One of the biggest fears for investors buying their first property is who will rent their property, and how they will manage their finances if the property isn’t rented for an extended period of time.
The worry of who will rent can stop investors in their tracks, where they put off that important investment and go on to kick themselves for missing the latest boom.
The fact is, if you pay attention to the key indicators and data – in this case – checking vacancy rates, the diversity of stable employment in the area, along with ensuring the property type is suitable for the demographic of those living in and moving there – you can rationalise these fears and be a lot more confident of what is most likely to happen.
With this confidence comes decisiveness, and that leads to positive action
So a major consideration when buying property is who will rent your property, where can they be found, and how long are they likely to stay.
Let’s look at these in more detail.
Those who will rent your property in Australia tend to fall into one of four groups:
- Permanent renters
- New renters
- Overseas arrival renters
- Transient renters
Permanent renters are appealing because on average they stay at least twice as long as other renter categories. Household profiles in this category are often government assisted (low income) and single parents. Permanent renters can often be found in older blue collar or ex-housing commission areas where there are more rental properties than owner occupied dwellings.
New renters lease properties for periods of two years at a time on average, and mostly comprise of singles, and younger couples in share households who tend to gravitate towards established inner suburbs. Often they will stay in these areas until they can afford to purchase a property themselves.
Surprisingly, Overseas Arrival renters are easily the largest category in terms of numbers and they settle on average for around four years until they move again. They comprise of singles, couples and families, and can often be found in ethnically diverse neighbourhoods near services and transport.
Transient renters (or opportunity seekers) make up the smallest category in terms of numbers and normally stay the shortest length of time before moving again. The typical profile is singles and share households, and they can often be found in university areas, tourism locations or even mining towns.
Which category is the best for you? Well, a lot can depend on your appetite for risk, as some of the transient renter areas (mining towns in particular) have provided the highest rental yields in Australia, with some spectacular capital growth. The downside is that investing in these areas comes with considerable risk, as timing and luck, in this case, can be just as important as good decision making.
Being aware of demographic factors, such as these main renter categories, can give you an idea of who will rent your property and what sort of stability you can expect from the types of tenants in the suburbs you are considering. This will help guide your decision as to where to invest.
Overall, at Adviseable, we prefer to de-risk an investment property purchase by sticking to areas with low rental vacancy rates, and buying where there is already a stable rental pool. Long term capital growth can be proportionally higher in suburbs or towns where there are more owner occupiers than renters. So, as a guideline, we prefer the ratio of owner occupiers to renters in an area to be around the national average of 70:30 (70% owner occupiers to 30% renters).
Do you need help with your investment strategy and purchasing? Let’s have a chat.