9.6% yield - for real?

R

rleishman

Ad in this week's City Weekly (Melb) for 202/528 Swanston St (but I can't find it on domain.com. Ugly, ugly, ugly building - but $295/wk return on $160K buys lots of dark glasses.

I don't follow things that closely, but I've never seen 9.6%p/a. So what's going on. You'd have to expect low occupancy, but that area is chockers with students (although I don't know how many would pay $295/wk).

Maybe its a mis-print. $195 would be more consistent with 1-bedroom rental AND a 6% yield.

Rosco.
 
Wouldn't you assume students probably won't stay there during summer holidays? Also what's the management fee, etc? Student accom tends to have a lot of amenities that will cost a lot in body corp. The market is also narrower: you can't use it for normal living.
Alex
 
Rosco,

You are looking at it thru the eyes of a residential propoerty investor - it isn't - it's commercial.... and as far as commercial goes, 9.6% is neither here nor there......

Cheers,

The Y-man
 
Hi all

My little brother has been in property for a while now, he is in melbourne anf IT.

Owns in Kensignton (the new town houses on the cattleyard site)
and 2-3 in down town apartments melbourne, he tarts them up with good quality fittings and rents them out as executive apartments, He tells me he is doing well, must be he turned 41 this year, the year before he took the whole year off and travelled the world.

An alternative rental idea. read steven McKnights book 1,000,000 prop in 1 yr and the story of Rachelle, she had some good ideas re-company housing, its worth a read it should get the creative juices running.

Celeste
 
The Y-man said:
Rosco,

You are looking at it thru the eyes of a residential propoerty investor - it isn't - it's commercial.... and as far as commercial goes, 9.6% is neither here nor there......

Cheers,

The Y-man
Click to expand...

Not sure I understand you properly Y-man. Its residential insofar as you can buy it and live in it (or I could be wrong - perhaps its some sort of special student housing...no clues in the ad), but of course its high density, so there's no land value. But this is true of many inner-city apartments that return only 5-8%.

But its not commercial like an office building or even a hotel... I think.

Rosco
 
rleishman said:
Not sure I understand you properly Y-man. Its residential insofar as you can buy it and live in it (or I could be wrong - perhaps its some sort of special student housing...no clues in the ad), but of course its high density, so there's no land value. But this is true of many inner-city apartments that return only 5-8%.

But its not commercial like an office building or even a hotel... I think.

Rosco
Click to expand...

That place looks like pure student accomodation, Rosco. Can you find anyone other than students to live in it? If you can't, the limited use means the value will be driven purely by the rental yield. In the sense that the value of commercial property is based almost purely on yield, this IS commercial.

As you said, isn't 9.6% yield ridiculously high for residential? When yields are that high, there's either something wrong with it, or the seller is ridiculously desperate. In this case, it's because the you're not going to get much capital gains. Commercial just means it's premises that will be used for a business instead of normal living. Student living IS business use.
Alex
 
Where is the $295pw coming from? Are other apartments in the building currently advertised at that amount? $160k sounds about right, but the rent sounds a bit suss to me.

I live near that building and it is pretty average, there are always for lease and for sale signs out the front. Potential for capital growth is very limited, especially with the new College Square (over 1000 units) about to come online. Think of student apartments like an ING account - they pay good interest, but no capital growth.

- Dave99
 
Is it a rental guarantee?

If so when the guarantee expires the rent may drop alot. The purchase price is often inflated to fund the guarantee.
 
Tools said:
There is another unit advertised for rent at $360 per week.

http://www.realestate.com.au/cgi-bi...eader=&c=90666475&s=VIC&snf=rbs&tm=1161547396
Click to expand...

I don't understand this ad at all! This unit 100m down the road is 2 bedrooms, plus terrace, plus carspace for the same price - and more than 35sqm.

The unit advertised for sale is currently let at $295pw, not $360.

There is something really wrong with this ad. Be careful! Perhaps it is there to provide "proof" to a possible buyer of the rental amount.

- Dave99
 
The rent in question is for fully furnished with utilities included - plus a short stay.

They are also in security buildings with a 24 hour concierge.

They are designed for overseas students who
1. are worried about (or whose parents - epecially of girls - are worried about) security

2. come from quite wealthy families who can afford to send kids over to study in a full fee paying course

3. Dont kow the local market

The short term appeals for single semester studies, and where people don't want to be locked in on a standard 1 year lease.

Most of these apartments are in reality occupied for a few months before the students cotton on to the local market, get together with some friends and go sharing a flat for a fraction of the price.

Some kids don't tell their parents of the price change, and "keep the change" to spend on fast cars :D The panic button is hit when the parents decide to do a "surprise visit"......

Cheers,

The Y-man
 
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