melbourne vacancy rates

[gailh]

Hi everyone,

I was chatting to a Melb investor yesterday and he said he has three empty properties at the moment. He has dropped the rent a substantial amount, but nobody is even looking at them. Of course, I don't know what condition they are in, but this scared the living daylights out of me.

How many people are hurting because of vacancies? We hear about the glut of inner city apartments, but it seems as though the problem is widespread. Even if prices start to fall a little, it will be a while before vacancy rates improve. Surely this is, in itself, a reason to hold off buying a while. Which then makes me wonder just how long a person should wait.

Gail

 

[Kevmeister]

I am somewhat *amazed* that an individual can have have three rental properties vacant simultaneously.

I think it would be well worth your while getting a description of your friend's properties to get your own feel for how good they are. Take a look at the properties even (if your friend permits), ask what he/she is charging for them (and why). Determine what kind of yield your friend is trying to achieve (easiest if you simply ask how much they are worth) and then determine if it's realistic based on comparative yields for the area. Your friend may have dropped the rent but it may have been high to begin with. It may have been too high because his yield expectation was too high compared to the remainder of the suburb/area. Yields have certainly dropped owing to the property boom (yields cannot keep up with growth fast enough) and possibly indirectly due to the First Home Owners Grant (FHOG).

Are your friend's properties all in the same area? Are they all of the same type of accommodation. Perhaps your friend's predicament is a good reason to have some degree of diversification in what properties you invest in (that's just a casual observation on my part).

Someone said to me a while back that if the vacancy rate is 5%, in theory *on average* you would need 20 properties to have one vacant. You can therefore understand my amazement (unless your friend owns 60 properties!). Or, you have a 1 in 20 chance of having a vacant property. Not fantastic odds.

But remember, that 5% vacancy rate includes all the *crap* property out there and all the *expensive* property, etc. Keep in mind that an "average" means there are some values below the average and some above. If you divide properties into different "bands" (by whatever criteria), some bands of properties will have lower vacancy rates and some will have higher vacancy rates within those bands. You can improve your odds (ie. lessen the chance of vacancy) by making your property more attractive to a tenant, whether that is by virtue of improvements, reduced rent, better location, perks in the lease agreement, etc.

For example, if you split property into bands like "units" and "houses" you may find the vacancy rates are different for each. If you split property into "high-rise apartments" and "other" you might the vacancy rates are different for each. If you split across suburbs you will get different vacancy rates in each suburb (you get the idea).


Having a property without a tenant would be scary, but only if you can't afford to service the debt whilst it is not tenanted. The question is how long such a situation might continue for if you have a reasonable property charging reasonable rent? You should be able to service the property for at least that period of time to remain comfortable and retain the "sleep at night" factor. Tenancy is one of the critical factors in the balance sheet of a property, yet all too often people accept it as a "given" (talking about property marketers, for one).

 

[Lissy]

It could also be purely the "Christmas/New Year" factor kicking in. From about mid-December through to mid- January is probably about the worst time of year to rent out property. Closely followed by mid-Winter (in Melbourne, anyway).
Don't ask me for statistics on this, but I've heard the same story from many different agents over the years.
Perhaps your friend has just been unfortunate this time around to have them all come vacant at this time of year. I'd try and get either 6 or maybe 18 month leases this time, so that the property falls vacant at another time of year next time around.

 

[Sim]

I don't know about Melbourne, but there are areas of Sydney still showing that type of thing - long vacancy rates and simply no-one looking. Rents dropping by over $100 per week.

I must say that in my area I think it was much worse this time last year for rents - literally hundreds of units on the market in my suburb alone, offering up to 6 weeks rent free, free holidays and such.

You'd see some houses where the rent would start at $1250 per week (5% yield !) which is what they were previously getting, then drop $50 per week for the next 12 weeks to the point where they still can't get a tenant and then are asking $650 per week or nearest offer !!

Nice units in good areas with good facilities in good condition at a reasonalbe price will always rent quickly.

Overpriced, under quality units will sit on the market for a LONG time.

 

[Pele]

Gday

Sim what suburb are you in?

Pele.

 

[Lily House]

Hi Gail,

Do you know the location of the properties (ie. suburb)?
Just interested.
Thanks
Lily

 

[suejones]

I have been talking to property managers recently who have 700 properties on their books and 70 on the to rent list. That's a vacancy rate of 10%!!

I think the key is doing the things that will minimise vacancies:
*good location
*well presented & maintained property
*features tenants want e.g alarm, air con, built in robes, OSP, NEUTRAL COLOUR SCHEME!! ( I can't believe how many rental properties I've seen in the last few weeks which I could never live in because of the colour, even though they're otherwise ok.)

The other side of the coin is we had a 2 bed flat in the same area this property manager was working in which became vacant on the 10th of January and was relet yesterday. Partly luck, partly because it's a great flat and not too expensive rent wise.

On the other hand, we had a 2 bed house nearby which was vacant for 8 months! (Killer!) We tried to let it out in original condition, then did a reno, then finally let it out after dropping our price a bit. However, the price looks pretty good now!

We 're learning how to manage the vacancy factor as we go. Just don't want to have to pay too much for the learning experience though!
Sue

 

[Michael Yardney]

Gail
Don't be "scared."As others have said, it's a bad time of year and you should have a look at the condition and location of your friend's properties.
We own a large number of properties and have many clients with properties and currently only have one vacancy.
In the last 8 weeks we have had a whole heap of properties leased within days of coming on the market.
So why do we have such a low vacancy rate for our selves and our clients.?
It's certainly not because they are all prime properties, because a large number are old run down properties for which we are in the process of getting development permits for future unit development (so we don't spend unnecessary money on properties we are going to demolish in the next year or so )
In this market a lot comes down to price.
If you offered your house rent free you would have people queing at your door to move in.
If you charged $500 a week it would probably be standing vacant.
So the rental is somewhere in between and a good rental manager should be able to tell you what it is. If you meet the market you will have little problems with vacancies.

 

[gailh]

Thanks everyone. I don't know the person I was talking to that well. I remember he said that one of the properties was in Nunawading in Melbourne, but I don't know where the others are. He said he had dropped the rent from $210 to $175, but was having no luck. It doesn't sound like high rent, but who knows what the house is like.


Gail