Some questions

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Yours in Finance

I did not realize that the banks will try get you to cross-collat and how mortgage brokers will help drag me away from it.

Seemed to me to be their default position – even though I had told them “No cross-coll”, the initial bunch of paperwork would be crossed, until I said “Nup!” and then they would re-do it the way I wanted it. Sneaky bunch of …. I don’t know about ALL banks, as I haven’t borrowed through all of them.

Well worth reading about – it is one of those hidden traps that are in plain sight once you know you don’t want what they are offering. But what of those who DON’T know? I think Banks rely on a lot of people not knowing too much. ;)

Benny

Hi Investor,

for example Goulburn has about 61 properties for rent, shows cash flow positive which is good but with that many properties on rent whats the chance of someone wanting to rent my property? Should we avoid areas like this?

Good question – I hope the following thoughts might help you:-

It is not so much the number, but more the ratio of “rentals to owner occupieds”, and “rentals available to rentals in use”.

It sounds like you are talking of the second of those – otherwise known as “Vacancy rate” and the most common number mentioned is 3%. If more than 3% of rentals are available, then that is a warning sign of too many rentals and not enough renters. If a vacancy rate of less than 3%, then good news for landlords.

So, back to Goulburn – if the total number of rentals is 61/0.03 (i.e. 2000 rentals or more) then 61 is OK at around 3% or less. So, the question that springs from that is – with Goulburn’s population being 22,000 is 2000 rentals a lot?

I think the average family size is about 3, so that would mean 22000/3 = 7300 houses/units needed to house them. So, 2000 against 7300 doesn’t seem like too much of a problem as it’s just 28% of the total accommodation needed. Of course, someone else may be able to comment with more local knowledge – I am answering as one who doesn’t know the place, but am just crunching numbers !!

Steve had posted an article about being careful where investors outnumber Owner Occupiers – this is what he said :-
https://www.propertyinvesting.com/watch-out-for-this-simple-stat/

You can see that 28% is not too bad. But now let’s backtrack and look at that second number again in a bit more detail. Like, what if the 61 is out of a total of just 1200 rentals in Goulburn?

In that case, the vacancy rate is over 5%. To most commentators, that figure is in the “danger zone” for landlords, and it means more competition to get tenants, and may even lead to taking a tenant you regret taking “just to get someone paying rent”.

Ask a few RE agents “How many they have for rent” and “How many on their rent roll?” then divide “available rentals by total rentals” to get the vacancy rate for their operation. The magic number is 3% – below is goodness, above is a warning.

Also, don’t lose sight of the fact that there can be “pockets” where rentals have an extremely low vacancy rate, and getting a rental there is hard work. This could be because of the proximity of facilities (near to the CBD, good schools, transport) or it could be “the top end of town” where many want to live, but few can get in there. If you can buy in these pockets, it really won’t matter too much about an overall high vacancy rate as this little area might be at 1% or less, even if Goulburn overall is at 5% !!

Benny