Percentage of Residents who Rent is too high?

L

ledd

Hi Everyone,

I'm wondering if the percentage of people renting in a particular suburb has any impact on their decision to buy in that area.

I know of people that won't invest in a property with more than 25-30% of people renting. However, I've seen suburbs with 40-50% of residents renting.

Is this too many? Is there a danger of an oversupply? I'm primarily thinking of a 2 bedroom unit in the inner suburbs of Brisbane. Some of these suburbs have a lot of people renting.

Thank you in advance for any suggestion! :)

Cheers,

Mark
 
G'day Ledd,

There are factors that work against areas with "high rentals, low owner-occupiers". Here are a few that come to mind (others will step in to add more, I hope)

Competition - with many more rentals, maybe this area has a higher "vacancy rate" than most. It boils down to more competition in the market (possibly leading to lower rents for your unit).

Values - owner-occupiers are far less likely to "jump ship" in bad times. As such, values of property tend to remain higher in high OO areas. Where there are more rentals, a desperate landlord can lower the values for all other units in that same area. And this can be the start of a chain reaction.... Typically, OO areas tend to be more stable in values.

Demography - very area dependent. If this is an area where MANY DINKS or professionals prefer to rent, then it can all be good (but what is the vacancy rate? High? Or low?). In bad economic times, though, these can be the first areas to suffer.

What area are you referring to? Maybe others can give guidance if we know where you are looking,

Regards,
 
Also the quality of upkeep/maintenance/renovations is higher - translating to higher and more stable prices - in OO areas than heavily rented suburbs.

But where does one find how much percentage a certain suburb is rented and how much is OO
 
G'day Cashflowplus,
Cashflowplus said:
But where does one find how much percentage a certain suburb is rented and how much is OO
Click to expand...
I'm sure it's not the only one (but the only one I know...) propertyvalue.com.au gives a free report that includes this detail (look towards the end of the data provided).

Regrads,
 
On the flip side, is there a lower limit to the percentage of people renting before it makes it a bad area for investment? Some areas I've looked at have only 15% to 20% of people renting.
 
Thanks, Les. It makes sense what you've written. I had similar suspicions myself but as a newbie wasn't sure.

I've narrowed it down to a 2x1 unit in inner Brisbane! :) I'm still looking into suburbs and I'm in the very early stages but was looking at Coorparoo and surrounding suburbs and also at Annerley, but both of these seem to have a very high percentage of renters (40-50%).

Any suggestions would be appreciated!

Cashflowplus: I got my information from RPdata. Just scroll down to the free report section http://reports.rpdata.com.au

Good question, fozzy. I'd also be interested in the answer! :)

Cheers,

Mark
 
Last edited:
G'day Fozzy,

On the flip side, is there a lower limit to the percentage of people renting before it makes it a bad area for investment? Some areas I've looked at have only 15% to 20% of people renting.
Click to expand...
Either you have stumbled onto a "sleeper" suburb - or you are investing in some "back of Bourke" town out West :D

I don't see any downside in a High OO involvement - but I'm always willing to learn too, so don't hold back....

Regards,
 
All my IPs are in inner city suburbs that have high % of renters, no issues wrt CG or rent-ability. May be because of land scarcity as they are so close to the city ?
 
Les said:
G'day Fozzy,


Either you have stumbled onto a "sleeper" suburb - or you are investing in some "back of Bourke" town out West :D

I don't see any downside in a High OO involvement - but I'm always willing to learn too, so don't hold back....

Regards,
Click to expand...
Hi Les,

Thanks for the reply. The areas are around the fringes of Melbourne, places such as Pakenham,Craigieburn,Melton,Sunbury,Taylors Lakes,Sydenham and Cranbourne which have or have had plenty of land and cheaper prices which I guess have made them popular with first home buyers and other owner occupiers. I was a bit worried that the smaller percentage of renters would make it difficult to find tenants. But before reading this thread I hadn't considered a possible downside of an area with a high percentage of renters.
 
ledd said:
I've narrowed it down to a 2x1 unit in inner Brisbane! :) I'm still looking into suburbs and I'm in the very early stages but was looking at Coorparoo and surrounding suburbs and also at Annerley, but both of these seem to have a very high percentage of renters (40-50%).
Click to expand...


Both respectable and well known suburbs of Brissy- not too far out and classified as middle ring suburbs. I'm sure others can give more detailed opinions and info about these specific areas, but I wouldn't be too concerned about excess renters here. Demand is high in Brissy and rentals holding their own, from what I've heard.
 
I believe there are advantages with low and high renting percentage, and here is what I read and hear what these so-called expert said:

Graham Joyce (former President of REI) prefers to have low Renting percentage ~ less than 30% from memory.

Bill Zheng prefers to have a min or 10% (from YIP April 08) with no reason provided.

Helen Collier-Kogtevs quoted to buy in area with a min of 40% of Renting in her 47 Mistakes book.

I view.....max 40% rental and I agreed to all your comments above.

Although, there are higher chance of high vacancy and competition during bad times, however, if you are in a high CG area, CG should outweight the rental yield.

Another important factor I look at is the Own Outright and Purchaser percentage, the higher the Owner Outright percentage and lower Purchaser percentage the better. Imagine who is going to jump ship if interest rate goes through the roof, or high unemployment rate? Is this going to affect the Own Outright portion? NO. Affect Renters? Not really. Most likely Purchaser who is still paying off their mortgages will sell and rent, therefore an increase of supply....and you know what will happen after that.

Cheers

Yerfdog
 
We live in Coorparoo, in a part of it with no units, although there is one block in the adjacent street.

There are parts of Coorparoo that are chock-a-block full of units, and I would be hesitant to buy one of these, but that is more from an aesthetic point of view. I don't like to see block after block after block, especially boring six packs, like a lot of the older blocks are in Coorparoo.

The newer blocks look much more appealing.

I don't know what renting units in Coorparoo is like as we don't have any units, so I don't check stats for them.

If you PM me the street, I am happy to drive past the block and let you know what I think of the street. There are streets in Coorparoo I would avoid, but again, that could come down to personal preference.
 
I would not get hung up on the % of renters in a suburb.

After all, if you keep the property for some time then the demographics will change, could be in either direction.

At one stage our PPOR was slap bang in the middle of about 8 rented houses, two each side (next door and next again) and 4-5 over the road. That was about 10-15 years ago. All have now been sold to owner occupiers. Mind you, at the time the houses were rented they were all well cared for, and no-one would have known from casual observation.

As Wylie said, just check out the surrounding area where your target property is located.
Marg
 
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