How do I use vacancy rates?
Trade Me Property announced that median rent prices rose 9 per cent in January across the country; at the same time, a February 2 interest.co.nz article revealed rental yields plummeted. The wealth of information at your fingertips can be a bit overwhelming at times and it's hard to know what results will help you the most.
While high rent prices are a good indicator of demand, investors should always take a look at a wide range of data and research to determine the strength of a market. There are lots of other factors you can look at when buying investment property in New Zealand, but vacancy rates can often be a reliable guide to tenant interest. Here are a few tips for using this information wisely.
Basically, vacancy rates express the number of empty rental properties in percentage form. A high vacancy rate generally indicates a large number of vacant properties, while a low rate suggests the opposite. In general, if an area has quite a high vacancy rate, landlords might struggle to fill their property because there are a wide selection of properties for renters to choose from.
Similarly a very low vacancy rate – say below 2 per cent – could mean renters are competing for a smaller number of available properties, meaning that rents are often higher and landlords have the pick of the bunch.
Vacancy rates can vary between broad and quite specific. Overall vacancy rates can reveal rental conditions across the whole country or region, while city or suburb specific results might provide a bit more information about the conditions in a certain locale.
As well, each city or region will have its own benchmark or characteristic. This is particularly handy if you're comparing areas, but remember that trends are often a better indicator of a market's activity than individual statistics.
For example, a vacancy rate trending downward might mean property in the area is in hot demand, while a rising number of empty properties could show rentals are falling out of favour with tenants.
Be aware that vacancy rates do not distinguish between property types. The statistics might separate houses from apartments, but a three-bedroom bungalow is vastly different from a one-bedroom townhouse. Do your own research – walk around, investigate and ask questions of prominent property management companies or local real estate agents. They will normally have a good idea of the position of a specific market.
It's worth taking a glance across this information to inform your investment strategy, but it's important to do a wide sweep on rental information before committing to a particular area.
There are a broad range of factors in choosing the perfect investment property. Property investment advice from an Authorised Financial Adviser can also help decipher this data, while taking into account your unique investment goals.
Here's to your financial independence!
Authorised Financial Adviser / Investment Property Expert
Contact us now!