Misjudging the rental market is a common mistake!
Recently, a client was thinking of buying an investment property in a particular suburb. They had their heart set on it and felt it would be a good deal for them.
But they hadn’t done their homework!
They were unaware that this particular suburb was not highly sought after by tenants for a variety of factors to do with local services that they were unaware of. Bus services were poor, there were no shops within walking distance and the local school was not popular. Tenants moving into properties in the area did so as a temporary measure while looking for somewhere better.
Vacancy rates were high and properties often remained empty for considerable time.
Our clients should have known the vacancy rates and median rents for the area, but hadn’t done even basic research such as checking out the area on Trade Me.
They should also have asked two or three local property managers for an appraisal. This would have helped them put a realistic figure into their calculations. As it was, their figures were based on what they hoped the property rental would be and on a lower than likely vacancy rate.
Once they fully researched the area they wanted to buy in and pulled all the figures together, they realised that in fact the property they were considering would not be a good option for them. They would constantly have to pay the shortfall each month from their own pocket. And, given the area was unlikely to increase in value any time soon, they would be stuck with this state of affairs for some years.
Armed with this knowledge our clients changed their minds about the property and instead began looking for one that was a better fit for them.