Following from my last post Lidcome = Bubble the inner city suburb of Ashfield is in a big bubble that can not be sustained.
The subject property is 1A Brunswick Parade Ashfield.
The property is a 3 bedroom 1 bathroom 1 car house on 408m2 of land. The house presents very nicely and probably does not require any cosmetic work. It is an older art deco house approx 50+ years old.
The property sold on the 17th September 2013 for $1,200,000
Once settlement arrived it looks like the owners placed it on the market for rent at $820 - $850 (13/11/2013). It seems it didn't rent out so the price was lowered to $790 - $820. The property seems to have rented so in the below scenario I will give the owners the benefit of the doubt and snagged a tenant at $820.
Purchase Price = $1,200,000
Stamp/Legals = $53,490
Deposit $120,000
Current rent = $820 = $41,787 p.a.
Adopted interest rate = 5% = $53,498 p.a.
Rental Expenses:
- Agents rental commission @ 6% = 2,758
- Letting Fee = $820
- Council Rates = $1,500
- Water Rates = $500
- Insurance = $1,000
- Maintenance = $2,000 (conservative as this is an old house and structural issues will continue to appear)
Total Rental Expenses = $8,578
There won't be much depreciation
If the owner was on $150,000 income they would be paying $32,880 p.a. to hold this property, or $632 per week. Before negative gearing the amount is $42,554, negative gearing only gives them a $9,674 credit (hardly worth it).
The gross yield on this property = 3.48%
The net yield on this property = 2.77%
If you take into account opportunity cost, holding costs and the slow increase in maintenance I do not see this as a good buy/hold strategy. Ashfield is a beautiful place to live but with investors pushing the price of property up this will be one of those suburbs to fall back once there is an interest rate rise.
The reason I do this analysis is to give myself and hopefully others comfort in knowing these people are only buying these properties in hope of high capital gains to make any kind of return. I also like this type of analysis as it shows how negative gearing is not a major factor but the pure speculative nature of prices rises being the main factor for investors jumping into the market
The subject property is 1A Brunswick Parade Ashfield.
The property is a 3 bedroom 1 bathroom 1 car house on 408m2 of land. The house presents very nicely and probably does not require any cosmetic work. It is an older art deco house approx 50+ years old.
The property sold on the 17th September 2013 for $1,200,000
Once settlement arrived it looks like the owners placed it on the market for rent at $820 - $850 (13/11/2013). It seems it didn't rent out so the price was lowered to $790 - $820. The property seems to have rented so in the below scenario I will give the owners the benefit of the doubt and snagged a tenant at $820.
Purchase Price = $1,200,000
Stamp/Legals = $53,490
Deposit $120,000
Current rent = $820 = $41,787 p.a.
Adopted interest rate = 5% = $53,498 p.a.
Rental Expenses:
- Agents rental commission @ 6% = 2,758
- Letting Fee = $820
- Council Rates = $1,500
- Water Rates = $500
- Insurance = $1,000
- Maintenance = $2,000 (conservative as this is an old house and structural issues will continue to appear)
Total Rental Expenses = $8,578
There won't be much depreciation
If the owner was on $150,000 income they would be paying $32,880 p.a. to hold this property, or $632 per week. Before negative gearing the amount is $42,554, negative gearing only gives them a $9,674 credit (hardly worth it).
The gross yield on this property = 3.48%
The net yield on this property = 2.77%
If you take into account opportunity cost, holding costs and the slow increase in maintenance I do not see this as a good buy/hold strategy. Ashfield is a beautiful place to live but with investors pushing the price of property up this will be one of those suburbs to fall back once there is an interest rate rise.
The reason I do this analysis is to give myself and hopefully others comfort in knowing these people are only buying these properties in hope of high capital gains to make any kind of return. I also like this type of analysis as it shows how negative gearing is not a major factor but the pure speculative nature of prices rises being the main factor for investors jumping into the market
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