Private property issue #125 - What happens if I can't find a good tenant?

One of investors' biggest fears is: “What happens if I can’t find a good tenant?”

After all, most people can’t afford to pay their own mortgage … and an investment mortgage as well.

So, property investors need to know how long they need to wait before they have a tenant move in.

So, this week, I’m pulling back the curtain.

You’ll see the real vacancy rate investors face. i.e. the number of weeks a property is empty (and without rent) per year.

This is based on data from my property management company (Opes Property Management).

And – as you’ll see – just as interest rates drop … and the property market is poised to recover ...

The rental market has become tougher.

Right now, 21% of investors say it is harder to find good tenants. That’s according to the Crockers & Tony Alexander Investor Insights Survey

Tenant demand is down 10% in Auckland (TradeMe). But the supply of new listings is up 50%.

So, how long might your property be empty?

How long will my property be empty?

There are two times when your property might have a vacancy.

• When you find your first tenant. That’s when you initially buy a property.
• When your tenant decides to move out, and you need to find a new one.

#1 – Finding your first tenant

You’ll usually have more vacancy when you find your first tenant.

That’s because you often need to pay for (settle) your property before you can get in and show tenants around.

That’s why there can be a gap between when you take out the mortgage and when they start paying rent.

Because you first need to find a tenant. Then, they might have to give notice at the place where they currently live.

In the past, I’ve always said to count on 4 weeks without rent.

But is that fair in the current market?

In Christchurch, almost 80% of our properties have 4 weeks or less of vacancy.

That’s since the start of the year.

Only 20% of properties take longer than 4 weeks to have a tenant move in.

So, that 4-week estimate is a good assumption.

But in Auckland, you can see the tough market in action. Only 44% of properties have 4 weeks of vacancy or less.

But 76% will have a tenant move in (and start paying rent) within 6 weeks.

Remember, that doesn’t mean every property sits empty for 6 weeks. Some have as little as 1 or 2 weeks of vacancy.

But 6 weeks is a good, conservative estimate to use in Auckland right now.

#2 – Vacancy between tenants

After you get your first tenant, you usually have less vacancy.

That’s because your tenants will give you notice before moving out.

That gives you time to find a new tenant and show them through the property.

Sometimes, you’ll get no vacancy at all.

In fact, this year, just over half of our properties in Christchurch had no vacancy at all between tenants.

One tenant moved out. And a new tenant moved in the same (or next) day.

In the past, I’ve always said to allow 2 weeks of vacancy per year.

Over 9 in 10 of our Christchurch properties have a new tenant move in within that time.

So, 2 weeks is fair in Christchurch.

But, again, the Auckland market is tough. So, 4 weeks is currently reasonable.

61% of properties have a new tenant move in within that timeframe.

Are other property managers finding the market tough, too?

Now, if you're like me, you might think: “Is it just you guys? Or are other people finding it tough, too?”

So, I rang Celia Burbery, the GM at APM. They’re one of the largest property managers in Auckland.

She told me they are also finding the market slow. Their properties are getting twice as much vacancy as usual.

That’s in line with what we are seeing right now.

Keep in mind that this tough market won’t last forever.

12 months ago (2023), net migration was booming. It was easy to find good tenants.

A year before that (2022), the market was tougher, according to Tony’s data.

A year before that (2021), it was easy.

So, the rental market goes back and forth. It will eventually swing back.

But just as there is always something in the market working against you.

Remember, too, there are several factors working for you:

• interest rates are falling
• house prices are likely to recover next year
• and banks are more willing to lend.

So, keep the rental data in mind. But don’t let it stop you from investing in property for your financial future.