She's On The Money - Ethical Landlords, Can They Exist?

Episode Date: September 12, 2023

We live in a world where rental housing has been increasingly converted into an investment asset. We’ve seen much debate in ours and the broader community that people shouldn’t own an investment property till everyone has a house. So today we’re talking about ethical landlords – what does this mean, is it possible? What are our Australian values around renting and more globally what the landscape? Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money.

She's on the money. Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. My name is Bec Syed and with me is Victoria Devine. How good are salt and vinegar chips? I was wondering if you'd be finished that mouthful by the time you started talking. I nearly finished the mouthful. That was quick. I'm very impressed. It was not comfortable.

No, very jagged going down, isn't it? But there is no better combination than salt and vinegar chips and watermelon. Oh, my gosh. Okay, I wouldn't have thought. But now that you mention it, I can see. Yeah, because it's a bit juicy. It's like a drink. I mean, you're not putting them in your mouth at the same time.

Okay. You've got like a little snack of watermelon, which I do, and then you've got a little snack of salt and vinegar chips, which I do. Okay, gotcha, gotcha, gotcha. Anyway, moving on. What are we talking about today? Oh, yes. Okay, I forgot that we're doing a podcast.

Yeah, it's actually a food podcast now for real shit foodies. Honestly, I'd be happy with that. So, V, obviously, as you know, we are living in a world where rental housing has been increasingly converted into investment assets. It has, indeed. So we've seen much debate in our lives and the broader community that people shouldn't own an investment property till everyone has a house. Spicy opinion.

I would tend to agree, but, you know, there's complications. Anyway, so today what we're talking about is ethical landlords. So what does that mean? Is it possible? Also, what are our Australian values around renting? And more globally, what's the landscape? I think first things first, there was not one circumstance that created our current housing crisis, but literally hundreds of years of contributing problems, income inequality, colonization, car-centric urban sprawl, and urban renewal, to name a few. With such complex societal problems, I just don't think that there is a single solution that fixes absolutely everything, Bec. So can an ethical landlord, in your opinion, exist or is this an oxymoron?

It's such a spicy opinion, but there are so many different opinions on this and it really depends on your personal values. We can't answer that for anyone, really. At the end of the day, it is personal and that's the best part about it. You get to have your own opinion and our entire community is a sea of different opinions and that's what makes us so beautiful. but there are lots of things landlords can do to be more, you could say, ethical and help with housing equality and access. In the second half of the show, Bec, we're going to talk about things

to consider as a landlord to make the dynamic with tenants a little bit more ethical and also discuss the difference between a residential owner-occupier loan and an investment property loan, which I think are important to understand when it comes down to property ownership in general. Okay, okay, okay. So, V, as you know, Australia has very much had home ownership as one of our cultural aspirations slash expectations. Bec, it is the great Australian dream, after all. Well, exactly right. Everyone should own a property, right, Bec? Well, that's what they say. That's what the authorities say. It's actually just our dads. Exactly. But obviously, rising housing costs, economic recession and demographic changes have

shifted that possibility in more recent history. And home ownership isn't a priority for many other countries in the world. Which countries are more rent happy and why? It's actually interesting to dive into this, Bec, because I think we live in our beautiful Australia bubble, right, Bec? Like we have these ideals that have been handed down from generation to generation that we should own property, right? Whether you do or don't, it's something that in school you learnt about. It's just something that is ingrained in our culture in a way. But that isn't the way most other countries are, to be honest. Like so many other countries actually have this expectation that you will rent for life. And I mean, there's a lot to say around renter equality and how they're

treated and how in different countries there are lots of different benefits like longer leases, et cetera, et cetera, that actually lean towards people being even more comfortable with renting. but here are the top five rent happy countries in the world so switzerland 56.6 percent of their population rent okay hong kong 49 percent germany 48.1 percent austria 44.3 percent and south korea 44.8 percent beck however there are also i guess on the flip side of that when you keep going down and down the list, you could start saying that there are like people who own more than they rent. Right.

So in Singapore, only 9.7% of their community rent. Slovakia, 10.7% rent. Russia, 12.9%. Poland, 16.3%. And Norway, 17.2% of people rent. Okay. Isn't that crazy? Yeah, that is crazy.

So what data is out there about countries with an ingrained culture of property ownership? Bec, because I'm a super nerd, recently in lead up to this episode, I was reading an abstract from a 2021 research paper out of America called Rental Tenure and Rental Burden. Of course you were. Yeah, of course I was. But I found it really interesting and I have summarized it into four dot points that I can share with you so that you don't have to read it for yourself. Would you like me to do that? Yes, please. So, rentals around the globe accommodate for 1.2 billion people.

The data they found that the more developed the country, the more people tend to rent and vice versa. This was most obvious in Europe, where formerly communist countries have a high prevalence of homeowners. It is first and foremost a cultural thing, but laws and regulations in certain ex-communist countries can make renting a nightmare too. While in Western and Central European countries like Switzerland and Germany, around half of the households were renting in 2015. In the Czech Republic, only two out of 10 households were choosing to do so. Interesting. In Russia and Slovakia, the share of renters is even lower.

Only one out of 10 households didn't own their home in 2015. And owning property is arguably the holy grail of the Eastern European society. a much coveted and highly valued right that was once taken away. So long story short, the further east you go in Europe, the more people own, and the further west you go, the more people rent, more or less. That is so interesting. I wonder why that is.

Culture. Communism. I wonder, like, about the money and stuff like that. I'm so curious. And it kind of makes sense, right? The more developed a country, the more people rent because property prices are significantly higher. Yes.

And you think about this in high-density environments, right? And I think the best high-density environment that I think we all know about is New York, right? So we all know inherently that New York property is cooked, right? Like no one in New York basically owns. They all rent. And they do so because it's like a central business hub, which is incredibly expensive to live in. So the more developed your country, not necessarily talking about America in general, it's just an example, But the more developed the country, as we know, Switzerland is pretty good.

Like, Switzerland, they're ballers. They know so much stuff. Like, they are full of rich people as well. But 56.6% of people rent there because I'm assuming property prices are astronomical. Yeah, yeah. So that makes sense. That does make sense. And Australia, we are billions years old.

Yes. But since the white people invaded Australia, there has been 200 years of development. And that is so little in comparison to the development that international countries have had, right, around the world. It's been thousands and thousands of years. And now Australia is kind of going, oh, actually, we're becoming incredibly developed and land is becoming a resource that is actually limited. Whereas before with our population and how big our country was, it's a great Australian

dream. It's very easy to buy property. It's cheap as chips. Not anymore. Not anymore. This is a really good time to go to a quick break. fee. I think we should go to a quick break before I get real heated. Yeah, I think so. On the flip side, we're going to be discussing the difference between a residential owner-occupier loan and

investment property loan. Sounds fun. Plus, some things to consider as a landlord to make the dynamic with tenants more ethical. Stunning. Don't go anywhere. Don't go anywhere. Okay, V, we are back. And so, as I mentioned before the break, we are going to be talking about some key points of residential owner-occupier loan and investment property loan. Are you ready? I'm very excited. Would you like me to read the key dot points that I listed for this part of the conversation? Yes, please. You can't wait, can you? I can't wait. You're a liar. All right. So here are the main points. So if you're getting an investment loan, borrowing is actually going to be different to if you're going to get a loan for a property that you're going to live in.

Why? Because we need to take into account things like rent received, but also any rent payable or mortgages payable for when you keep living there. When it comes to investment loans, you can opt to pay what's called interest only if you want, which is where you aren't paying the loan down, just the interest portion of that loan. Or you could pay what's called P&I, which is principal and interest, which is paying the loan off completely. like not in its entirety, but like a portion of what you would pay each month would go to the principal and a portion would go to the interest. Whereas interest only, you're only paying the interest. So usually it's much more cost effective in the short term, but you're not paying your asset off in the long term, right? So you can opt for interest only. However, it's actually way less common to choose this on the property that you actually live in and own, right? So often it's

investment thing where an investor might go and purchase a property, Bec, and go, all right, I'm going to purchase this property. I've worked out the maths on it. The reason I am purchasing this property is because in the next 10 years, I think it's going to double in price. Really great area, really great location. So I'm actually going to probably plan to sell it in 10 years. So I don't want to pay any of the loan off. Stuff that. That's silly to pay off the loan. What I'll do is I'm going to pay off just the interest portion of the loan. So I'll pay the bank their fees so that I can get the property. Then I'm going to sit on the property for 10 years. I'm going to get my rental income. Hopefully that covers some of that interest

only portion. And in 10 years, we're going to look at my property and hope that it has increased in value. And let's say you purchased an apartment in Richmond for $400,000 10 years ago. Maybe that is worth $650,000, $750,000 now. Very, very likely. So you go, actually, you know what I'm going to do? I'm going to sell that property. I'm going to pay back my loan in its entirety of that $450,000 that I borrowed from the bank. The rest is profit. Obviously, you have to pay tax on that because it's investment income. But a lot of people do it this way. Very uncommon to do that for your family home because usually the intention is to get your family home, pay off your family home, live in it without having any mortgage or rent or anything overhead, right? So the priorities are

usually different, which is why often you don't see that many people putting their home loan on interest only. If you are choosing that, it usually is for a short period of time, Bec, and usually that short period of time is because, you know, interest rates have gone up to 7.2% and money and cash is really tight. So you go, you know what, I can take a bit of the pressure off right now, Bec, by going to interest only for a short period of time while I re-find my feet or interest rates come down a little bit and take a bit of pressure off because this is all too much. Right. Does that make sense? Yeah, absolutely. As to why you would and wouldn't do that. Yeah. For investment loans, you actually need a larger deposit than you do for owner-occupier

loans. Most banks for investment, although you can totally go down the LMI space, they want you to have a minimum loan-to-value ratio of 90%, including LMI, although exceptions for some banks will, you know, go slightly higher here. Whereas most banks actually allow 95% including LMI for owner-occupied, which is kind of cool. Right. So it means that banks essentially, you know, this is not including any government schemes. Essentially, there are some banks who will let you purchase owner-occupied properties for a 5% deposit back. Whereas for investment property, that is not the case. Okay. I understand. Because there's a lot more risk in investment property then there is a property that you're going to live in yourself.

Yes, I see. I mean, this is probably a really, really good time to plug the guys at Zella Money, the guys, the gals, the team at Zella Money to be like, if you're thinking about this and this conversation about interest rates and mortgages is overwhelming, go talk to Kate and the team. Honestly, they're good eggs doing good things. And if you don't have a five in front of your interest rate at the moment, if it's higher than that, go see them to get it all fixed up. Because often when you have an investment loan back, what happens is you're usually more likely to be on a variable interest rate, which means it might have gone up. And if

you haven't checked your interest rate recently and just assumed it's the same as what it always was, triple check it because it could be higher than what you're expecting it to be. I don't mean to scare people. I just want to make sure everyone's in a good financial position. I love that about you, V. Thank you. Trying my best. So if you're buying an investment, back to the actual episode, it means that if you're a first home buyer, you actually don't get any discounts on stamp duty or like the first home buyer benefits that exist. And you can't go with any of the first home buyer schemes if the purpose isn't owner occupier, even if it is your first property. So if you're

planning on purchasing your very first property and it's all very exciting, make sure that you've looked into it and you're not just assuming that you get access to the first home super saver a scheme immediately, or you're going to get the first home, you know, grants in your state or territory, because it doesn't necessarily mean you'll get it for an investment property. In fact, the expectation would be that for you to access that, you would live in the property for a minimum of six to 12 months before then renting it out and making it an investment property. Sure. That makes sense?

That does make sense. So, rates are higher with investment loans than owner-oc, which is, you know, interesting, but also worthy of consideration because I think you just go into it often just assuming it's the same right or just get a home loan whether I live in it or I have it as an investment property and that's not the case. Not the case. Not the case. Interesting pun intended. Yes. Was that a good pun? Pretty good. So V, what are some things to think about as a landlord? I feel like there are a lot of things. The world has enough not so nice human beings so be a nice human I think is at the crux of it. And remember that your tenants are human beings as well, and they deserve to be

treated as human beings. You have taken on this responsibility of becoming a landlord completely consensually, Bec. Like you didn't accidentally become a landlord and you hated the idea of it. You decided that investment property was for you. And one of the ways you were going to make money from investment property was to tenant the property. And that makes sense. but that doesn't mean that you get to treat those people like trash it's absolutely not the case and I think that it doesn't take that many brain cells to just be a kind human like it's actually from my perspective your responsibility to make sure that if you're going to have tenants you've thought about your emergency fund you've thought about all of the things that could potentially go wrong

and maybe you have a separate property emergency fund so that if something goes wrong because inevitably in property it does. And unlike it going wrong in your own house, it usually has to be fixed immediately. Right. Water goes off, Bec, like the hot water system completely breaks. I would sook about it at my house for a minimum of a week. I'd probably go and like shower at the gym and just like put off purchasing a new hot water system for as long as possible, you know. Yeah. If it breaks in your tenant's house, it's classified as an emergency. You have to fix that immediately. Like that's not an if, a but, a why. There's so many different things that could go wrong that are your responsibility. Like, and I just don't think it takes that many additional

steps to make your tenants feel warm and welcome. Like small things. Could you just leave a little nice note, maybe like a box of roses and be like, hey Beck, so excited that you're moving into our property. We love this property. We hope you love it as much as we do. You know, if you've got any issues contact your property manager they're amazing we've picked them because they are kind or you could say here's my number if anything goes wrong you're more than welcome to contact me I remember moving into a rental and being mind blown when someone did that to me I was like oh my god that's wild they care but there's so many different things that you could do one just don't be a trash human sure the next is really understanding like why are you trying to

we increase rent? Is this an ethical decision? Right. I think there is a big conversation to be had, especially right now, around, all right, Bec, so you've got an investment property. Interest rates, they're cooked. They've gone up so much. You didn't see them going up this much. Totally get it. Totally understand that you're under some financial pressure. Is that financial pressure your tenant's responsibility? That's a tough one. You're the one that chose to have an investment property. your tenant chose to rent a property for let's pretend $500 a week at that amount. They thought, oh, it'll go up a little bit each year in line with inflation. In line with inflation is usually

between 2% and 3%. I think most of us calculate for that. But your landlord, their mortgage repayments have gone up and it couldn't possibly come out of their back pocket to have to cough up some money for the investment property that they own because interest rates are doing what interest rates do and fluctuate. So I find it incredibly rich and I'm going to get people jumping down my throat about this and you want to bring it on. That's fine. But if you are astronomically increasing your tenant's rent because you cannot afford the mortgage, the actual question here is when are you selling your property? Right. Because what you've just told me is you cannot provide ethical housing, fair housing, you can't afford to do that, meaning you can't afford the property

that you own right now. Right. So what are you going to do? Is it coming out of your back pocket? At the end of the day, that money should be coming out of my personal savings. It should be coming out of my offset. It should be coming out of that because I'm funding this investment property that ultimately should be an investment. It's not your tenant's responsibility to pay your astronomical mortgage repayments because you're the one that committed to that. They didn't commit to that. True. They committed to paying the average rent. Maybe they're paying a bit more because you've got a real fancy house. Yeah. But they committed to that area because it was making sense to them. Yeah. And you know what? There are a lot of people in this world and in

our community who choose to rent because they like consistency. Yeah. Like they might not like the idea of variable interest rates. They might like the idea of the flexibility of being able to move whenever they want and only having a one-year lease. They might like the fact that they can guarantee that their property costs are going to be $500 a week. And if the hot water system breaks, it's not their responsibility. And that's fair. Yeah. Because that's the deal that you and I have when we sit down and I go, Bec, I'm a property owner. I'm going to lease it out. And you go, no worries. Here's this lease agreement outlining the terms and conditions of this lease. This is what I'll bring to the table, the cashola. And this is what you'll bring to the

table. It really grinds my gears when people say, oh, Victoria had no other option but to put up the rent. Have you seen the mortgage repayments? You can't afford your mortgage repayments? Okay. Well, one, you should have factored this in. A good mortgage broker would have sat you down and made sure that any fair variability was accounted for, that you could have paid more, that there was a plan in place. Any responsible and ethical landlord would have their own property emergency fund. Any responsible and ethical landlord would know when to pull out. That is a mic drop moment. Like if you cannot afford to keep the investment property that you currently have, that's actually okay. That's the risk you took on when you got the investment property

is that your circumstances might change and this investment asset might not work for you forever. Sure. You don't get to keep it just because you think that you deserve it. you're really making really good points. It makes me very, very angry. I think the other conversation is really around, you know, and obviously there's so many legalities around that in some states and territories, you can only put rent up X amount, or you can only do X, Y, Z every 12 months or everywhere's different. But I really think it comes down from my personal opinion, which, you know, this podcast should be really about putting all the information on the table and then being like, Beck, you make your own decision. But like my opinion right

now is don't be a dick. And I think that's really relevant. And I think that if it comes down to it and you're listening to this and you're like, oh, Victoria's off her rocker. Like she doesn't understand it. Oh no, babe, I own property. I understand that. I have an investment property. And if I can't afford that one day and it was tenanted, I know deeply that that's not my tenant's responsibility is to carry the weight of my investment. It's not. I love that. at the end of the day, you need to know when an investment is serving you and when an investment is not serving you and when to dispose of one. I love that.

You took that on yourself. As a perpetual tenant, I thank you. It just makes sense. It's not about thanking me. It's about going, actually, now we talk about it because I think that there's just so much conversation coming from tenants and they're being like, oh, they're just annoyed because they're tenants. Right. No, no, no. I'm a property owner. Right. I now own an investment property of my own and I cannot imagine putting that responsibility on somebody else. Love that sis. It makes me so mad. Also when you have to put up rent, I think clear and honest communication about why, when, where and how. Sure. Like I know a couple of my friends

who own investment properties have had to put up their rent because during COVID they offered their properties for really, really discounted rent. Sure. And now it needs to be brought back to market value, but it was articulated at that point in time. Like, oh, hey, like it's significantly discounted COVID, rah, rah, rah. Like it might've been an apartment in the city or whatever. I think that conversation is really valid, but it's about clear, consistent communication and putting timelines in place and going, hey, Bec, like so unfortunate, but like maybe in six months, we're going to have to put the rent to X. Like, can we see that? Also negotiate with your tenants because it doesn't mean that just because you think, oh, Bec, it's only 20 bucks a week more.

what's that matter to a lot of people. 20 bucks a week is eating or not eating. So if you could just stop pretending that small amounts of money are flippant because it's not an issue for you, that would be great. So it just, it really frustrates me. Obviously, I will always advocate for prioritizing lower income tenants. In fact, they are probably good long-term tenants and actually having a conversation around, well, what does that mean? How does that work? Because nowadays landlords have all the applications put in front of them and they say oh my couple's a lawyer and a doctor let's put them in my house because they earn a lot of money who cares are they paying the rent like can you pay the rent or not it's very fair to check if serviceability

exists yes but why are we prioritizing the lawyer and the doctor as better tenants than somebody who's on a lower income who might arguably be more respectful of your property right the other thing. Can we start offering longer than 12 month leases? That would be pretty cool. Financial stability for people is really important. And I know that when I was a renter, I would have loved the opportunity of signing a longer lease because I was always so scared that if I signed a one year lease, oh my gosh, what's rent going to go up by next year? Am I going to have to move around? What does that actually look like? And it also gives people that longer term financial stability. like i know that in australia they've just started offering not everywhere but i know a few people

who have offered tenure leases oh that is cool and i just think it just makes sense like home would then feel more like your home yeah and you've got a long-term secure tenant and i mean you're gonna have all the same issues that arise the hot water system the xyz but i think it's important to put other people's financial security at the forefront of decisions that you're making yeah because you're in a privileged position to be able to afford property to begin with anyway, Bec, I think that the crux of this is if you're a landlord, know when to tap out. Yeah. I get it. Like saving for a property is so hard, Bec. Like getting your deposit,

then finally getting the loan. It's like you've achieved a life goal, right? Like it's a status symbol. And then going backwards, I get that it could feel terrible and you're like, well, I don't want to give that up. Like that sucks. But if you're not in a financial position to be a fair, equitable and reasonable landlord, babe, you're out. Like you have to make the decision that is not just right for you but is right for the asset class that you've chosen and that's an option. It's not like you bought shares and they're just sitting over there and you can't make your monthly contributions to them and they just sit there and they continue to grow and do their own thing. If that's the case maybe that's a better investment opportunity for you. So at the

end of the day I think a healthy city needs a mix of affordable rentals of different sizes. I think that some people will always prefer renting over owning for various points in their life and for that to work. They need access to affordable, diverse and safe rental housing. It's too hard at the moment. And I think that people are too entitled at the moment. You see it. I'm sorry, real estate agents and property managers and everybody else who thinks it's like, oh, but I'm the landlord. No, no, no. The landlord has just as much responsibility, I think, in this as anybody else. Yes. You can probably tell them really sitting on the fence here just to be safe because I don't know enough about the market

but I really like everything you're saying and I tend to agree. But I think that's a fantastic place to leave it. I think it is a fantastic place to leave it. Let's get some lunch. Let's do it. Fishbowl, 10 out of 10. 10 out of 10.

And we will see you guys on Friday. Bye. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD

and obtain appropriate financial advice tailored towards your needs. Victoria Devine and She's On The Money are authorised representatives of MoneySherpa PTY LTD ABN 321 649 27708 AFSL 451 289.