Vacancy Rates, How they Influence Investment Strategies

Thursday, November 19, 2015 / Property Investment

So if you have decided to buy an investment property, you are almost guaranteed to be planning on renting that property out. This is a given.

Even if you have found an absolutely amazing property that seems to check every single box in what you are looking for in an investment, you’ll blow your budget pretty quickly if you can’t find a tenant.

Nothing will make your property investment experience go sour and cause serious financial hardship quite as quickly as having a long term vacant property within your portfolio.

Your strategy is going to be built upon the affordability of a property, but this is always going to take into account the expectation that you will be making rental income from the premises.  If you don’t have that rent coming in, then you will find yourself paying the full mortgage on the investment, which stands to leave you seriously out of pocket.

So how can you ensure that you will be able to find a tenant?

This is where vacancy rates come in and why they should be a strong aspect of the research phase in your investment strategy.

The vacancy rate is essentially the percentage of properties which are currently unoccupied, or looking for tenants.

The vacancy rate is a figure which is calculated by assessing which properties are advertised for rent in a given suburb, and then checking how many of these properties are still advertised for rent three weeks later.

Any property that is advertised for this period is added to the total vacancy rate for the area.

For areas that have a high vacancy rate, this is referred to as a ‘renter’s market’, as the low demand for housing pushed rental prices downwards as land lord’s drop their expectations in an effort to gain tenants.

In areas that have a low vacancy rate, these are referred to as a ‘landlord’s market’ as the landlord will be able to charge a higher rental price, and have a larger selection of applications to consider for each tenancy.

When the vacancy rate is sitting at 3% this is considered to be the equilibrium, where the balance of power is equal between the tenant and the land lord. Whenever the vacancy rate is sitting below 3% it is a sign of strong rental demand and therefore is a great position for the investor/landlord to be in.

Current vacancy rates, as well as historical vacancy rates can be researched as part of the overall investment strategy, the goal of the strategist is to find an area with the lowest possible current and projected vacancy rates.  By doing the appropriate research your strategist is minimising the risk of having an unoccupied investment property.

A Low Vacancy Rate Also Indicates an Area May Grow in Value

Having a low vacancy rate is also a good indicator that a suburb is popular, and therefore means it is going to be a well desired area.  The more popular the location, the more competition for properties increases which in turn increases property values in that area.

While vacancy rates are a key measurement when researching the strength of a potential investment it is only one of many different factors that should be looked at.  Speak with your Activate Property Strategist today to learn more about how to choose the best investment for you.