澳洲Australia property What rental yield to go for in Regional?


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


Hi all,

Regional areas can be inaccessible especially if you are working in a capital city and are short on time to visit IPs in these areas. While Hence the costs to replace even an oven can be much higher than you would pay in the city. I've been considering what would be an ideal yield for a regional IP would be? I'd think this should depend on how big the town is...i.e. smaller the town higher the rental yield required to have contingency for maintenance costs.

I was talking to a BA sometime back and they suggested they wouldn't touch a regional town property with any less rental yield than 10% (or was it 12% I don't remember)....

What sort of rental yield do you aim for with your regional IPs?

Thanks,
MsAli  

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A lot will come down to your risk tolerance. Mining towns in regional areas bring those healthy 10%+ yields, but rely on the one industry. Aim to look for areas that have some diversification, where mining might be a reasonable percentage (accomodation demand in boom timess), and other industries which may bring some rental demand or at least sustainable demand.

Exit strategy in the mega yield areas (Moranbah, Dysart, Port Hedland, Karratha etc) will also be a major consideration in your decision.

pinkboy;)  

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What do you mean by "regional"? ie. there is a big difference between, eg, Toowoomba, Whyalla, and something tiny like Cootamundra.

It may interest you to have a look at genworth's definitions of metro / regional / rural (category 1, 2 and 3 respectively)
http://www.genworth.com.au/lender-resource-centre/tools-and-resources/location-guide-australia/

Personally I would expect at least 7% yield for an IP and if it is regional, maybe add another percentage on... but I haven't been seeing that anywhere I have been looking so far... I think I tend to look in regional places that are too big (ie they are practically satellite cities) but I still see them as regional (prob cos I live in Sydney...)  

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MsAli said: ↑
What sort of rental yield do you aim for with your regional IPs?

Thanks,
MsAliClick to expand...
I guess the "risks" in regional towns are: longer periods of vacancy, lower capital growth, and possibly higher interest rates and/or lower LVR, higher repair costs and higher property management fees. So income (long and short-term) is reduced and holding costs are increased.

IMHO the question is not "what yield should I am for in regionals" but "my minimum yield for IP is X% and after taking vacancy etc into account, which property's numbers work out?" This is net yield after all expenses, not gross.

It's the low (or zero, or negative) capital growth that worries me. Even if you could get +cf that makes you $5,200 a year clear (that's $100 a week profit) you won't get rich on that. There'll be no equity to draw from in the future and when you sell you'll be lucky to get your money back. Time to sell might be extended too.  

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Thanks for the feedback everyone.

Pinkboy...I wasn't referring to mining towns but to towns with multiple industries.

Tess, by regional I mean...towns smaller than the capital cities....But I may be off the mark by putting all under the same heading.

Vaughan, what do you think of Nathan buying so many "cash flow" positive regional IP's. You posted elsewhere that an IP doesn't necessarily become positive off the bat (but at current rates I believe it's possible in Sydney).

Why aren't more people doing the "cashflow" positive strategy? Sure CG is important and essential early on and so is buying well and adding value that is important to gain equity...Why don't more people buy 5-10 in metro and venture elsewhere?

There are people I have met on low incomes but they are buying 4-5-6 within a matter of months. How does this work?  

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Don't let them fool you MsAli that regional = low growth. Not if you look in the right places. PM me if u want some help (but not West Syd as too exy now :))  

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No, I didn't say that. Majority regionals are low growth, however...and likely even the better ones have lower growth that capital cities over a period of time.

Thanks for the offer. What's stopping you from sharing here?  

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MsAli said: ↑
Vaughan, what do you think of Nathan buying so many "cash flow" positive regional IP's.Click to expand...
I have never met Nathan, but I assume he's doing the numbers very well (i.e., the finances for the properties have to work and be worth it to him) and he uses quantity and diversity to spread and mitigate his risks. He also has probably has built an efficient and well oiled team to identify properties and turn them into good investments.


MsAli said: ↑
Why aren't more people doing the "cashflow" positive strategy?Click to expand...
A couple of reasons I reckon.

Firstly, it requires a strategy. Going out and buying houses you like in places you'd like to live in is not a strategy. :(

Secondly, because it's really hard locating suitable properties, there isn't a "cf+" checkbox on real estate web sites that lists them for you.

Thirdly, the properties usually require some work to make cf+ which means you're not really looking for cf+ properties, you're really looking for potentially cf+ properties that can be MADE into cf+. It then takes expertise to make them cf+ and then keep them cf+. (Like NOT buying the tenant fly screens just so they can open the windows to prevent mould in winter, sheesh, but that's another story.)

Margins are tight, it has to be run like a business and not a renovation hobby -- no $4,000 dining room lights or shopping sprees at chain furniture stores, fun though that is. It's also not doing everything on the cheap, it's getting the balance right: knowing the market, minimising costs while maximising returns.

Finally, everybody else is looking for cf+ and those other people all seem to be more than happy to pay far too much money and spoil the deal. (You know EXACTLY what I mean...)  

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Nothing stopping me MsAli - just requires more than a few lines... or a sit down.

Anyway regionals can and do outperform capital cities over time. Especially if you find the right house - i.e. if you buy an average house/unit in the City as opposed to a regional centre bargain - which accelerates the cap gains - or time it right - i.e. buy in a peaked or even normal market in the City as opposed to a trough in a regional centre with good prospects.

If you buy regional you can still make very good profits whilst holding costs = $0 (and greater overall return due to yield as opposed to neg gearing - in most cases).  

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MsAli said: ↑
Why aren't more people doing the "cashflow" positive strategy? Sure CG is important and essential early on and so is buying well and adding value that is important to gain equity...Why don't more people buy 5-10 in metro and venture elsewhere?

There are people I have met on low incomes but they are buying 4-5-6 within a matter of months. How does this work?Click to expand...
People who buy CF+ have a strategy and their pet areas and will happily do what they do and do quite nicely. If they can get enough they will be able to start to live off that rent and retire early.

The vast majority of PI use the CG+/NG philosophy and hope for CG but in the meantime need to work to support the CF.

I guess with the low income earners buying 4/5/6, these are probably CF+/- and thus don't really put a strain on the day to day living expenses.

It scares me when people buy loads of CF+/NG properties and then struggle to make ends meet and hope there's no missed rent payment, otherwose the whole thing crashes down.  

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I think it needs to be a balance. Some areas have a reasonable yield, but not much growth (same house sold ten years ago for same price).

Others have seen similar growth to the capital city medians. Comes down to due diligence of the areas you are looking into.  

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This is a general point MS Ali as I'm not sure of details. I have a friend who can't rent out her place in Armidale, NSW, at present as there is a glut of vacancies (according to her). This is the first time she has had this problem in many years of owning the IP. Armidale is regional town with University in town so you would think it would be stable. Not sure what the demographic movements are at present but it is wise to keep up with the latest stats with any investment decision.

I've heard that there are bargains on the Gold Coast at present though unsure of what yields they are achieving.  

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Rockstar said: ↑
Armidale is regional town with University in town so you would think it would be stable. Not sure what the demographic movements are at present but it is wise to keep up with the latest stats with any investment decision.Click to expand...
International student numbers are down big-time, and they make up a whopping 25% of the student population.

Numbers are down because of the high Aussie dollar and the lingering impact of the "racist" attacks in Melbourne a few years ago.  

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I have a few regional NSW properties. The tradies in Orange are very expensive compared to anyone else (including sydney). The other towns we've seen no real difference in prices in comparison to Sydney. Even before the mining boom and property shortage the tradie prices were pretty steep there.

Perhaps a good opportunity for anyone thinking of a treechange? Charge Sydney prices and you'd have a huge client base to work with from day one.  

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vaughan said: ↑
Finally, everybody else is looking for cf+ and those other people all seem to be more than happy to pay far too much money and spoil the deal. (You know EXACTLY what I mean...)Click to expand...
Vaughan, would you please elaborate...I don't get what you mean...? :)  

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Hi guys,

I've been meaning to respond to this thread...though I have taken my time to think through what I want.

Nathan in one of his recent videos said that before he moved on to regional cashflow purchases used bread and butter properties in Western Sydney to build equity. And that to me makes total sense as various SS forum members have said if you only buy cashflow IP's you are soon going to run out of your 10% deposits for multiple of those cheap properties.

Since I am in the early stages of my investing career and that I am able to, I will continue on buying in the capital cities. Also as many have said on SS...equity is essential to wealth building. So to me it's best to buy a couple or more :) in the cities than move "regional" as yet. Some people may comment Western Sydney is "regional"...but before they do, I beg to differ ;)...Also I don't necessarily agree with say 10% yields...IN CASE rates go up (worse case scenario which may not happen for a year, two years, 5 years - who knows) those yields will be killed. So how do they liquidate those properties if there are too many of those in the portfolio and haven't moved in value in all these years?

Thanks for sharing your views!!

P.S. this may change...but just what I understand / believe in this moment.  

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I think he's talking about West Syd atm where the previous good cash + buys are now being bought at higher prices by overzelous amateurs - thus making them neg geared purchases for them and 'spoiling the deal' for us.  

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JWR said: ↑
I think he's talking about West Syd atm where the previous good cash + buys are now being bought at higher prices by overzelous amateurs - thus making them neg geared purchases for them and 'spoiling the deal' for us.Click to expand...
Are you talking from experience or speculating?

I believe it's dependent on your purchase price vs. rent achievable. I don't need to justify our purchases. However believe you are way off mark.  

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No I'm not saying you are one - from the numbers I've seen your purchases are good ones. Just stating what's happening at the moment from my experiences in the market place - some newbie investors suffer from FOMO.

You don't need to treat each of my posts as personal attacks on you :)  

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JWR said: ↑
You don't need to treat each of my posts as personal attacks on you :)Click to expand...
I'm not. But it concerns me when without having invested in the area you come across as if you know it all.

I could be wrong. But that has been my observation/perception.  

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