With interest rates as historically low as they are right now, rental properties offer a strong return. When you’re paying just 3.5-4% for your mortgage, you only need a yield above 4% to make instant profits – and many suburbs around Australia offer yields twice this amount.
On the flip side of the coin, if you invest in a market where demand for rental homes is low, you can be grappling with extended vacancies and financial stress. During this period, there might be an inadequate number of tenants who are willing to rent for the price you listed, forcing you to reduce your asking rent.
In an interview with Your Investment Property, Property Power Partners Chief Executive John Lindeman confirms that if your strategy as a property investor is generating high cash flow, then high-rental demand is critical to your success.
When asked about steps to take so investors can score dwellings that are always in high rental demand, Lindeman says that it is helpful to use indicators such as asking rent rises, low vacancy rates, and high rental yields to select suburbs. In addition, it is important to determine the type of rental demand in an area by asking local property managers about it.
"For example, holiday areas may have high rent demand during the peak season, but low rent demand at other times. A construction project such as a highway or railway may cause rent demand from workers to rise, but only while the project is underway," he says.
Some of the highest rental demand can be found in the least likely places, according to Lindeman.
He gives Risdon Vale as an example. It an outer suburb of Hobart and is also where Tasmania's maximum security male prison is located – which makes the area what most would consider a very unattractive and dangerous place to live.
Massive walls are skirting the jail's perimeter, with razor wire and the night sky is penetrated by floodlit guard towers, the howls of ferocious guard dogs and the constant threat of escapees running amok through the suburb, says Lindeman.
The interesting part, though, is that Risdon Vale has the highest constant rental demand and rental yields in Hobart despite the disadvantages.
The source of housing demand comes from the wives and partners of the inmates, who rent properties in Risdon Vale to be near their incarcerated loved ones for conjugal and family visits.
"The irony is that the higher the incidence of burglaries, murders and other serious crime in Tasmania, the greater will be the demand for rental properties in Risdon Vale," says Lindeman.