets the increases. There is no bill l loathe paying more than a strata levy. As much as l understand it's a necessity to run the operation of apartment blocks, it's more the fact that its' treated as a slush fund by some SM.
What do others think ?

 

Dont like strata? Buy houses instead of apartments.

interest rates have gone down.

you could have taken a repayment holiday.

sympathy has no monetary value.

 

I feel the same way

One has to be careful with apartments in Sydney as rents are dropping whilst prices will stay stagnant for years because of oversupply.

 

Rents really depend on location and property type, some have bounced back to some degree while others probably wont change till borders open up. Unfortunately strata levies are hard to control even if part of the exec committee, especially in older blocks that need maintenance.

Luckily interest rates are low as trainee says and generally sales markets are strong translating to hopefully some degree of growth depending on where you are.

 

Agree with you. It’s one of the reasons I am in the process of selling my unit in inner west Melbourne. Before covid, this was a long term buy and hold strategy, but now selling after 3 years of holding. My unit was up for a renewal in Feb and REA already informed me that I would be taking a 30% hit on rental return. I took the opportunity to try and sell while tenants were in there (had some recent sales in the complex which were outstanding). Wasn’t ideal as the property could of been better staged and advertised, but fortunately I got a good offer with very little marketing costs. Still will make a profit after selling/ buying costs and CGT, but will now look to focus on other projects.

 

Unfortunately the amount you can charge for rent is quite a fluctuating amount and is impacted by the economy, supply and various govt interventions.
Lots of people in Perth got stung by assuming that rental figures they were getting in 2014 would continue and less than a year later they were suffering with 30% less rent but land tax, council rates etc all increasing.
It's a harsh lesson but does bring it home that pandemic or not the rental market goes up and down quite a lot and for quite long periods of time and the leaner times can be quite hard to wear.

 

I think yeah the government stepping in and allowing tenants to not pay rent when there was a signed lease was unpredictable and unprecedented. But rents can go down, history shows us this time and time again - just ask investors in Perth and Darwin! It’s not always going to be rainbows and lollipops. It’s pretty standard for bills to keep increasing. I’d never recommended an investment property to someone who doesn’t have a certain tolerance for risk and a decent cash buffet.

 

Yes exactly, the very low interest would be buffering impacts of reduced rent.

 

This is true. Pandemic or not, it’s not a linear relationship between rising costs and rental return. Interest rates lowering will help, but the other thing one needs to look is lowering debt.

 

Yea I'm surprised to read that your overall holding costs have increased while rents have decreased given the interest rate environment. The mortgage on a property is usually the highest proportion of overall costs so total costs should have gone down over the last couple of years even with increases in rates, strata, etc and even with a 6 month deferral. $23,000 is a lot though and I believe you shouldn't have been as lenient with this.

I was quite tough on rents and required proof of hardship with repayment plans (fortunately none eventuated) because I am unfortunately not a charity and transferring financial hardship onto the landlord with no offset (as you have rightly pointed out) achieves nothing except taking on someone else's problems. I am happy to work with tenants, and I did, but the banks didn't give me permanent waivers on mortgage amounts so why would I be the sponge in the chain? I didn't agree with it then and I don't agree with it now. All we're seeing is landlords now starting to feel the pressure, which is as expected.

- Andrew

 

The very first thing I did was phone all my PM's so I could work out my exposure, being retired, living off of rental income, it was a very scarey time when the Government decided that private citizens should take on other peoples problems.

I questioned if my tenants were working, and in what industries they were working. What I found put me at ease to ride out the storm. I had a mix of those on benefits (income would increase), and those in stable jobs that were essential services, so income should remain stable. I told each PM that I am not a charity, and this is my livelihood. If anyone on welfare tried to claim hardship they were to be extremely tough with them & deny it.

If anyone working claimed hardship due to job loss, they were still not to get any reductions, as all my properties, except one of them command rents that are in the price range that a family on benefits can afford to pay. I should not be expected to give them a reduction so that someone else can pay for their car, or their netflix, or even their Christmas presents.