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Monday Oct 22, 2018

'Don't buy rental property until you know the vacancy rate'

There are very few rental properties that will be occupied 100% of the time, but the vacancy rate can vary considerably - and make all the difference between a good buy-to-let investment and a bad one.

That's the word from Tobie Fourie, national rentals manager for the Chas Everitt International property group, who says most seasoned investors will make allowance for their rental property be vacant about 5% of the time - and deduct the cost of this vacancy from their gross income estimates along with the costs of maintenance/ repairs, levies, property rates and any portion of a bond repayment that is not covered by the rent.

"However, it is also important to consult a reputable managing agent to establish the average vacancy rate for the area as a whole - and find out about the factors that could affect this rate in future."

"At around 5%, there should be steady demand and landlords in the area should be able to achieve moderate annual increases in rent, but when the vacancy rate drops below about 8%, that can become difficult. It may also suggest that the area has fallen out of favour with tenants."

There are, however, several factors that can change the vacancy rate in the short or longer-term, and prospective investors need to explore these with a local expert, he says.

"The most important of these is the overall availability of rental property in the area versus demand. If there has been overbuilding, for example, the vacancy rate will rise and it will be difficult for landlords to raise rentals until the oversupply is absorbed. But if the local population is expanding faster than the number of units required to provide housing, the vacancy rate will fall and higher rents will become possible."

Secondly, says Fourie, investors should consider the position of the specific rental property within a particular area. "A home to let in a visible position will generate more enquiries, while the hard-to-find property is likely to stay vacant for longer, at the expense of the landlord, even if the vacancy rate in the area is low.

"On the other hand, most tenants don't want to live on a busy road, but prefer properties that are close enough to schools, shopping centres, public transport and arterial roads. It is important to look at development plans for the area as a whole and find a balance."

Keeping the property in good condition can also have a significant impact on the vacancy rate, he says. "Tenants don't only move because of life changes such as a new job or a new baby. Rental homes need to be well-maintained or any proposed rental increase will swiftly prompt them to move to a newer or better-managed property.

"And this will leave the landlord with a unit that will in all likelihood have to be cleaned, painted and repaired anyway to attract a new tenant - and could remain vacant for several months while that work is in progress."

Fourie notes that when buying a sectional title property, investors also need to consider the state of the building or complex as a whole.

"Tenants of course prefer to rent in a well-kept scheme with good security, and that is only possible when owners are paying their levies and the body corporate has sufficient income, so investors should always ask to see the current financial records of a sectional title scheme before they buy there."

Chas Everitt Press Release




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