Capitalising on the rental reforms

How property investors can optimise Victoria’s new rental laws

There’s been unease amongst a number of property investors in relation to the rental law changes in Victoria.

Specifically, about the potential financial impost of the new requirements for landlords – or ‘rental providers’ as they’ve been referred to in the new guidelines.

There’s been mounting fears among some, that the potential upgrades to meet the new minimum rental standards may be too much of a cost to bear, and force them to sell.

That’s especially the case for those already struggling under the COVID-19 rental downturns and the state’s temporary pandemic measures, which reduced rents and prohibited evictions.

The changes to rental regulations, most of which came into effect on March 29, introduce 130 reforms to the previous rules and arrangements.

While the new rental rules are aimed at creating a fairer, safer system for Victorians, there is little doubt it’s become significantly more stringent for rental providers.

Major impacts: investors, renters & pets

The law changes include a ban on rental bidding, no eviction without a reason, allowable modifications by renters, and limiting rent rises to once a year. (For a full list head to www.consumer.vic.gov.au)

One change that has attracted significant attention, is the stipulation that pets cannot be unreasonably refused by rental providers – although renters must still ask for permission.

What’s considered reasonable and unreasonable? If someone is living in a two bedroom, small terrace house with a courtyard, then a little Jack Russell Terrier dog is likely to be considered reasonable.

However, if it’s a studio apartment and the renter wants a large German Shepherd to move in, most people, including Victorian Civil and Administrative Tribunal (VCAT) members, would likely consider that to be unreasonable.

No doubt the new rule will be a balancing act, which will be tested in VCAT in the period ahead.

However, as mentioned, it’s the cost of potential property upgrades to meet new minimum standards that has caused a major financial concern amongst rental providers.

These include renters’ rights around heating, door and window locks, as well as a range of other basic standards surrounding cleanliness, security and privacy.

If a home is not up to minimum standards, renters can request an urgent repair – which will come at a premium cost for property owners.

Some rental providers will be impacted more than others, including those with older homes, unrenovated homes, as well as those that have let maintenance and upkeep lag.

Additionally, those already struggling under financial stress – both COVID-19 related and unrelated will obviously find the extra costs difficult to meet.

Some property investors may well assess the situation and quite rightly decide it’s time to sell, especially given the strong current market conditions.

However, most should be able to make the necessary adjustments, and absorb the costs into their investment portfolio.

Capitalising on the rental reforms

While the new minimum requirements might result in an initial financial impost, it’s important to realise they won’t just benefit the renter, but also the long term upkeep and condition of the property itself, and in turn the owner.

Upgrades made necessary under the new requirements may actually prompt owners to implement improvements that will not only lift the rental price, but also the eventual selling price when it’s time to go to market.

For example replacing the heating system, new blinds or bathroom upgrades will add value in the longer term.

It’s also a reminder that property is not a set and forget asset. Unlike other forms of investment assets, a property requires upkeep and maintenance to preserve its value and appeal.

While it’s certainly not a daily task, it’s something that needs ongoing attention.

Reassessing property management

As a result, it may be a good time to re-think property management arrangements. New regulations amplify the already important role of property managers.

Property managers will be vital in ensuring rental properties are kept up to scratch under the more stringent rules and regulations.

Too many times we’ve seen people try to scrimp and save on property management to their longer term detriment.

A skilled property manager makes a significant difference to your ability to attract and retain top quality renters – carrying out high levels of due diligence, keeping the property up to standard and making expert recommendations to you as a rental provider.

Issues left unattended and neglected will cost more in the long run – either through lost rent, more expensive repairs, or in the worst case, injuries and health issues to renters.

When choosing a property manager it’s important to consider the following factors.

Experience: Ask how long they’ve been in the industry, about their long term career path, as well as the type of properties they’ve looked after. Are they similar to your rental property?

Reputation: Is there a referral service or personal referral that you can use to identify a high performing property manager? For example, family, friends or work colleagues may recommend a property manager, helping to inform your decision, particularly if it’s in a similar location to your property.

Workload: How many properties do they manage? Is that likely to increase or decrease in the future? Do they have the support levels and resources to keep on top of their property list?

Company structure: There’s a vast range of different workflows and structures that real estate and property management companies use, so it pays to understand how this will shape the service. For example, one staff member may be your leasing agent, another may be your property manager, while someone else may be your re-leasing agent. You’ll need to be clear on who you’ll be reporting issues to, how it’s going to be handled and how it will be reported back.

Once you’ve worked through these steps, the right property manager will be worth their weight in gold. Investing in the right property manager is essentially investing in the property itself.

Looking ahead

While nobody likes extra costs being placed upon them, the new minimum standards can be seen as a reset opportunity – benefiting not only the renter, but also the property owner.

Once the property is up to the minimum standards, it will be a relatively straight forward process to maintain into the future.

Maintaining and ensuring a property is sufficiently modernised and upgraded is an inherent component of a successful real estate investment portfolio.

That’s both from a rental return and capital growth perspective.

As always in property investment, the more informed you are, the better positioned you’ll be to navigate changes, minimise costs and maximise long term gains.

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