澳洲Australia property What is a "good" rental


在澳大利亚 The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m


I just saw an advert for a property and the RE was saying the rental return was 4.42%, complete with exclamation point. I would have thought that was a relatively low return... Is it?
Also when you calculate the return how do you actually do it, because when you are borrowing the money for it you are paying a lot more for it than if you were able to pay cash. So does the % return depend on things like repayment or interest amounts or is it based on purchase price?  

评论
Ideally, I would say rent divided by purchase price of the property

So a $300k property which rents for $300/wk ($15,600/yr) =

$15,600 / $300,000 = .052 or 5.2%

Of course, you may have borrowed $300k + $15k purchasing costs = $315k

So to see what return you're getting on the total money you borrowed and are using:

$15,600 / $330,000 = .0472 or 4.72%  

评论
mandimoo said: ↑
I just saw an advert for a property and the RE was saying the rental return was 4.42%, complete with exclamation point. I would have thought that was a relatively low return... Is it?Click to expand...
If inflation's running 3.6% then you're ahead by .82% if you paid 100% cash but if you borrowed 100% of the funds at 7% then you're behind by 2.58% . If it's the latter then you're effectively having a punt the property will increase in value by 2.58% to break even . This is a simple example and doesn't take into account your tax bracket or gearing levels.  

评论
mandimoo said: ↑
I just saw an advert for a property and the RE was saying the rental return was 4.42%, complete with exclamation point. I would have thought that was a relatively low return... Is it?Click to expand...
Yields tend to depend on the type of property and area.

If it's a mansion in Toorak, something by the bay or what spruikers call 'blue chip inner suburban', then it might be quite high if similar properties in the area are 3% or so.

But it's a serviced apartment, country town house, student accommodation or industrial warehouse then it's very low (though note the first three also have high % holding costs, offsetting their higher yields).

Whereas it might be near average for your average middle suburban house.

But whatever type of property it is, 4.42% will nowhere near pay the mortgage - after holding costs are deducted the real % yield will have a 3 in front of it - so you'll be paying a significant shortfall.

So you're betting on capital growth, value you can add or it being undervalued for it to stack up. Otherwise it's nothing special and there'll be thousands available with better return.  

评论
mandimoo said: ↑
I just saw an advert for a property and the RE was saying the rental return was 4.42%, complete with exclamation point. I would have thought that was a relatively low return... Is it?
Also when you calculate the return how do you actually do it, because when you are borrowing the money for it you are paying a lot more for it than if you were able to pay cash. So does the % return depend on things like repayment or interest amounts or is it based on purchase price?Click to expand...
It depends where you sit on the income ladder.

This site was originally created by Ian and Jan for the average Mum and Dad investor to take hold of their future and try to become wealthy through property investment.

The average folk who are on average incomes, kids, struggling from week to week, and in grave danger of retiring on a pathetic pension as so many do unwittingly.

Their cashflow is finite, their expendable income a tad on the "too much week at the end of the money" side of things, their financial intelligence quite low in most cases and their finances are upside down as a rule..

This site was not really put together for the 4th year Uni student living at home, about to step out into a $150k per year job, or folk who are already out there on $200k+ wages looking for something to throw it at after attending an investing seminar somewhere..

There are a number of those higher income earner folk here, and that's fine - but let's be honest; they don't need that much of a leg-up, and if they do, they need lessons in financial management, not investing..

When I see ads for rent returns shouting 4%!!! when the borrowings are at 7%, then I know that this is not a property for the average family with little expendable income to throw at a $300k (or more) investment (it also tells me the agent is only a salesman and not an investor; which is the majority of agents anyway). It is probably going to end in tears for this family.

So, my answer is a 4% return (especially gross) is bloody terrible - for the average family type (any type, actually).

It is only an investment (and why would you do it even then) for the very high income earner who can afford a few hundred dollars or so per week in neg cashflow without impinging on the lifestyle too much.

As a basic rule of thumb; 20% per year of your rent will be eaten up by expenses. This factors in a couple of week's vacancy as well.

You also have the cost of the interest on any borrowings to take out of that as well.

What you have left is your true rent cashflow in your pocket. You will claw some back through any tax returns and varying your PAYE income tax (accountant will do this for you).  

评论
It obviously all depends on your definition of a good rental return, but mine is something that will cover all expenses.
I will be signing for a house that will return at least 7.4% today. That should do that trick once you include depreciation.

A very general rule is that the closer to the CBD you buy, the worse the rental yield.  

评论
ooh it's a bit confusing that it differs so much. The advertised property was close to the city that is for sure.
We only settled on our first IP a week ago and our tenants moved in yesterday, we paid $305,000 for the property and the total loan came out to around 320,000 including LMI and stamp duty. If our interest rate is 6.86% and our tenants signed a 6 month lease for $320 per week, so if we had paid cash this means our return would have been 5.2% right? Does the fact that we are negatively geared mean that we have a negative return?  

评论
mandimoo said: ↑
Does the fact that we are negatively geared mean that we have a negative return?Click to expand...
Not necessarily as there are also things like depreciation to consider. However in your case, most probably yes.  

评论
As far as depreciation goes when are we meant to get the quantity surveyor? Was it meant to be done before we had people move in?  

评论
It might be easier to do when it's empty, but you can do it at any time. My advice would be to get a quantity surveyor as they will do a depreciation schedule for you which will be very easy to follow come tax time.
If the IP was built after 1985, you can depreciate it at 2.5% for 40 years.  

评论
To answer the original question....my definition is that the nett yield (after having taken outgoings expenses out) must be greater than the mortgage interest rate.


spludgey said: ↑
If the IP was built after 1985, you can depreciate it at 2.5% for 40 years.Click to expand...
Hmmm....that's not strictly true.

Any property constructed between 18 July 1985 and 15 Sept 1987 can be depreciated at 4% pa for 25 years. That's a nice little sweet spot if you can get it.

Sure - for residential, anything constructed after 15 Sept 1987 is 2.5% pa over 40 years.

See attached table for further details.....sourced from a lovely pictorial supplied from Apex Property Consulting. They do good work.  

评论
Dazz said: ↑
Hmmm....that's not strictly true.

Any property constructed between 18 July 1985 and 15 Sept 1987 can be depreciated at 4% pa for 25 years. That's a nice little sweet spot if you can get it.Click to expand...
Save that the 25 years runs out next September at the latest, so next to nothing left to claim surely?  

评论
Spot on, Tony.
Marg  

评论
spludgey said: ↑
It might be easier to do when it's empty, but you can do it at any time. My advice would be to get a quantity surveyor as they will do a depreciation schedule for you which will be very easy to follow come tax time.
If the IP was built after 1985, you can depreciate it at 2.5% for 40 years.Click to expand...
It's probably a good idea to get a schedule for houses older than 1985 because fittings and post-1985 renos can also be depreciated.
A schedule on an older house we bought last month turned it from cashflow negative to cashflow positive.
Cheers, Ali  

评论
Investors use net rental yield mostly, which includes expenses such as body corp rates and other 'holding costs'. i.e. [[weekly rentx52]- holding costs]/purchase price.

As someone above said, you would seek, as a guide only, your net rental yield to be the same- or more- than bank mortgage interest rates.

But that is easier said than done. By far most people dont acheive that- hence why the banks make so much money on mortgage lending.  

Property Investment

Australia property Selling Hints | Sydney

澳大利亚Hi folks I recall ready somewhere about what are some simple tricks for making your place more attractive during a home open. Im seriously thinking of selling my little pad and want to maximise my efforts. Any hints greatly appreciated. 评论 ...

Property Investment

Australia property Re-zoning | Sydney

澳大利亚What would the chances of a NSW Local Council allowing a community titled development (homes, community buildings, etc) on an area zoned Protected Agricultural land? Does anyone have experience in this area? Looking at the local council LEP, ...