Vacancy Rates Very Low for Southwest Idaho
With the growing need for increased mobility and flexibility, we’re seeing a greater preference to rent rather than own, resulting in incredibly low vacancy rates. As long as the new construction market doesn’t overbuild, which is somewhat unlikely given the credit restraint that it faces, we’re likely going to enjoy extremely low vacancy rates for at least another year and gradually see an increase in rents during that time as the housing demand outweighs supply.
Legerity Property Management is currently at a vacancy rate of 3.75%. We did just recently take on many new vacant properties however, which highlights the importance of listing properties before they are vacant. Year-to-date vacancy rate is at 1.47% for a more accurate reflection of performance. Typically, around 80% of our turnover for the year is in the May-July time frame, so we typically experience higher vacancy stats in the summer months.
Rental Rates on the Rise
Historically, a balanced rental market is considered to have around a 6% vacancy rate. Currently, we’re seeing very moderate rent increases averaging about 2% with Ada county properties being nearly twice that while Canyon county drags the average down with nearly flat rents. Many of our properties were above market rents and many of the rest are on the upper range of fair market rents, but with vacancy rates so low, we would expect to see greater rent increases. Our lease allows for an automatic rent increase of 7% as the lease renews unless otherwise agreed upon. Many residents when confronted with the rent increase, made it clear they would move before being subject to the increase. In these cases, we do our best to strike a balance between the homeowner and the tenant’s budget on a case by case basis. Most of the time, we still collected a more moderate increase, the resident was glad to stay, and we avoided the expenses associated with turning over the property. It’s definitely worthwhile to consider these turnover costs when negotiating rents, and it has worked in our favor this year. Should wages improve as unemployment continues to drop and vacancy rates are low, we should have an environment conducive to even greater rental rate increases.
As the financial markets have changed along with investor sentiment these past years, we’ll have to keep a close eye on whether that 6% vacancy balancing point has changed. Reducing vacancy rates is one of the most significant methods to increase investment property performance if it can be done without compromise. Here’s hoping we can look forward to an era of greater efficiency in the rental property market.
Brandon Morgan