Hawke's Bay Property Investors' Association

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18-05-2020

Surviving the current crisis

Often when we are confronted by a tenant asking for a discount on their rent or a rental holiday we start to panic. Yes, it’s fine for them to ask but do they understand the financial impact this could have on you?

The media, Coalition Government and even letters from the Ministry of Education have been advising tenants to ask their landlords for a rent reduction or a rental holiday. We know that in many smaller rural towns around New Zealand most tenants know each other and often know the landlords and property managers in the area. So whether you agree or not to give a tenant a rent reduction or rental holiday, they will talk to their friends, family and peers about how good or bad you, their landlord, has been. If it was the reverse situation and you were struggling financially, how many tenants past and present would come to the rescue to help you by paying extra rent?

If you can help your tenants financially by all means do so, but not to the significant detriment of your own financial position.  We know that the only way we can survive something as big as the current Covid 19 situation, with job losses, businesses closing and many people going into financial ruin, is to put on your own oxygen mask before you put it on someone else.

Both the 2007 Global Financial Crisis and the 1987 Stock Market Crash never really impacted our industry until approximately two years after each crisis. So, without getting any Government assistance to help with your rental business, do you think you can manage for two years until you experience the full impact of the current situation? You could offer some rental relief now, and ask your tenants to pay this back at a later stage. This would help them in the meantime. However in a year’s time when they still haven’t been able to get out of this mess, through no fault of their own, can you afford to hold the property then with a tenant who can’t pay the rent?

It’s now that people need to look at their assets and make some hard decisions with the help of a budget and a cash flow forecast. Get advice from a financial advisor, whether that be your bank manager or accountant. If you need to make some big decisions make them now. This could include restructuring your loans to interest only, or restructuring your principle and interest loan by extending the term out as long as possible to reduce your monthly outgoings. Preserve your cash flow wherever you can. Remember cash is king. Try not to take a mortgage holiday unless you have no other alternative.  Even consider selling your rental property or properties. There is shame in exiting the property market to save yourself financially and then to go back in when things turn around again.

Sharon Cullwick

NZPIF Executive Officer

 

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