6% Yield
- Thread starter Sonamic
- Start date
It isn't
Thanks DT. I try not to go below this mark myself. But I've read a few posts on here recommending not to dip below 6% yield if possible during Accumulation. All to keep the ship above water and sailing is my guess.
As I'm still in accumulation phase myself, I was after the information as to why 6% seems to be the start marker. Obviously higher yield is better in anyone's language, but most often (not always), this seems to be at the sufferance to the CG "portion" of the purchase. With the magic of time yields mature. Just not so much at the start of the journey.
How to build a multi-million dollar portfolio on an average income. By Reedom is one that comes to mind. A very informative thread and fantastic reading for noobs like myself.
I don't know where on the forum any broker has ever said that 6% is a magical figure and I can't see why it would be.
If you're looking for cash flow, then the higher the better as you say. On average 6% isn't cash flow positive by the lenders criteria and won't improve your serviceability; that happens roughly around 9% under current conditions.
I do know of certain property sprukers who do their 10 second analysis on 6% yield, but there's a lot more to it than that. I see lots of people buying IPs, but yields higher than about 5% are getting fairly rare at the moment.
Heya,
In the past, prior to the shift in assessment of OFI debt, one could switch lenders and have all their mortgage debts treated at the actual repayment they pay. This meant if you paid 4.8% interest only, plenty of lenders would take this figure into their servicing calc. Theyd also take 80% of rental income. 80% of 6% rental yield would mean that you'd be able to sustain your borrowing by switching lenders (explained in greater detail in that post). Its partly how plenty on here and others grew substantial portfolios on average incomes (plenty of great threads of personal journeys here).
However, since then, most lenders have gone onto tighten that criteria, so 6% wont keep your borrowing tap going. Most lenders are moving to 7%+ p/i repayment assessment rates of ALL debt, making a 'yield' requirement very difficult to achieve.
Cheers,
Redom
In the past, prior to the shift in assessment of OFI debt, one could switch lenders and have all their mortgage debts treated at the actual repayment they pay. This meant if you paid 4.8% interest only, plenty of lenders would take this figure into their servicing calc. Theyd also take 80% of rental income. 80% of 6% rental yield would mean that you'd be able to sustain your borrowing by switching lenders (explained in greater detail in that post). Its partly how plenty on here and others grew substantial portfolios on average incomes (plenty of great threads of personal journeys here).
However, since then, most lenders have gone onto tighten that criteria, so 6% wont keep your borrowing tap going. Most lenders are moving to 7%+ p/i repayment assessment rates of ALL debt, making a 'yield' requirement very difficult to achieve.
Cheers,
Redom
Thanks guys. And thanks Reedom, you're the only one attempting to answer the OP. I try and stay above 7% personally, so far I've been lucky with that. Early days. But as Peter said it is becoming increasingly difficult to source these. Particularly without sacrificing growth. With incoming changes to lending criteria I'm seeing the wall in the near distance getting closer than expected a few weeks ago.
Depends what you're buying. If you can find CBD freehold for 6% net yield, you're probably buying as best as you can within 20 years.
7.5% is the new number....stress test you portfolio with this....if you can cope with buffer to carry any cash flow shortfall for 1-2 years you are sweet.
Did you read the thread? We're talking about rental yields not interest rates.
Nah mate.....my literacy skills are poor...I ist not edumacated...
Whilst we are on rental returns ....arbitary figure...at current IR 6.5% is plenty...at 7.5% IR you will need 10-11%...thar you go...I am also assuming that the property value is at least 250k!
Whilst we are on rental returns ....arbitary figure...at current IR 6.5% is plenty...at 7.5% IR you will need 10-11%...thar you go...I am also assuming that the property value is at least 250k!
Any idea how long these new restrictive policies may last for?
I think there may be some loosening back over time once the boom peters out (12 months or so). I suspect it will be the pricing of loans will all be equal again.
However, i don't think there'll be a move back to actual repayment.
One of the key aspects of our prudential regulation is to have an interest rate buffer applied when assessing borrowing capacity. From a policy perspective, it doesn't make sense for these buffers to only be applied to a portion of someones overall debt but not the entire amount. On top of that, Byres (APRA chairman) explicitly called it out and said it didn't make much sense.
I can't see that changing back for a while, and that's really the biggest game changer for those looking to build large portfolios. Also, while rates are sub 3%, i can't see this changing.
Cheers,
Redom
What is it about this boom that's different? We've gone through bigger booms before - why are they coming down so much harder this time? Or is this normal? If so, why do you think it's less likely they will unwind again after a while than in the past? When the market is slow again in a few years, why wouldn't / shouldn't we go back to the way things were?
After the last boom things didn't really go back to the way they were. No doc loans virtually disappeared and low doc loans are very rare still. Believe it or not there were 100% loans back then too - in fact I think a few went higher. After the bubble burst it was just a few lenders at 95% but 90% was the new norm.
but the new NCCP Act came in just after the bust - in 2009 and this changed a lot.
This isn't a phase people, this is regulation. It will stay with you longer than your mother in law.
So things were even easier? Yikes. Alright thanks.
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