Have you seen a rent payment missed? It may be an emerging trend… This may feel a little obvious given the current economic climate, but in this instance, we are talking about those who would not normally fall into “arrears” and do not have a history of this type of behaviour.
With the cost of living increasing significantly and showing no signs of improving in the near future (even if inflation is slowing down), the risk of some renters defaulting on their rent is on the increase.
It takes a while for people’s habits to change, particularly their spending habits, which means that the increased cost of living for some families has probably not really hit them yet.
Plus, the experts tell us that the savings that people accrued during COVID are dwindling rapidly and crunch time is coming for many who may find themselves with expenses that are way above their income. Their buffer is disappearing.
And although “keeping a roof over their head” is a priority for most, it’s the unexpected, out of the blue expenses that people are not able to easily plan for that can throw their budget out the window. Basically, there is no wiggle room for vet bills, kids making a representative sporting team, or even a car repair. The knock on effect means that bills get pushed past their due date, including the payment of rent.
We don’t mean to alarm you by sharing this information. Our agency pays careful attention to renter selection and works closely with renters to ensure we are keeping the lines of communication open.
And as soon as a renter misses their due date, we are in contact with them to establish when payment will be made. Our approach is firm but fair and we are very conscious that a delay in rent being paid, definitely has a “knock on” effect for you too.
What we may see over the next few years though is a slight increase in the number of people who fall behind in their rent payments. At the moment, the average percentage of renters across the property management industry who are in “arrears” stands at around 5% (our office is below this at 1%).
We anticipate this average may creep up a percentage or two over the next few years as the economy and market adjusts to these increases in the cost of living (fingers crossed we are wrong). In our office, we are confident our approach will continue to minimise the impact of defaulting renters on our investor clients; however we feel it is important to let you know what is happening in this space at the moment.
So how can investors minimise the risk of being out of pocket from renters missing rental payments?
It’s pretty much the same approach as it has always been. Careful tenant selection, paying close attention to tenant behaviour, ensuring the lines of communication are open with our renters and using the legislation we have available to help move someone along if it is necessary.
And then of course, there is landlord protection insurance.
As tempting as it may be to think you won’t need it (the premiums have taken a hike recently), a policy that will cover not just accidental and malicious damage, but also missed rent payments is something that every investor should have up their sleeve. If the unthinkable occurs, these types of policies can really make a difference to not just your pocket, but your state of mind.
It is important to remember that it is rare that someone will deliberately move into a property not intending to meet their obligations. Most people do the right thing. Like we mentioned earlier, in our office 99% of people pay their rent on time – so the odds are still pretty much in favour of getting your rent on time.
If you are a Landlord and would like to discuss the management of your rental property, please don’t hesitate to reach out.
