Rental vacancy rates have been rock bottom around most of Australia over the past 12 months and weekly rents have therefore soared.
It has meant good times for investors, who have had greater yields, thanks to purchase prices falling at the same time.
This has made it easier to get your portfolio into positive cashflow territory. The rising rents have also offset some of the pain from the RBA rate rises, which have seen investors with mortgages have to fork out hundreds and even thousands of extra dollars each month to service their assets.
What’s next for the rental market?
Data providers like PropTrack, SQM Research and CoreLogic have reported that vacancy rates have begun to creep up in recent times.
PropTrack reports capital city vacancy rates have increased by 0.10 percentage points in the last 3 months.
However, they are talking about monthly increases of 0.01 to 0.05% in most cases. For perspective, they also report the national vacancy rate is 46% lower than pre-pandemic levels and has decreased by 0.19 percentage points over the past year. So it’s hardly enough to put a dent in the 20% plus increases in weekly rents that investors have achieved in many places.
There is also a seasonal factor to consider with this data. Many tenants are looking for new rental properties in the early months of the year. They might be starting a new job, or have moved to a new location. If fewer are looking at the moment due to personal circumstances, it could understandably push vacancy rates up a little bit.
Let’s look at the fundamentals
When it all comes down to it, vacancy rates and rental prices come down to supply and demand. There is a shortage of supply right now and it’s only getting worse as not enough properties are being built, while more investors are either selling their properties to owner-occupiers or turning them into short term accommodation like Stayz or Airbnb, which takes even more supply out of the market.
Then, when you consider the government has decided to bring hundreds of thousands of migrants into the country over the next few years, who will all have to live somewhere, it’s hard to see the vacancy rate shooting upwards anytime soon.
But you still need to act
Investors may be in a good place for avoiding vacancy periods, but you still need to make sure your property is fulfilling its earning potential. If you haven’t raised your rent for a couple of years, you could be well behind the market rate.
B.Invested founder Nathan Birch has long talked about the importance of yearly rent rises. If you have multiple properties, even small increases across the board will make a big difference. If you raised weekly rents by just $10 each year on 10 properties, that’s an instant pay rise of $5200 every year. That is crucial for eventually transitioning to the stage of your strategy where you are paying down your debt.
Think about it, if you start out by paying down a loan interest only, the only way you will be able to transition to paying down the principal in future years is by raising the rent. That way, when your interest only period finishes after 3 or 5 years, your rental income is still enough that the property remains positively geared.
Another reason to act now is that conditions aren’t always going to allow you to raise your rent. Right now, the market might let you hike weekly rents by $50 each year, but in a few years, if conditions do end up changing, you may not be able to raise at all. So if you don’t do it now, you risk missing out.
To find out what the market rent might be in your area, you can head online to a listings portal like realestate.com.au to see what similar properties to yours are renting for. You should also contact your property manager to get an idea of what they think you can be charging.
If you don’t have a property manager, reach out to B.Invested and we can help put you in touch with the right professionals, or provide you with more information.