Landlords and Tenants in Crisis

Jason · 00:00Welcome to episode 202 of The Numbers Game. I'm Jase, I'm here with Nick and Marty. Hey yo, Marty. He's

Nick · 00:07lost it. He's lost it.

Marty · 00:10Yeah, you idiot. He's

Nick · 00:12lost it. We might as well push on now. It's still Jase's turn. Jason's got his, his best Haley watch.

Jason · 00:19It's not bad. It's not bad. I wonder if anyone will pick it up.

Jason · 00:23No, it was meant to be incognito. We're meant to roll in as if nothing

Marty · 00:27had the back of

Jason · 00:29Marty, if you want to see a guy fall off his chair, head to the YouTube, uh, video and see the start of this episode. Guys, I'm trying

Marty · 00:35to be a conservative white male in 2024 and you pull this sort of crap on me. I can see, I can see the

Jason · 00:44daily mail headline now, you know, three, three mail numbers game hosts go stupid over it, you know, anyway.

Marty · 00:51Off air, take it off air.

Jason · 00:54Oh, good. It's Silly Hour at the Numbers Game. It's episode 202. Here we are today. Marty,

Jason · 01:00bring it on. Let's go straight into it. I'm excited. Well,

Marty · 01:02I have a far more serious conversation than we started with here, but we've been talking to a lot of investors out there in the market.

Marty · 01:10And there is some significant panic out there. And I thought I'd bring it to the table today and get your, your view on it, fellas. Cause I think it's a significant. And, um, as we know, people are doing it tough. We've cost a living going up. People have had 13 rate rises on their mortgages, but investors, it's incredible when there's pressure on the market.

Marty · 01:33That, um, you know, they've something's got to give. And I saw some really damning stats that, uh, rental stock has basically plummeted by 15, 600 homes in Victoria in the past 12 months. And even more damning is that that's 10, 400 homes in the last three months. I think landlords have just had enough and it's, um,

Marty · 02:00and I'm just not sure where this is going and what, what I want to bring to the table is the fact that they really need to get professional advice because like in the stock market, stock market goes up, everyone gets FOMO, wants to buy, stock market goes down and immediately people are selling, think it's the end of the world.

Marty · 02:19But again, you need to really understand the numbers behind the investment and why you got into it to the first place, because. In time, you'll be leaving a lot of money on the table as to that investment actually going to its fullest potential. Um, but these numbers are fascinating. Like new tenant letters have plummeted 11.

Marty · 02:428 percent in the year. So usually you see new tendencies going up by about 3. 1 percent over the last 10 years. But that's now come down by 11. 8 percent in one year. So definitely the right rises increase in general costs, increase in land taxes,

Marty · 03:00uh, making a difference. And I think it's just affordability across the board.

Marty · 03:05And like Nick has said in previous episodes, there's lower lending of lower levels of savings. So I think what's going on here is people feeling cash strapped on their own mortgages, their cost of living, and then going. Oh, I now have to inject all this extra money into the investment. And I think it's particularly hitting the mums and dads that would have purchased their first investment in 2021 rates were a 2.

Marty · 03:325%. They were feeling, you know, feeling good about their future. And, and all of a sudden. It's a big, uh, wake up call now in 2024. And I want to go into some of those numbers as well with you today, but are you hearing any of this from, I think this is the front precipice of something really changing in the dynamic of the, of the residential market, particularly in Victoria, JC, you saying this at all with investors, with your

Jason · 03:58investors.

Jason · 03:58I'm saying a few

Jason · 04:00different things. The thing at the top of my mind, just before I go into the investor side, is just like the, the sheer competitiveness of the rental market at the moment. I mean, like the availability of rental properties, I think on average across the country is like 1%, there's 1 percent vacancy rate.

Jason · 04:15So if you're trying to find a place to live, you know, rental properties are very hard to come by and get into at the moment. And, you know, it's, it's getting, uh, tougher and tougher. I was talking to a client who was going to a rental property inspection. And yeah, there was a hundred people lined up down the street competing for the same rental property.

Jason · 04:34So, you know, I mean, that's, that's a side by product of what we're talking about, but definitely seeing the numbers, we we've got clients that are, if it wasn't for the negative gearing and wasn't for the tax refund that they're getting at tax time. They would, they would have well and truly had to have sold their rental property and be out the door.

Jason · 04:53Um, and even at tax time, you know, I sat there and I was talking to some clients that were about

Jason · 05:0030, 000 negatively geared the other day and the conversation still, you know, can we afford it? What can we change? Can we do something different with our mortgage? Do we move into the investment property or, you know, sell our, our main residence?

Jason · 05:10Like all these different conversations start to come up when. The cost structure of what you had bought, you know, as, as close as, as soon as five years ago, you know, four or five years ago, you, you achieved the dream of owning an investment property, which is, you know, it's a big part of the Aussie way of life is to buy your first home and then set your goals on an investment property.

Jason · 05:33And a lot of mom and dad investors, that's, that's what they feel comfortable doing. You know, um, they don't necessarily want to have the big, the big stock, um, you know, big investment in the stock market. They know bricks and mortar, so they want to buy a rental property. They understand it. Um, but just how, how far the numbers have moved over five years has been shocking.

Jason · 05:54And yeah, because I'm blessed to be on the other side of it and see the numbers, got an understanding of it. But yeah, the everyday

Jason · 06:00punter who. let's say you are renting and you get annoyed that the rent has gone up so much over the last couple of years, it's quite possible that you don't understand the numbers behind the scenes that fuels the reason for why those rents have gone up.

Marty · 06:12And I think, I think rents obviously have gone up significantly. I saw a stat saying 14. 6 percent up from March year on year, and the average increases over the previous 10 years before that was 3. 7%. So, which is pretty, you know, which is pretty low in regards to the increase right there, but 14. 6 percent is significant.

Marty · 06:33So the other problem it poses, obviously low supply of rentals, but again, then affordability of a tenant being able to afford that rent too, but I guess if you've got limited stock, you can still get away with that. Um, but it's, and then when you look at it as a investor, you go and um, Melbourne's only grown by around about 11 percent in capital growth over the last Three or four years as well.

Marty · 06:59So, um, it's,

Marty · 07:00it's like, it's not usually a major event that brings the plane down. It's usually a number of different little things that ends up plummeting into a mountain, but I'm just, I'm taking a read on this and I'm going, there's a number of different things for those moms and dads that have got in, uh, to an investment in 21.

Marty · 07:18Um, and then now to the predicament that they're in now. And if it was a business, like you said, you want to be making money in business, but I hope we can provide some wider perspective on this. Uh, cause there might be pros to keeping an investment property as well. Cause we still think that the market will go up in Melbourne once rates do decrease and you don't want to miss out.

Marty · 07:40On that return as well. And you would have seen it in financial planning and investment, Nick, in regards to, you know, people not finding a strategy through a challenge period and then missing out on all the upside on the back end because of it, that happens quite a lot.

Nick · 07:56Look, it's, it's really difficult conversations at the moment.

Nick · 07:59And

Nick · 08:00we had another one this morning with a, with a new client that we just bought on. Um, You know, property in Melbourne, um, had the property for a few years. It was now 25, 000, uh, negative from a cashflow point of view. And, you know, this is a, this is a family that earns good money. And, you know, we did bring this up on the podcast a couple of, uh, episodes ago or whatever it was just around knowing your numbers.

Nick · 08:28And, you know, I think we were talking about Victoria and, you know, You know, it's tipped to do 21 percent return over the next three years. So if you can afford to hold it, you should do that. But that aside, I think people. less focused on the dollar or the money. And I just think people just don't want the stress anymore.

Nick · 08:47So, you know, it's all good and well for us to sit here and say, well, you know, do your numbers. Can you afford to hold it? If you can, you should, um, factor in your tax rebate. But I think, I think people don't care anymore. There's,

Nick · 09:00there's, there's an element of that. I just don't want to hold it. I don't want the stress of meeting that repayment.

Nick · 09:05Every month I can put that repayment into my mortgage and start to build up a bigger cash buffer and that's going to help me sleep. I don't care if I can make an extra a hundred grand or 150 if I hold it for the next four or five years. I'm just over it. So I guess where we're seeing that and we're just, um, in that case, it's like, you know what?

Nick · 09:23Okay. Because the reality is no one wants to be stressed that has, you know, other impacts. So it's, it's, it's, it's a real worry because at the same time, You look at the, the issue of getting into a rental place. So you've just got this perfect storm where investors don't want to keep properties and renters can't rent them.

Nick · 09:47And it's just, it's crazy to think that we're in this, that we're in this predicament at the moment. And. You know, no one's moving in the, in the same direction and, and until they do, it's just going to be a bigger problem.

Nick · 10:00Um, and there's no solution around the corner. That's, that's for sure.

Marty · 10:04Yeah. And a lot of those, a lot of those tenants can't get into housing as well.

Marty · 10:08So in some situations, there's not enough stock as well. So there's still, you know, there's still that issue, uh, that's causing, yeah, causing, causing some grief. And I, and it's, and it's, you're right, Nick. It's depending on who you talk to. Like I had, uh, spoke to a client this morning that had had their investment property for 10 years, and that's a different ball game because they're virtually neutral on 6.

Marty · 10:325 percent interest rate. And, um, they're excited because they're going, you know, they're getting their tax benefits and everything else, but they're going, Oh, we're doing, we're doing well, given the circumstances rents have gone up. And then, you know, once interest rates come down, we're expecting another, you know, another big capital improvement on that property.

Marty · 10:52So they're in a position where they've been longer in the game and it's a totally different circumstance. They've been able to ride it out comfortably.

Marty · 11:00Whereas, you know, and I'll run through some numbers of a couple that bought an investment property in 2021, just to give you. Just to give you some context around it.

Marty · 11:09So 650 grand investment loan. They were getting about $530 per week in rent, which is 27, uh, 506 oh per annum. Um, now they had an in, they had a home loan at six 50, um, at 2.5%. Can you believe that that was actually a reality when you look at it now, and that's 16,250 in interest. Um, they had agents fees at 7%, insurance is 900, accountancy cost 500, rates at 1, 100, maintenance at 1, 200, and land tax was 575.

Marty · 11:47So they actually had a cash flow benefit. On that property of 5, 106 per annum. So, and that's without even taking in the extra depreciation

Marty · 12:00benefits and, you know, uh, on the, um, on the property. So that's, that's a good scenario. Now we fast forward to now. And we're looking at same circumstance. Yes. Rents are going up to 600 per week for them.

Marty · 12:12So they're getting 31, 200 per annum in rent, but the 650, 000 they borrowed is now at 6. 8%, so 44, 000 in interest costs. You know, compared to what it was before. Significant difference. Agents fees up to 8%, 2, 496. Insurances like virtually doubled, if not more, 1, 800 per annum. Accountancy fees up 750. Rates up at 1, 400.

Marty · 12:43Land tax has gone up to 1, 650 in Victoria and maintenance up at 1, 500. So they're at a negative cash loss, a cash loss of 22, 396. Like that is, that is a

Marty · 13:0027, 000 turnaround and that is significant. And people just don't like to feel poorer. Like that, you're, you're right. It's like, this is coming out of their own pocket and they're just, you know, Just not feeling very good about it.

Marty · 13:14That's, that's, that's significant boys, isn't it?

Jason · 13:17That those numbers, I think, you know, if, if you're a renter and you've thought, why did my rent go up and this is bullshit and not fair, I think rewind, listen to those numbers again of, you know, the landlord or the person who's gone out of their way to try and buy a property and get ahead in life has gone from possibly making five grand and getting ahead for the risk they've taken back in 2021.

Jason · 13:39One. to a negative 27, 000 swing to be 22, 000 out of pocket instead of five grand in the green. And that is why we're seeing rents significantly, well, rents have gone up, but they haven't significantly increased as much as what we've just seen That the cash loss that landlords or the property owners

Jason · 14:00are copying because of just the sheer increase across the board.

Jason · 14:03But I mean, look at that interest expense from 16, 000. That's,

Nick · 14:07that's the killer, right? And, and this is not, I'm not, I'm obviously not on the side of the Vic government, of course, as you would appreciate, but land tax is not the problem. Can, I can speak from experience. It's my. Landlord insurance has gone from 800 a year to 2, 000.

Nick · 14:24Um, so it's really, and this is why we, plead is the wrong word, but we really encourage people to, to see if they can hold, because those, those decrease in interest rates are not going to get back to where we were, but they're, that's what's going to have the significant impact, um, on cashflow. If we can get a, you know, some stage in 25 percent of, uh, in, 2025, if we get, um, a 25 point rate cut and then it should flow on from there, it's, it's going to change the ball game.

Nick · 14:54I

Jason · 14:54think that the important thing to do if, if you are holding a property, um, and you, you are starting to look at the

Jason · 15:00negative, the, the cash flow back out the other way, um, obviously assess your ability to live, ability to pay bills, ability to meet all the repayments, um, you know, for that. Example that Marty, you just said, um, if, you know, if you're losing 22, 000 and you happen to be paying tax at the highest, um, rate, you'd be looking at a refund at tax time of about 10, 340 or a bit over 10 grand.

Jason · 15:27Um, so obviously at tax time, that particular investor might get 10 grand back in the pocket, top up the offset or top up the savings account and help them. Cash flow that property through. And again, that doesn't take into consideration. There may have been some depreciation on that property, which is a non cash deduction that may help you get even more money back.

Jason · 15:45Um, but the important thing to look at is what are the property prices doing for that particular investment you're holding on to? And not just what have they done between 2021 and 2025, but what is the future projected? growth in that area that your

Jason · 16:00property's in? Is it in a great catchment area for schools?

Jason · 16:02You know, is there public transport development and roads being done? There's all these things that can significantly increase the value of your property apart from just time in the market. Um, that's the other thing to consider that you might be, you know, negative 20 grand until tax time, you're 10 grand out of pocket, but if your property is going up, More than 10 percent per year in value, you're still ahead.

Jason · 16:22You've got it. You've got to, as Nick said, find a way to hold onto that property, as long as it is a good property and ticks all the right boxes.

Marty · 16:29And, and I'm glad you're starting to talk about solutions. Cause that's, that's really where I wanted to go with this. Like the opportunity of what you can do is again, I think.

Marty · 16:41Review your mortgage. Like, even if you can get it down from, you know, 6. 8 to 6. 3, it's going to make a difference, right? For you. The other thing that you can do, I'm seeing too many investors take their personal funds To pay that 22 grand. So, and they're even topping up home loans

Marty · 17:00and there's no tax benefit in doing that.

Marty · 17:02So they're taking money out of the offset that's working for them on the mortgage and really, you know, feeling poorer for it. Whereas what you can do, look at the circumstance, you might be able to increase the investment debt by an extra 25, 000 for a year to ride it through. Get a better rate. Okay.

Marty · 17:21Increase the investment debt so at least it's tax deductible in covering this for a year until rates start to come down. Now when I say that, you also want to be fiscally disciplined as well. So you go even if you bought that right down from 6. 8 to 6. 3, and you raise the, raise the debt by 25, 000, you're still virtually paying the same amount of money overall.

Marty · 17:48So you're not in a worse situation. You've just structured the debt accordingly to get you through. So you can get to those better times as well. The other thing like Jase was saying, please see an

Marty · 18:00accountant. So, so many times people aren't claiming things they could be claiming on their investment. Um, again, depreciation on the bill, depreciation on fixtures and fittings.

Marty · 18:10Um, there's, there's ways to be able to get tax benefits that so often people don't even entertain. So these are the times to do it, to say any money that you can get back into your pocket, legitimate money that should be coming back to you. You want to explore those options on how to get that. And when I look at this couple's situation, I'm Um, just by reducing the rate from, um, 6.

Marty · 18:348 to 6. 3, um, they're paying 42, 525 in interest, but that's now on 675 grand. Um, so all the other costs remain the same. So even though we've increased the debt. Their cashflow position is actually slightly better at 21, 000, uh, 121 loss instead of 22, 000 396 loss. And they've got

Marty · 19:00extra money to ride that 12 months through and get to the other side of it.

Marty · 19:04So they're the sort of things to think about. We all want to sell and legitimately there are reasons to sell. If you just can't put your head on the pillow at night, And you just want to get rid of it. Dump some extra equity into the mortgage to support your position. Absolutely. But remember there's a lot of moms and dads out there that have tried to get ahead and, um, haven't gone through the circumstance of this kind of challenge before, and it is a bit of an outliner outlier challenge with 13 rate increases.

Marty · 19:32But again, if you can get to the other side, Melbourne really hasn't climbed on growth on investments or in property in general, 11 percent in four years, that's less than inflation. So people aren't really excited about that, but we will get a kick when rates come down. So you, you, you have opportunities to grow wealth on the back end of this, but that's what you've got to explore.

Marty · 19:54You've got to explore is this reasonable to do based on your own circumstances

Marty · 20:00Is it reasonable to sell? And if you are selling, then talk to a financial planner, because if you are getting some form of benefit out of that sale, you need to know where that, where those funds need to go and what sort of benefits you might be able to get from that as well.

Marty · 20:16So get professionals around you so you know your position and then you can make your play. Makes sense.

Jason · 20:22100%. Couldn't agree more, Marty. Um, if you've been listening to this episode and you think somebody else needs to hear this, please share the Numbers Game podcast to your friends and family. Um, you might've heard the barbecue chat of somebody saying they're struggling with their mortgage rates, um, you know, and they may not have had the opportunity to have an interest review from a great team like the team at Innovate.

Jason · 20:42Um, so definitely share the info. Don't be a numbers game hog and just listen to it for yourself and not tell other people we'd love to spread the good word of the numbers game, Nick, Marty, and myself, uh, we do this because we want to help people have a better future and we want people to be financially, you know, doing the right thing for them and their family.

Jason · 21:00So like, subscribe, share the word until next time. Thank you for joining us

Marty · 21:04and let's put money back in your pocket. And then you decide what the next move is. Game over.

Jason · 21:11This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice.

Jason · 21:20We recommend before you make any financial decisions, you consult a licensed professional. Individuals on the podcast may hold positions in the companies discussed. ---