What’s a reasonable vacancy rate?

[BrianJamieson]

Hi Folks,

I’m looking to start investing in Hamilton or KWC in the New Year. In doing due diligence I’ve noticed that there is a substantial difference in vacancy rates. According to CMHC’s April 08 Rental Report Hamilton’s running at 4.7% (& increasing) and Kitchener’s running at 2% (& decreasing). As a % neither is large but stepping back the numbers would seem to suggest that Hamilton’s vacancy rate is over twice as large as KWC’s. Am I interpreting the numbers correctly? Is 4.7% (& increasing) a concern?

I would greatly appreciate any feedback.

Thanks in advance.

Brian

 

[wgraham]

Brian,

I would say that, yes, Hamilton has twice as many vacancies and KWC based on those numbers and is going in the wrong direction certainly.

For budgetting purposes, I have been using 4.5% in all my suited homes in all markets and 8.3% in my condos or SFD (unless of course it is statistically more)....the reason is quite simple.. I want to exceed my Partners expectations. If I use the Calgary 2007 average of 1% and one of my suites in a up/down home is vacant for one month I am already at 4.15% and my partner is going to be asking some questions. If my condo is vacant for 1 month in a year it is 8.3%.

To date, knock on wood, I have had 0 vacancies in 18 suites over 3 years but I still factor in 4.5% or 8.3%. I don`t use this number as an excuse to have a vacancy but the day will come when I am very glad that I used conservative numbers with my partners and more often than not I will exceed their expectations.

Good luck
Wade

 

[BrianJamieson]

Thanks Wade... so is 4.7% and increasing high enough that you`d consider not making purchases or do you think it`s still at a reasonable level?

Brian

 

[wgraham]

QUOTE (bwjamieson @ Dec 4 2008, 02:19 PM) Thanks Wade... so is 4.7% and increasing high enough that you`d consider not making purchases or do you think it`s still at a reasonable level?

Brian

This is going to sound odd but I don`t think it matters what the level is as long as you budget for it and can make money with it.....if you can make money with a 10% vacancy than what is the problem?

Is it easier to make money in a lower vacancy market....certainly.....can you make money in high vacancy markets..certainly..budget and market for them and you are fine. I think that a higher rate just changes your strategy. Be conservative.

Don`t get me wrong looking at those numbers I would be a KWC investor but would still keep my 4.5/8.3 budgets.

Cheers
Wade

 

[BrianJamieson]

That`s a good perspective and helps answer my question... thanks for the feedback!

Brian