Patronising, Condescending and Out of Touch

Scott,
 
Reading Jim Chalmers’ last week set my teeth grinding, but what really made my blood boil and shoot flames from my ears was his answer to Emma about rent rises.
 
Jim’s suggestion that she “report excessive increases to a relevant state body” shows just how safe he is in his house, and that he doesn’t have to worry about landlords. We all know that we can “report excessive rent rises” but we also know that landlords find loopholes to exploit (like “we’re doing maintenance on the property” or “we’re selling and you have to leave”) and then relist it at a much higher rent a short time later. Our landlord did this to us to the tune of $80 a week after we’d been living there for four years (making minimal maintenance requests and always being a month in advance with the rent).
 
Jimbo blithely says the “government is trying to bring in tax breaks to get more rental properties built”. That’s not helpful, Jim, that’s patronising and condescending and shows how elitist and out of touch you are. People need real help right now.
 
Dana
 
Hi Dana,

This week I got a window into what it’s like to be Jim Chalmers (or any politician for that sake) – and I did not like it one bit! My inbox exploded with angry readers … and it was the renters were really up in arms.

I agree with you: I don’t think Jim understands what it’s like to be a renter on a low income right now.
 
Then again, to be honest, neither do I.
 
The housing market is fundamentally broken in this country, and it has been for years. Jim is smart enough to know that there are no short-term magical fixes: any steps to ‘protect’ renters can either be sidestepped (as you point out) or can result in landlords jacking up their rents to compensate.

Scott

The Scumbag Landlord

G’day Barefoot,
 
My wife and I are very lucky. We own two investment properties that basically pay for themselves. Trouble is, we live in another state and rent ourselves. If we sold our two rentals we could afford to buy a family home for cash — but we feel obligated to our tenants. Both rentals have long-term tenants and we charge about $50 a week less than market to help them out. If we sold, they’d be out on their own and unlikely to be able to afford to rent anywhere nearby, and their kids would have to change schools and I’d feel like a scumbag capitalist. What should we do to not make two families homeless but get ourselves into our own home?

Brendan
 
Hi Brendan,
 
You sound like the sort of bloke I’d like to have a non-alcoholic beer with.  
 
As a renter yourself you understand just how absolutely bonkers things are right now:
 
The national rental vacancy rate sits at just 0.9%, according to SQM Research. Meanwhile, rents have rocketed up 20.1% in the last 12 months alone!
 
I have never seen anything like it.
 
It’s a terrible situation, and one that I’m glad I don’t have to grapple with … as a renter, or a landlord.
 
After all, my share portfolio doesn’t have feelings (nor does it suffer burst water pipes at 3am), and my dividends just magically appear in my bank account a couple of times a year.  
 
That said, if I were in your shoes I’d sell the properties and buy your own family a home. That’s not because I’m a scumbag capitalist, but because your first responsibility is to your family.
 
Besides, there are other ways to help struggling people in your community than renting out a few joints slightly below the market rate. You could volunteer at a local food bank, or you could donate money to the Financial Counselling Foundation, who help and fight for some of the most vulnerable people in our community.

Scott.
 

Tiny House, Big Dreams

Hi Barefoot,

In light of the current housing crisis, my partner and I are looking into buying a ‘tiny house’ to live in. We believe this will allow us to live without the stress of a huge mortgage or crazy high rent. We would initially look at renting land from someone while paying the tiny house off, and then eventually sell the tiny house and buy our own land when our needs change. What do you think about tiny house living?

Lucy

Hi Lucy,

I’ve changed my mind on tiny house living. My wife and I lived in a Winnebego with four kids for five months and we loved it. However, if we were still living tiny today I’m quite sure I’d be in a mental asylum right now. In other words, what made it fun was that it had a time limit. I don’t know many people who live their entire life in a tiny house … and very few families could do it long term.

So what do I think?

I think you need to work out where you want to be eventually. Is it in a home on land? If that’s the case, the only reason you’d buy a tiny house is if it were dramatically cheaper than renting. After all, your house is on wheeIs so it’s going to lose money over the long term.

Scott

Barefoot Blows Renters an Air Kiss

Hi Scott,

I’ve read your newsletters religiously over the past few years (and generally loved them), but this is the first time I’ve been compelled to write back. I am frustrated with your take on OwnHome last week — not because what you said is untrue but because you basically did not offer an alternative option to people in this sad situation. You started off your piece talking about how people trying to save a deposit are going backwards due to how much house prices are going up (so far I was nodding in violent agreement as I was reading), but then you ended the piece by telling them to basically keep doing that same thing!

Peter

Hi Peter,

Fair point.

That being said, I don’t offer magic wands, and I tell it like I see it.

Still, it feels a little like getting angry at your personal trainer when she pooh-poohs your idea of getting lipo to lose your belly. You need to do some crunches, tubby!

That’s also why I’m wary of any company – or any government policy – that ‘helps’ people to sidestep saving up much of a deposit. Given the sums people are having to borrow in a rising interest rate environment, I think it’s irresponsible.

Look, it’s not a sexy position, but I believe that spending a few years saving prepares you for the tough times that will come. And when they do, you’ll need some (firm) skin in the game.

Scott.

How you can move into a million dollar dream home, today

He doesn’t buy craft beers. She sips Nescafé Blend 43 from a tin.

They live in a feral sharehouse, all so they can save $623 a week to put towards their house deposit.

And here’s the kicker:

While they scrimp and save … the prices of properties around them are going up $1,990 a week.

Do you see what’s happening?

Despite all their hard work and sacrifice … they’re going backwards.

There’s no celebratory champagne after winning the auction … just second-rate slurps from a dirty teacup in a sharehouse … and the sinking feeling they’ll NEVER crack the market.

And then, in their darkest hour, there is hope:

A few weeks ago there was a spot on the nightly news that talked about a brand new product called OwnHome (backed by CommBank), which promises to “save for your dream home, while you live in it, meaning you can kiss the renter’s life goodbye”.

Understandably, it caused my inbox to light up like a kid on Coco Pops.

Here’s the guts of how OwnHome works:

OwnHome buys your dream home and rents it to you for three to seven years.

The rent is expensive. On a $1 million home, you’d pay $70,500 a year. A large part of that rent goes to OwnHome, while a smaller part goes to building up equity in the property.

You agree to buy the property from OwnHome in, say, five years for $1.2 million. (Because OneHome sets the price, you’ll pay for the home at the start of the contract; currently they increase it by 3.8% a year).

And, if you’d done this deal five years ago, you’d be well ahead.

So is this really a breakthrough product?

Not really.

Despite OwnHome’s fintech vibes, and the fact it was on the news, this is not a new strategy. It’s called ‘rent to buy’ and it’s been around long before Billy Ray had an achy breaky heart.

Straight up: I’m not a fan (of Billy Ray, or rent to buy).

Why?

Let me count the reasons:

First, because there’s a power imbalance

The sellers (like OwnHome) are generally savvy investors who set the terms of the deal in their favour. Whereas the renters are making an emotional decision which is often driven by FOMO (Fear Of Missing Out).

Second, because there’s a chance the renters could lose everything

Over the years I (like many other financial counsellors) have helped renters who got an achy breaky heart on these deals. How does that happen, Billy Ray?

Well, if interest rates go up and house prices go down:

You risk not being able to afford (or being able to qualify for) a home loan to buy it (OwnHome is not a lender). You also risk overpaying for a home that’s dropped in value since you agreed to buy it.

And here’s the stinger: if you walk away from the house, you also walk away from all the dough you’ve put towards it. In the example I used above, that would translate to around $165,000.

In other words, the $165,000 you’ve put towards the home would be goneski, and you wouldn’t be able to use it to purchase another, cheaper home.

Third, because you’re probably better off renting and saving

Get this: OwnHome itself admits that “in many situations using OwnHome is slightly more expensive on a monthly basis than renting and saving”.

Or, in other words, don’t believe everything you see on the nightly news!

Tread Your Own Path!

Rental Rewards

Being a renter must suck right now.

After all, you’re sitting on the property sidelines watching house prices go up, up, up.

If only there was a reward for renters.

Well, it turns out there is. It’s a fast-growing scheme called ‘Rental Rewards’, which many of Australia’s leading real estate agencies have signed up to.

Here’s how it works: real estate agents outsource their rent-collecting to Rental Rewards, who charge renters a fee to pay their rent, and reward them with Qantas Frequent Flyer points.

On their website the company describes their service as “revolutionary”, “convenient” and “rewarding”.

Yet on the popular ProductReview website, customers of Rental Rewards describe it as: “Absolutely terrible”, “So bad I can’t believe it exists” and “Avoid! Avoid! Avoid!”

(And, in the interests of fairness, I’m not cherrypicking the data: Rental Rewards has 31 one-star reviews and they are all universally terrible.)

Mandy, a reader, wrote to me explaining how it affects her:

“I used to pay my rent by direct transfer for free. But my property manager just informed me I am being migrated over to this third-party platform, Rental Rewards, that charges a fee. I chose the cheapest option —$78 a year — but some of the credit card options work out to be $312 a year, on top of rent. And their ‘fee-free’ option? Personal cheque! Which my bank charges for, and the rental office is over an hour away.”

WOW!

In most states in Australia the Rental Code requires that real estate agents provide at least one fee-free way of paying rent. Rental Rewards gets around it by accepting cheques. Yet the only person I know who still has a chequebook is my uncle Bob, a cocky from Walpeup, and even he’s thinking it might be time to call stumps on the bark and biro!

So let’s unpack this for a moment.

First up, Rental Rewards encourages often vulnerable low-income renters to pay their rent with a CREDIT CARD, in order to utilise their ‘interest-free days’.

And if you think my eye is twitching right now, and that I am POUNDING THE KEYBOARD, you are right!

Yet let me simmer down for a moment, because their website promises renters will earn “1,000 Qantas Frequent Flyer points every year when you pay by card”.

Given I famously don’t have a credit card, and don’t play the points game, the truth is I had no idea whether this was a good deal or not. So I jumped on to the Qantas Rewards Store to see what I could buy with a year’s worth of Rental Rewards points.

I wanted to buy something practical, like, say, hair removal. Alas, it wasn’t even a close shave: the fancy Philips shaver cost 69,000 points ... taking 69 years of paying rent to earn enough with Rental Rewards. Again, I’m not cherry-picking the data: there was NOTHING on the Qantas Store for sale for 1,000 points.

Enough already.

Look, as a financial counsellor I’m regularly in the trenches with vulnerable people.

Think about a young mum with three school-aged kids who has escaped family violence. She struggles to pay her $350 a week in rent. One day her property manager tells her that from now on she’ll be hit with a 1.45% processing fee for Rental Rewards (the standard fee they have on their website). That’s an extra $264 a year she’ll have to pay.

Now, for you and me $264 may be a nice dinner out with friends. For her it’s a year’s worth of second-hand school uniforms and shoes for the kids.

It’s a lot of money.

Worse, she’s powerless in this situation because she doesn’t want to upset her rental manager and risk them not renewing her lease.

One last thing: the Qantas Store shows that a Bunnings $100 gift card costs 23,170 points. Which suggests the value of a Qantas point is currently around $0.004 cents. In other words, those 1,000 rewards points that cost our single mum $263 a year are worth a measly $4 bucks.

Look, can you do me a favour?

There are a lot of smart people who read this column. If you’re a property investor (or you know someone who is), I want you to ring up your real estate agent and ask whether they are signed up to Rental Rewards. And if they are, ditch them. Take your business to somebody who respects the person who’s paying off your asset.

Rental Rewards have been approached for comment.

Tread Your Own Path!