Good Rental Yield?

[Infest]

Hey guys, quick question regarding rental yield.

I was just wondering personally, what you guys think is a decent rental yield.

I used this site: http://www.homebuyerscentre.nationalbank.co.nz/calculators/calculator.aspx?PostingID=41

Ended up being about 3.8%. Is this any good? First property and all.. 82% LVR.

Thanks guys.

PS: What is your rental yield?

 

[vbplease]

yields are typically referred to as gross i.e. simply the rental return divide by the purchase price. Although its essential that you calculate the net yield as you've done.. Are you calculating a net yield of 3.8% including a 18% deposit? To be honest I don't think its a good yield..

if you're looking for a good yield in Brisbane this is what I reckon (keen to hear others thoughts too)..

3bed house, blue chip suburb = 4 - 4.5%
3bed house, 10km out = 4.5 - 5%
2bed unit, most locations = 6%

buying undervalue, value adding, and other inovative techniques such as letting by room will influence the yield.

 

[Infest]

yields are typically referred to as gross i.e. simply the rental return divide by the purchase price. Although its essential that you calculate the net yield as you've done.. Are you calculating a net yield of 3.8% including a 18% deposit? To be honest I don't think its a good yield..

if you're looking for a good yield in Brisbane this is what I reckon (keen to hear others thoughts too)..

3bed house, blue chip suburb = 4 - 4.5%
3bed house, 10km out = 4.5 - 5%
2bed unit, most locations = 6%

buying undervalue, value adding, and other inovative techniques such as letting by room will influence the yield.

Where do you get the 18% deposit from?

Sorry new to all this

 

[vbplease]

You mentioned a LVR of 82%

What sort of property are you looking at buying? House, unit, townhouse, house to be subdivided?

 

[Infest]

Based on these figures:

Purchase Price:
$317,500

Rental: (Has not been approved but basing on lowish figures)
$300 P/W

Rates:
$1800

Insurance:
$600

Maintainence:
$500

PM Fees: (Not sure on this figure yet either)
$1,196


With those figures I get:
3.62 %

But if we bump the rent up $25 (Which is what I hope to get), it goes up to 4.03%.

Does that help?

EDIT: Property type is a 3BR, 1Bath, DLUG House.

 

[PrimeCommercial]

Purchase Price:
$317,500

Rental: (Has not been approved but basing on lowish figures)
$300 P/W

Calculating a gross yield

$300pw x 52 weeks in the year = $15600

$15600/$317500 = 4.91% gross yield


Its just an extremely quick way to calculate and compare properties.
It doesn't take into consideration a myriad of associated costs/tax considerations but it is useful none the less.

Even easier 10 sec method

$500,000 purchase price, $500pw rent = 5.2% gross yield
$200,000 purchase price, $200pw rent = 5.2% gross yield
$435,000 pp, $435pw rent = 5.2%
$982,000 pp, $982pw rents = 5.2%
..
.. you get the idea

So when you see a weekly rental figure you can quite easily see what the purchase price should be to achieve a 5.2% gross yield or Vice e Versa

 

[vbplease]

I think a gross yield of 4.91% isn't too bad for a 3br at $317k.. I'm guessing its 15+ kms from the CBD?

Keep in mind with a 82% LVR it will still be -ve geared.

You'll be relying on rental increases and capital growth.. Is there good transport, shopping, schools, employment?

 

[Infest]

I think a gross yield of 4.91% isn't too bad for a 3br at $317k.. I'm guessing its 15+ kms from the CBD?

Keep in mind with a 82% LVR it will still be -ve geared.

You'll be relying on rental increases and capital growth.. Is there good transport, shopping, schools, employment?

Yes, there are lots of transport and schools and shops near by. This is my first house and I have to live in it for six months to receive the FHOG.

Hopefully it will work out in myfavour

 

[Nathan]

4.91% return....

id staplegun my arm if i had a return like that, because it sounds just as painful

All seriousness, i believe that anything under 8% is a dog, and 10% is my goal in this market. obviously there are variables... but would never lay down on my chest and accept 4.91% behind me...

Depends the reason for purchase, however i would NOT be buying any buy and hold, with 4% return...

Goodluck,
Nath.

 

[Infest]

4.91% return....

id staplegun my arm if i had a return like that, because it sounds just as painful

All seriousness, i believe that anything under 8% is a dog, and 10% is my goal in this market. obviously there are variables... but would never lay down on my chest and accept 4.91% behind me...

Depends the reason for purchase, however i would NOT be buying any buy and hold, with 4% return...

Goodluck,
Nath.

Even though it's my first house? Isn't there an exception for that

 

[BoatBoy]

Even though it's my first house? Isn't there an exception for that

Not really

Should really have done some research before purchase to see what an acceptable yield would /should be.

So whats the story? Is it an 82% LVR or not? If so, you should know how to get that 18% deposit.

First property and all.. 82% LVR.

Where do you get the 18% deposit from?

And whats with the handle Infest? short for infestor perhaps?

Dave

 

[RumpledElf]

We bought ours to be an IP and changed our minds and are moving into it next month because it turned out so nice and the area is so nice, but it would be a bit over 8% gross yeild, probably more if we hadn't spent so much renovating it. If we can swing it, now we have the subdivision DA and can build a house next door it'll probably end up a rental in a few years instead, maybe. Option to build a brand new rental on the vacant block would also end up with around 8-12% gross yield and some money back on tax because of that new dwelling depreciation shiznit, but I think we'll build a house for ourselves there instead. Lots of options, all positively geared or wads of cash in capital gains, but need to see an accountant at some point.

If I rented out my current PPoR, which I wouldn't do (unless I can't sell it by July and time is running short) because the bogan factor here is a bit toooooo high, I'd get 20% gross yield or higher. And of course if I sold it I'd have so much money lying around I could build me a new rental with close to 40% gross yield just by having a really small LVR. So its not like your first IP HAS to have miserably low yields.

Not sure why you'd want to negatively gear, but that's just me. Personally I like Nathan's train of thought.

 

[vbplease]

Yes they are great yields Nathan and R.Elf, but can you explain how your purchases are relevant to a FHB looking for PPOR to turn into an IP in Brisbane?

 

[Infest]

Yes they are great yields Nathan and R.Elf, but can you explain how your purchases are relevant to a FHB looking for PPOR to turn into an IP in Brisbane?

Yes this is what I don't understand? As a FHB, I won't have a huge deposit, therefore my LVR will be high?

 

[vbplease]

Infest, your deposit and LVR shouldn't stop you from trying to find a better gross yield..

As said before, I think you'd be very hard pressed to find a gross yield better than 5% for a 3br house in Brisbane..
Unless you do some tricks like Nathan has done - buy 40% undervalued and turn it into a caravan park, or as R.Elf has done - a major renovation in outback S.A.
I don't think either would interest you?

Are you sure you want a 3br house? If not, I can PM you some high yielding townhouses in Brisbane.

 

[Edmond Dantes]

Infest,

I believe it's all about strategy. What works for some, may not work for you.

The important thing here is that you evaluate all opinions here, decide for one option that suits *you*, and take action.

When I bought my property the yield was around 5.8%. I had read many posters here with high yielding properties, but my initial criteria was to go for capital growth, so yield was not in my top list. But now that I feel more comfortable, I'll look for something greater than 7%, just to have a mix in my portfolio.

If you want something higher, try townhouses as vbplease suggested.

 

[RumpledElf]

Yes they are great yields Nathan and R.Elf, but can you explain how your purchases are relevant to a FHB looking for PPOR to turn into an IP in Brisbane?

Cos I'm sure you could do exactly the same thing in Brisbane. You saying there are no run down cheapie doer-uppers in brisbane on splitter blocks where you can get most of your money back from the subdivision? Or blocks where you could build a duplex using the grant and then sell/rent out the other half? These things only exist in South Australia eh? We had no deposit at all, you'd be miles ahead of us folks that don't get that sodding great big grant.

 

[Infest]

Infest,

I believe it's all about strategy. What works for some, may not work for you.

The important thing here is that you evaluate all opinions here, decide for one option that suits *you*, and take action.

When I bought my property the yield was around 5.8%. I had read many posters here with high yielding properties, but my initial criteria was to go for capital growth, so yield was not in my top list. But now that I feel more comfortable, I'll look for something greater than 7%, just to have a mix in my portfolio.

If you want something higher, try townhouses as vbplease suggested.

I was looking to live in this house, but after looking around the forums and stuff I would like to start my investment portfolio with this one. yes, capital growth is important, I was just wondering what yield people are getting (and what I should be aiming for). I know my age is no excuse, but being 18 it's hard and confusing to be doing alot of this subdividing and building duplex's as others have stated.

There is nothing wrong with my strategy of renting this one out and then buying another one in the future? You learn from your mistakes right? Even though I don't take this for a mistake?

 

[Propertunity]

There is nothing wrong with my strategy of renting this one out and then buying another one in the future? You learn from your mistakes right? Even though I don't take this for a mistake?

It is no mistake to take the Feds cash and leverage into a home. That is ballsy and fantastic at your age. Yes, buy all means make it an IP later and leverage off it too.

A 5% yield is generally accepted as pretty good for most resi IPs. In high CG areas - like the ocean front or harbour 2-3% is all you get. 7,8,&9% you get in lower CG areas and the country. It is just a risk Vs reward equation.

 

[vbplease]

Elf, I was mainly referring to your 8% yield for a single dwelling.

To get a 8% yield in a blue chip suburb, lets say your reno'd house gets a generous $500/wk.. you'd need to spend less than $325k for the house and reno.. that's less than the land value alone!!

8% yield 15km's out, for a generous $400/wk.. you'd need to spend less than $260k for the house and reno.. again, less than land value.

As Prop mentioned risk vs return, but its also supply and demand. I'm guessing you can pick and choose where you are for properties that get a 8% yield renovated? In Brisbane, sellers have a nasty habbit of trying to sell their unrenovated house for the cost of a reno'd house, minus the exact cost for reno's... this begs the q, what's the incentive to renovate? Usually you try to get back $2 for every $1 you put in?

You saying there are no run down cheapie doer-uppers in brisbane on splitter blocks where you can get most of your money back from the subdivision? Or blocks where you could build a duplex using the grant and then sell/rent out the other half?

With or without the grant, I don't see how a FHB is in the position to fund $50k for a subdivision + $200k for a new house? The capital gain could be there, but what about the holding costs? and the yield, which is what this thread is about..