Low vacancy rates an opportunity
A recent report by Domain showed the national rental vacancy rate had tightened to 1%, presenting what some parts of the media are calling a “national rental crisis”.
Essentially, tenants are finding it harder and harder to find available properties to rent and are often having to pay a premium to secure a lease.
Times are tough for renters. But of course the flipside is that this environment means big opportunities for the landlords out there.
A big part of a successful property investment strategy is always to be able to incrementally raise rents so you can increase your cashflow, according to b Invested founder Nathan Birch.
While it would be great to raise it by a small amount every year, the market doesn’t always allow it. Sometimes, investors need to keep rents steady for years at a time, or even lower them in certain markets, in order to attract quality tenants.
So in times like we have now, it’s important that you make the most of it and make sure your properties are earning the income that the market is prepared to pay.
How vacancy rates work?
Rental income is crucial for investors. It allows you to service your mortgages, pay bills and holding fees, and even contribute to the deposit on your next property.
But the best suburbs for positive gearing and cashflow aren’t necessarily the nicest or most ideal suburbs, so picking a market that will help you maximise your rental income involves studying the numbers to see where they stack up the best.
And one of the most important numbers is the vacancy rate.
Vacancy rates measure the percentage of rental dwellings in an area that are unoccupied or available at a particular time.
If there are 100 rental properties in a suburb, for example and five of those properties are vacant when the calculation is made, the vacancy rate is 5%.
If you are an investor looking for tenants, the lower the vacancy rate is, the better the market should be, as it means there are fewer rentals out there for your property to compete for tenants with.
The general market balance point is considered to be a vacancy rate of around 3%.
Lower than this, the market favours landlords. Higher than 3% and the tenants have the upper hand due to more stock to choose from.
How are things in my market?
Well, the 1% national vacancy rate is a bit misleading, because there is really no ‘national’ property market in Australia. The country is made up of individual capital cities, regional centres and many micro-markets within these places.
Inner city Melbourne, for example, is much different than the western fringes of suburban Sydney, or holiday rentals in far north Qld.
However, something very rare happened during two years of Covid: markets boomed simultaneously around the country. And now, the result is that vacancy rates are tight just about everywhere.
Adelaide currently has the tightest vacancy rate in the country at 0.2%, while Hobart is at 0.3% and Canberra, Darwin and Perth are all at 0.5%. Brisbane is at 0.7%, Sydney is 1.4% and Melbourne is 1.8%.
These numbers are extraordinarily low, which plays a pretty big part in why rents are skyrocketing all over Australia.
Especially when you look at where they were this time last year. Sydney was at 2.9% and Melbourne was actually firmly a tenant’s market at 4.3%. How things can change in a year.
Time to take stock
Vacancy rates and rental conditions in general can change very quickly, so you’ll want to make hay while the sun shines. If you have one or more investment properties, you should check in with your property manager to get a feel for the local market and get an idea of the options available to you.
In some markets right now, rents are $100 higher a week than they were this time last year. Say you had five investment properties, that’s an extra $500 a week you could be earning that you didn’t even know about. Rental increases all add up, especially across multiple properties, so take action now and take another step closer to living life on your own terms.
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