Rental market – Strike while the iron is hot!

How is the current rental market affecting property investors?

It’s a good question and the answer is highly encouraging.

It relates to the shortage of rental properties as highlighted in recent media articles and the fact that population growth is outstripping construction and investment.

As The Property Shop principal, Hugh Bateman agrees, this is not surprising, given that Australia’s resident population is expected to top 22,608,000 this month.

While that’s the big picture, Hugh is aware that investors want to know just how this situation is impacting locally in the rental market.

“It is here that the knowledge of a local Property Manager can be beneficial,”he said.

Property management is a specialty of The Property Shop which has a large number of properties under management. During April alone the agency leased 15 rental properties and finished the month with only four
vacant properties.

Average rent for April was $395 per week.

“To put this into perspective,” said Hugh, “in recent years the vacancy rates have varied from three to five per cent, with the higher vacancy rates occurring in the winter months. The reason for increased vacancy in the cooler months seems to relate to lettings becoming available after a six to nine month lease.

“The lower vacancy rates are creating increased competition for homes and are helping investors achieve the best rental returns on their investment that we have seen for the past decade. It is not uncommon for investors to receive a five per cent annual return on their asset.”

Hugh said some investors were achieving an even better return. For example, on a purchase price of $400,000 the average rental return is $450 per week.

At the same time, he reminded investors that the weekly rental return is only one consideration in assessing a property’s value as an investment.

“It is not uncommon, in a strong rental market, for owners to become over-zealous with the asking price on their property, potentially causing extended vacancy periods,” he said.

“For example, if the weekly rent is $300 then the annual return is $15,600.

If the property is vacant for four weeks in a year it reduces the annual return by $1,200 to $14,400. This means the landlord is averaging only $276 a week over 12 months.

“The lesson to be learned here is that achieving a high rent price at the expense of a prolonged vacancy period can cost rather than make money in the long run.

“Thorough screening of tenants is also essential to ensure your investment property will be cared for.”

For expert advice on property management contact The Property Shop’s property managers, Bernice Offner and Graeme Kurtz, on 6372 2222.

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