A vacant property is an investor's biggest nightmare!
Tenants are the main source of income for investors' mortgage and bills, therefore, a vacant property can significantly reduce the properties' cash flow.
While it's common for properties to sit vacant for a short time of 1-2 weeks, a carefully selected property could have zero vacancies throughout the year.
Tips To Reduce Chances Of Vacancy
1. Purchase In An Undersupplied Market.
The supply levels of a suburb are arguably one of the most important metrics an investor needs to take into consideration and may ultimately dictate the length of the vacancy periods between each lease.
To ensure initial vacancy periods are limited, the landlord must understand the current vacancy rate of their chosen suburb.
The vacancy rate represents the percentage of unoccupied rental property within a market. Typically, a vacancy rate of 3% is a market evenly balanced between renters and landlords; 4% or more is an oversupplied market; under 3% is undersupplied.
A higher vacancy rate suggests there are too many rental property listings and renters are spoilt for choice; this is an unfavourable market if your searching for a tenant and may increase the chance of your property sitting vacant.
Investors need to ensure they are purchasing a property with a tight rental market (vacancy rate below 3%). Within these undersupplied markets, rental competition is high as renters compete over listings. Consequently, the risk of vacancy is lowered and investors could even increase their price to meet demand.
To find out the vacancy rate of a suburb, there many online resources such as SQM Research.
2. Understanding Future Supply.
Analysing the future residential construction pipeline of a market allows an investor to forecast if a market is going to be oversupplied or undersupplied in the short to medium term.
Simply put, for a market to remain undersupplied, the population growth of the suburb needs to remain stronger than the number of dwellings being built.
While most investors focus on capital growth prospects when examining this type of data, it can also provide insight into future vacancy issues.
While all 'Development Applications' (DA) are listed on council websites, this type of data difficult to manage, update, and organise. Therefore, it's very expensive.
If you would like access see the residential construction forecast for your suburb, feel free to reach out to me here.
3. Pick The Right Type Of Property.
An effective method to reduce vacancy periods is identifying the type of property in which demand is strongest.
Different demographics demand different types of property, therefore, an investor will need to research the type of demographic living in the area.
For example, if an investor locates an area with a young professional demographic, small household sizes and is within close proximity to the CBD, a unit will be a more suitable type of property due to convenience and affordability.
On the other hand, an older demographic with children would typically demand a spacious house further away from the CBD as families typically do.
There is an abundance of data relating to demographics on the Australian Bureau of Statistics (ABS) website.
4. Find A Great Property Manager.
The importance of a property manager shouldn't be underestimated. A property management company can manage the relationship between the investor and the tenant. This includes the signing of leases, collecting rental income, paying bills, organising repairs, and most importantly, finding tenants.
Property managers have all the tools and experience to find investors a tenant as soon as possible. For example, they often have subscriptions to tenancy databases that can find and screen prospective candidates.
Additionally, a great property manager maintains a positive relationship with the tenant. If a tenant is being dealt with in a professional and timely manner they are more likely to live in a property for longer.
I hope you found these tips useful to minimise the change of your property being vacant.
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James Allnutt – Property Investment Consultant
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.