One of the main concerns property investors is having a property sit vacant for an extended period of time. No tenant means no rent and means you have to fund the property out of your own pocket.
So what are some of things you can do to improve your properties rental prospects?
Follow the jobs
Features like Schools, shops, and lifestyle precincts are all important but the one thing that will increase your property’s rental prospects above anything else is employment. Where there are jobs there are people and therefore tenants ready to rent your property. Census data continually shows that most people tend to live in close proximity (10-15km) to their place of employment. Therefore targeting locations that have an abundance of employment hubs is a sure fire way to get your property rented.
Look at vacancy rates
Vacancy rates can provide a guide as to the rental prospects of any investment properties you may be considering.
Vacancy rates calculate the number of properties advertised for rent as a percentage of all rental properties within that given market. For example, if a specific location had one thousand properties which make up the total rental pool and twenty five of those properties were available for rent then the vacancy rate would be 2.5%.
A vacancy rate of 3% is considered to be equilibrium. In this type of market there will generally be a fairly even match between properties available for rent and tenants looking to rent. A landlord offering fair market rent would expect to source tenants within 2-4 weeks.
A market with a vacancy rate below 2% is considered to be a tighter rental market and is likely to see properties being renter faster and often rising rents. 1% and below is particularly tight.
While vacancy rates can be useful it is important to remember that it only reflects the position of the market at a specific point in time. Vacancy rates will fluctuate throughout a year based on seasonal demand and when viewed over a longer term can also highlight substantial fluctuations in a market.
When looking at investment options we look at the longer term position of a market. How has the rental market behaved over the last 2 – 5 years? Has it remained relatively steady or has it been subject to volatility? A market that demonstrates a vacancy rate consistently below 3% or even better 2% provides us with more confidence that a suitable tenant can be source is a fairly short time frame.
Don’t be greedy
Property is a long term investment and over a 10 to 20 year period you may well experience a number of ups and downs with regards to rent. Like house prices rents don’t go up forever. You may experience a year or two where you can regularly increase rent. And then hit some years where you need to pull things back a bit.
It’s important that you set your rental expectation at a realistic level and keep abreast of market conditions. Too often I’ve seen people stubbornly hold out for a rental figure that is clearly above the market and let weeks go by with their property sitting vacant. Holding out for an extra $10 or $20 dollars is crazy when you are giving up hundreds of dollars each week.
The other side of the coin is not increasing rents when you should. The excuse I often hear is how the tenants have been really good and have looked after the property. That’s lovely but if they are paying below market rent then you are missing out. If everything around them has moved up in price they are unlikely to move. You may even find if they are quite settled they may even pay a bit above the market.
I’m all for keeping good tenant’s long term but you need to run your investment like a business and ensure you get the best return.
Work with your property manager
I’ve come across many landlords who maintain an almost adversarial relationship with their property manager. They are only too happy to tell you all the things they did wrong or didn’t do or how they didn’t get them enough rent. But often the things they describe to me are so trivial I wonder whether the property manager is actually the problem.
From my experience a good quality property manager will do the best they can to get the best return on your investment and will often do a lot of work behind the scenes that you are probably not even aware of. It’s in their interest to get the best level of rent they can for you otherwise they don’t get paid either.
There’s no doubt there are good and bad managers but once you find a good one listen to their advice and work with them to get a good outcome.
Bank valuations are an often misunderstood area of the property buying and lending process. I came across this article from NAB which sums up the valuation process pretty well and explains why bank valuations can differ from market values.
Contact us to discuss you plans.