What are vacancy rates and why are they an important indicator in property investing? The vacancy rate is a measure to show how many rental properties in a given area are without tenants (vacant) over a defined time period.
For example, if we look at a fictional suburb called Rivertree which has 100 rental properties being offered and 95 of them have tenants and the other 5 are available to rent, then we would say there are 5 out of 100 properties which are vacant and therefore the suburb had a 5% vacancy rate for that month.
Why is this important?
When you buy an investment property, you must consider the rental income that can be made. This will be determined by rental demand and vacancy rates are a good guide to rental demand in a given area.
Let’s say your property in Rivertree can rent for $300/week but it will be vacant for 5% of the year. If rented for the full year, the property would earn:
$300 x 52 weeks = $15,600
But if we take off 5% for the vacant period, the amount is a bit smaller at $14,820.
What if the vacancy rate in that area is 10%? Suddenly the $300/week return does not look so good.
If you can find an investment property with a low 1 to 2% vacancy rate and a high yield, you should receive a decent rental income for that investment.
Of course there will be other factors to consider such as rental yield and investing for capital growth, but if you use this in your critiera for researching real estate investments, it will help narrow down the properties you need to look at.
Where to Find Vacany Rate Information
Vacancy rate information can appear sporadically in the general media, such as the property or money section of your favourite newspaper. Otherwise, you can check the following online sources:
Real Estate Institute of Australia