FHBs make way for investors

Well, it seems what I was seeing first hand for the last several months is being confirmed by, in this case Aussie Home Loans :p

http://www.rebonline.com.au/breaking-news/2659-fhbs-make-way-for-investors

Investor activity is ramping up, with Aussie Home Loans recording a 32 per cent increase in the number of investor enquiries via their website.

I can't agree with all that he is quoted as saying in the article, namely:
For investors in that same price range, it has been prudent to sit back and wait for the grant to be reduced.

What the??:confused:
 
There were 3 frogs sitting on a fence.

Two decided to jump off; how many were left?

3 - they had only decided to jump; they hadn't jumped yet.

An inquiry is not a loan Contract.

A lot of these people will inquire, think about it, do some more research, and sit back and wait for the "right time".....and do zero.

A lot of them will inquire, but be knocked back when they hit the Bank's hoops..
 
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.......with today's rate rise it should be interesting to see if the investors flood back in.....could be 2011 before they join in....;)
 
rents will jump first, then investors will jump.

IMO rents have been ludicrously low for too long anyway. I see this as restoring balance to the market. 8 or 9% resi yields is not unreasonable at all
 
Given that rental yields are currently 4-5% in a lot of cases in Sydney and Melbourne the two extremes would be that house prices half or rents double.

How likely is either scenario?
 
I can't see yields hitting 8-9% anytime soon in any major capital city.

Though I can see some isolated cases with 8-9% yields.....but the market does cause prices to rise in these areas to bring it back in balance to the standard 4-6% yields.

rents will jump first, then investors will jump.

IMO rents have been ludicrously low for too long anyway. I see this as restoring balance to the market. 8 or 9% resi yields is not unreasonable at all
 
Its not that yields are too low, its that house prices are too high. The yields have looked ok because of the lowest interest rates in 50 years.

But they are not.

If property prices are to keep rising as a lot are predicting, yields will only get worse. And that will keep investors out of the market.

You cant have your cake and eat it too.


IMO rents have been ludicrously low for too long anyway. I see this as restoring balance to the market. 8 or 9% resi yields is not unreasonable at all
 
Its not that yields are too low, its that house prices are too high. The yields have looked ok because of the lowest interest rates in 50 years.

But they are not.

Maybe you've mentioned before but what is your assessment/definition of a good yield.
 
Maybe you've mentioned before but what is your assessment/definition of a good yield.

Depends:
1. Agent - anything above zero when talking to a buyer.
2. Cashflow Investor - anything above the prevailing interest rate, and with a depreciation schedule (me).
3. Cap Gain Investor - who gives a f*ck about yield; show me 10% p/a cap growth...yeah!
 
what is the base for yield calculation

A side question with an example:

You buy an IP for say $100K, paying 20K cash and 80K loan. Aditionally, you pay 6k buying costs (cash).
Now you are got rent $100pw (gross). All the expenses (PM, council, water, maintenance, strata) are $20pw, so the net rent you get is only $80pw.

In this case, for calculation of yield, what is the numerator and what is the denominator.
I take $80*50 weeks as numerator and $106K as denominator for calculations.

Any other opinion?

Regards
Sanjay
 
A side question with an example:

You buy an IP for say $100K, paying 20K cash and 80K loan. Aditionally, you pay 6k buying costs (cash).
Now you are got rent $100pw (gross). All the expenses (PM, council, water, maintenance, strata) are $20pw, so the net rent you get is only $80pw.

In this case, for calculation of yield, what is the numerator and what is the denominator.
I take $80*50 weeks as numerator and $106K as denominator for calculations.

Any other opinion?

Regards
Sanjay
Maybe start with 52 weeks,plus what the "ATO" pick up the bill for then work backwards..willair..
 
Hi Willair,

Is that he method being used when REA tells us the rental yield of a property while trying to sell it to us? Is it a standard method?

Any other opinion?

Regards
Sanjay
 
A side question with an example:

You buy an IP for say $100K, paying 20K cash and 80K loan. Aditionally, you pay 6k buying costs (cash).
Now you are got rent $100pw (gross). All the expenses (PM, council, water, maintenance, strata) are $20pw, so the net rent you get is only $80pw.

In this case, for calculation of yield, what is the numerator and what is the denominator.
I take $80*50 weeks as numerator and $106K as denominator for calculations.

Any other opinion?

Regards
Sanjay

I don't know the diff between a numerator and a denominator.

I work out the yield as being the % of the total purchase price.

So, if the property is sold for $200k, and the rent is $230 p/w, then the yield is:
$230 x 52 = $11,960.

$11,960 / $230,000 = .052%

.052 / 100 = 5.2%

Now, if you want to work out the real cashflow as a basic guide, subtract 20% of the rent from the total rent to get the nett cashflow of that.

20% is approx what the holding costs (other than loan repayments) will be each year. It factors in 2 weeks vacancy as well, so if you have no vacancy you are slightly ahead on this.

The amount left is then subtracted from the loan repayment to get the nett cashflow (before tax).

This is usually when people really get a shock, as they see what the actual money in, money out figure is before they get their tax return.

A variation on the tax paid from your PAYE can be arranged by your accountant and this will soften the blow a bit.

I this sort of what you were hoping to find out?
 
I don't know the diff between a numerator and a denominator.

I work out the yield as being the % of the total purchase price.

So, if the property is sold for $200k, and the rent is $230 p/w, then the yield is:
$230 x 52 = $11,960.

$11,960 / $230,000 = .052%

.052 / 100 = 5.2%

Now, if you want to work out the real cashflow as a basic guide, subtract 20% of the rent from the total rent to get the nett cashflow of that.

20% is approx what the holding costs (other than loan repayments) will be each year. It factors in 2 weeks vacancy as well, so if you have no vacancy you are slightly ahead on this.

The amount left is then subtracted from the loan repayment to get the nett cashflow (before tax).

This is usually when people really get a shock, as they see what the actual money in, money out figure is before they get their tax return.

A variation on the tax paid from your PAYE can be arranged by your accountant and this will soften the blow a bit.

I this sort of what you were hoping to find out?

Thanks Bayview. When I talk to the REA for buying a property which has tenant in it, the REA tells me that the yield is say 5%. So I wanted to know the standard method to calculate the yield. As you can see from the example in my previous post, I will calculate the yield by:
Yield = ($80 X 50weeks)*100/$106,000
But the REA's calculation is by:
Yield = ($100 X 52weeks)*100/$100,000
 
But the REA's calculation is by:
Yield = ($100 X 52weeks)*100/$100,000
And then they round up. There's a house here for sale advertised as a 6% yield. Its not. $200pw, $180k house. Do the math.

I do those gross raw figures on raw rent vs debt, myself. I get a gross yeild on the house of mine that is currently for lease (assuming it rents out) of 23% but with the numbers being so small the unavoidable and fixed expenses (versus ones like PM fees that are a percentage) like council rates, insurance and *any* maintainance issues will put a massive dent into that. And the loan is P&I not IO so there goes more money in the hand *sigh*
 
Guys the yield on an investment (any investment) is the return divided by the purchase price. No account is taken for extra costs to purchase, or expenses that may or may not be incurred.

So for your $100,000 house and a $100 per week rent it is simply (100*52)/100,000, then *100 to get a percentage.

5.2%. if the rent was $200 per week it would be 10.4%.

You can calculate it anyway you like for your own purposes, but if you use the word yield, this is all there is...

The reason is everyone's costs structures are different: I own a property and don't use a rental agent, so my weekly costs are a lot less; a first home buyer bought the property and didn't pay stamp duty, so their loan is only 100% of purchase price, not 106%... etc...
 
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