Tenant Supply
The number of potential tenants in the locality of the property being
considered by the investor should clearly be considered carefully. The
current and potential supply can change and some examples Buy2LetExpert
would highlight are:
- University expansion. The expansion of a university or
college can have a marked impact on potential tenant supply even
if the potential tenant is not a student. This is because the
'new' students may move into nearby properties. Consequently the
supply of non students will be chasing fewer properties.
- Immigration. Like with student expansion, this should not
be dismissed just because the Buy2LetExpert target tenant will not
be a recent immigrant to the area. Any growth in the recent
immigrant population will have a knock on effect to most segments of
tenant demand in the same locality.
- Seasonality. An area with a large student population is
likely to experience peaks and troughs of tenant supply. Many will
be looking in August and very few in July. The ideal for an investor
is to have strong supply year round. Of course this is impossible
but huge troughs in supply should be recognised as an issue and
contracts
should 'steer around' such troughs. See also our section:
renewal
management.
- House prices. The economists would argue there is an
inverse relationship between house prices and rents. In theory when
people are buying they are not renting and vice versa. So, rents
should fall when prices are rising and rise when house prices are
falling. Buy2LetExpert have never found this relationship to work so
well. In fact when rents rise they tend to leap in jumps before
becoming stable for a year or two. However, over the longer term,
stable or falling house prices make the case for renting for a year
or two look quite compelling. Also, clearly, if house prices rise
outside people’s reach then they will rent for longer periods.
- Mortgage lending. Mortgage lending has recently fallen as
lending criteria became more strict and larger cash deposits were
required. This has occurred since the credit crunch and is driving
increased tenant supply in London.
- Interest rates. High interest rates (or perception
thereof) will dampen mortgage demand usually and again may increase
tenant supply as potential purchasers delay their decision to
purchase.
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