Ep9: Navigating mortgage stress with landlords — with Ricky Briggs

“Yes we've had, you know, two months of no interest rate rises but the pressure is now kicking in from months four, five and six. So it's more important now to be on the phone to landlords and checking in with where they are." 
— Ricky Briggs

This episode features  tips from Ricky Briggs, Advantage Group and Kate Sunol, PropertyMe on how to know how to help landlords navigate mortgage pressure, and keep business within the agency.

Reach out and continue the conversation...
Connect with Ricky Briggs — Advantage Group
Connect with Kate Sunol — PropertyMe

Transcript

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Kate: Hi, and welcome to Property Management & Me, a series from PropertyMe bringing quick tips and insights to support your everyday practice.  

I'm your host Kate Sunol and today I'm joined by Ricky Briggs. He wears a lot of hats in the industry he's Director of Elders Advantage Group, Director of Advantage Auction Group and a career Auctioneer he's also on the Board of Directors at REINSW we're really excited to have you here today, so welcome Ricky.

Ricky: Thanks, Kate. Thanks for having me.

Kate: So on Saturdays, I actually work alongside Ricky at Advantage Auction Group. And we've been having so many conversations lately about the, just the amount of stock in the pipelines that's distressed mortgage listings. We knew it was coming. It was inevitable. Um, Rick. You're having those conversations across the whole process, not just on auction day, but you know, from early days as the director of the agency, How are you approaching this with your landlords at the moment and what sorts of conversations are you having around it

Ricky: Yeah, such a great question, and it really is an interesting topic at the moment. 60% of Australian mortgage holders are feeling the impact of the interest rate increases, what's notably coming out of that though is that 85 are expected. So 85% are expected to feel a lot of pressure by Christmas time.

So what we want to do is we want to go along and have a chat with our clients and make sure that one, they're in a good position, but if they're not in a good position, How can we help them continue on with life so that they're not super stressed? The thing with where the market is going right now, lots of stock coming to market over the next couple of months.

And whilst I play a lot in the property management space, I also play, as you mentioned, as a career auctioneer and I’m in Sydney every week conducting auctions, my auction bookings have gone through the roof. So I see the market four to six weeks in advance. So my August and September on most days are now already nearly booked out, all the tight gaps between them with stock coming on board.

So interesting conversation with some agents where they've gone from sort of say three to now they're up to 13 to 15 and a lot of those, it's property management stock. It's investor stock that we once had as property management and they're now starting to feel the crunch. So they're going back to market to ease the burden in their financial hip pocket, so to speak.

Kate: Yeah, it definitely has been coming to crunch time for a lot of people and only more to come. Unfortunately. Putting the hat back on as a business owner or as a portfolio manager, how would you start that dialogue for the check-in calls with your owners to see how they're tracking or if that's on their mind, if they're starting to really feel that pressure?  

Ricky: So one of the things I've been doing, I've been going through a lot of the landlords and in communication with them, I've just been picking up the phone and ringing them and saying, you know, a number of other landlords have already requested a market update to see where they fit in the scheme of things.

Are they getting a better idea as to where they sit? Financially, if there was another interest rate rise, just wondering if you need one of these and if you know what your numbers are, if what's going to make or break this investment and if it's going to work for you or not. Funny enough, once I sort of have that natural conversation with them, immediately they go, Oh, Ricky, funny you called because we have been thinking about it, but we haven't really wanted to take that next step. And so I sort of say to them, well, look, it's no obligation. You know, we're still happy to have you on board as our client. It's just something that's a bit of a trend at the moment. We know that it is a little bit tougher out there, particularly with some of those interest rates.

If they're coming off that 1.69% or even 2%, and they're all of a sudden at 5 to 7%, you know, that's a big difference for investors, but the rental prices stayed the same. So we're then having that chat around what that make or break scenario would be and just giving them that price point, no obligation and saying, here's what we think we can get for it, you let us know. 

And then that way we're already ahead of the curve, rather than them getting to the point where it is a financial pressure, all of a sudden we've got to rush around and sell, sell, sell. Or, the next agent rings them off RP Data, gets their details, and then all of a sudden they've had the same conversation with them.

Oh, funny you called because yeah, we are looking at selling and then all of a sudden you've lost not only management, but you've lost a sale opportunity as well. So, I get that it is all about bringing managements in, but we need to be, obviously, we want to retain that business inside of the company.

So as a result, we shouldn't be too afraid to have some of these conversations to make sure that we can help our clients out on both sides of the ledger. 

Kate: And does that something that you're able to work through with clients to ease that financial pressure? Or is it just a case of if the numbers don't meet it's time to cut and run?  

Ricky: Yeah, great question. We're getting landlords asking us to reduce our fees and that other companies are going in at three and four percent when their management with us might be on 7.7, we're getting others, you know, coming to us and saying, look, we need a rental increase, but they've only had one three or four months ago.

Really interesting scenario, very quickly. I went back to a recent tenancy that had had a rental increase inside of 12 months. I let them know that at the end of their six-month lease agreement, because they've been there over a number of times, but the tenant only wanted to renew for six, the landlord wanted twelve.

We sort of said to them, at the end of your six-month tenancy agreement, the property's most likely going to be sold, because the owner is thinking about where they sit in the scheme of things financially. They actually said, oh, well, we really love the home. Can we start paying more? I said, well, look, I've got to advise you that we're not allowed to give you a rental increase inside of twelve months.

And they said, well, no, because it was quite low from when we're with the other agency and you guys have picked it up. We're pretty respectful in that we really like the home. Can we pay an extra 20 or 50 per week? So we navigated that through those waters.

That actually worked out well for the owner. The owner's been able to keep that property. Now that's a one in a million chance that's going to happen. But you've got to remember if we have better conversations with our tenants as well, sometimes we can work it out on the other side. And that's a very rare scenario.

But for that landlord, it did work and he's been able to keep that property. 

Kate: Yeah. So it's definitely about being proactive and having the conversations with enough time to make a difference. 

Ricky: Absolutely. A lot of agencies just see tenants as tenants. They purely just move in, pay their rent every week, but you've got to remember in the life cycle that tenants also become buyers, buyers become sellers, sellers become investors, and so on.

So the relationship that we've got with our tenants, we sort of try and give them that little bit more notice upfront rather than the standard 14 days before it goes for sale because we've had properties of late where tenants have purchased off the landlord and we've had properties of late where that has occurred, the tenants actually being favorable in that position to be able to assist the landlord through these hard times.

So for me as a Principal of the business, I attend both our sales and our property management meetings weekly and I sit with the team and I guide them through what it's looking like on both sides of the ledger.

So from a property management perspective, I'm having those frank conversations with our Property Managers to let them know exactly where every property is sitting and who I've spoken to, what I've spoken about, so that the whole team are across it. Because if they then get a trigger point from another conversation with another landlord, they can actually then refer it straight to me and say, Oh, here's another one today. They sounded a little bit skeptical in this space. We may need to pick up the phone and give them a call and just say where they sit to make sure that we don't lose that business outside of our office to another sales company. 

Kate: Yep. So working as a team to have that consistent messaging and really being across it proactively, it's probably not the time to be, you know, adding a tagline to the bottom of your newsletters or emails. Let us know if you'd like a market update. It really is needing to be more proactive with that, go to our landlords and help them manage the process. 

Ricky: So everyone's dropped the ball on this right now. They're thinking, oh yeah, investors are okay. Because we haven't had an interest rate rise for the last two months, but the reality is this is where they're actually starting to feel the financial pressure because they've just used all their savings in the last three to four months to keep up with the market, but the market stayed the same.

Yes, we've had, you know, two months of no interest rate rises, but the pressure is now kicking in from months four, five and six. So it's more important now to be on the phone to landlords and checking in with where they are. As we come in towards the back end of the year and trying to get these properties, you know, settled before the spring rush than what it is if you were to ring up and speak to them, you know, three months down the track, it now is a vital and important time to jump on the phone to all of your landlords and simply to just say good day and see how they are now.

If you know that they are a multi, multi-investor and they've always, you know, they've been with you for a long time. You know what their stance is and you know that they're, they're pretty cashed up, that might be a totally different level of scenario. Ask them what their thoughts are on the market, ask them how they're finding things, but recently we've had two managements that were going into developments where the developers have come back to us and said, no, keep them as managements and then flip them at the end of the year because build costs have gone up that much. So they're just leaving them as their existing product. So we're not only seeing it from property management, we're seeing it from development, industrial and commercial, and from a sales perspective, residentially, it's having a financial impact across the board.

And that's why I say it again, that landlords right now, they need that little bit of extra care and love and just to find out exactly where they sit.

Kate: So naturally when you bring up the conversation about financial pressures and breakeven points, fees are into coming to it. They're going to ask the questio, is there anything that the agency can be doing to support landlords? What's your stance on this? Do you feel like agencies should be reducing their fees to support landlords through these period? 

Ricky: So as soon as they have the conversation with me around fee, I always go back to what our service level is and what our service level offering is. So, you know, Kate, as a landlord, have you ever been unhappy with our service for the last 12 months? And for you, that'd be up to you then to determine whether that's a yes or a no.

If it's a yes, what have we done wrong? Is it worth a fee decrease? And if not, is it more around the fact that you're in a financial pressure point and you need to make the numbers now at, you know, on a 750 per week. Yes, there's a little bit of difference between 7.7 to 5.5. That's not going to ease the burden to the point that they're probably already under.

So at that point, I try and shift the conversation and ask more questions. Now, bear in mind, we can't provide financial advice, but what I can do is I can lead them up the garden path. So what I, what I mean, well, I should say lead them down the garden path. And what I mean by that is that we then have some other qualified referral lead partners that we can push them through. 

I recently tested that scenario with one of our mortgage brokers that we work with. I moved from Macquarie Bank who gave me a really good loan on one of my properties back to Commonwealth and I was able to save 1,050 per month on that loan, which was really interesting because we just coupled it with another one completely separate, but that there, when I get on the phone and tell landlords around that scenario, they are very keen to chat to our referral partners to see if they can do exactly the same thing.

And so far that conversation with me moving away from our fee management perspective. and then into a referral partner, that's been positive. Now, if in the instance that doesn't go to play, I then have a look at the property, I find out when the last routine was done, I find out how the tenants are keeping the property, I find out, when their last rental increase was and what their period of tenancy is likely to be from those tenants.

I then put all of that together and I go back to the landlord and I work through that with them and say, look, your tenant's in play now for another seven, eight months. This is where it sits. What does it look like that you're going to do at that point in time? They come back to the fee discussion. No, no, no. I need to know because from this point, we've managed your property for only six months or 12 months. We're not at the point where we would give you a fee reduction. However, if we could potentially get an extra 50 odds for that property, that might be the differentiation between dropping it from 7.7 to 6.6 or 5.5. So I assess all the parameters before I simply say yes, but I know that there are a lot of Property Managers out there at the moment and a lot of Principals purely to keep the business rather than actually finding out the root of the cause of the question, why they're just dropping fees, but they are.

So for me, I like to explore all the avenues and try and find out what the actual cause of the problem is and why they're asking, as opposed to just dropping my pants, so to speak on fee. 

Kate: Great, so wrapping it up, just being proactive, having those open conversations with your landlords. And then communicating across the team to see those opportunities or indicators that they might be under pressure. Having a few solutions to bring to the table, like talking to your tenants, referring to partners that can help on the financial side. And then just looking into the health of the management.  

Thanks so much for joining us here today. Ricky, if our listeners would like to reach out and continue the conversation, or just need a bit of a hand to get started with this are you happy to take calls? 

Ricky: Yeah, no problem at all. So Elders Advantage Group, or you can just Google Ricky Briggs. I come up from both a real estate agency perspective, from an REI perspective, and also from an auctioneer's perspective. My number's blasted all over three sites. So if, yeah, if you would like to reach out, I'm more than happy to help anyone around that as well.