Markets for Renting?

[Lady Lea]

Hello - This is my 1st post here (did you have a different board before?)

I was wondering a bit about the market in Australia and also New Zealand.

I have been renting property for several years in the UK, we have recently - last 2 years - had what I can only describe as a flood of investors pile onto the market - not researching areas properly and causing rents to drop in some areas.

This made me decide to ditch all of my rentals and move into buy to sell. Reading through I have not seen much about buy to sell here (or I may have missed it in the code talk)

Do you have good rental markets generally?
are there flooded areas? or has it not got to that?
can you see it getting flooded?

anyone else done what I have done and ditched rentals for buy to sell?

I have been going in the chat room a bit - and lurking - is there a popular night / morning?

Thankyou

Lady Lea

 

[brains]

Hi Lady Lea,

From my limited experience, i might say that your question is very hard to answer in Australia, as it not just one housing market.

There are numerous different markets and all of them are doing different things at the same time.

ie: hugely varying rental vacancy rates in differnet cities, big differences in housing prices all over Australia, some areas rising in price, some level or going backwards due to no demand (eg: $7000 properties in TAS, thats about 2300 quid...amazing)

anyway you get the idea.

If you can be more specific that would make it easier to answer

 

[Michael Croft]

Hi,

I think what you are suggesting is what we would call 'buy, add value and sell' aka 'buy renovate and sell/hold'. Do some searching under the Reno headings and see how you go - particularly the old forum(s).

In essence it is; know your target market, buy well, add value, then sell at a profit. Timing is another factor to consider, when to buy and how long you'll take to dispose of the property. Anybody can make a profit in a rising market but the real skill is making a profit in the falling or dead one.

Please don't throw the baby out with the bath water by ditching ALL your rentals. The reasons you bought them in the first place are posssibly still valid and the current glut of investors will pass.

regards, Michael Croft

PS forgot to add that what you are suggesting is a business with all that entails. Not that investing in property isn't a serious business but most do it as a hobby after they have finished 'work'. Soooooo look into all of the ramifications of the business model you are investigating - VAT and other taxes, financing, sales and marketing, trades peaople, management and all the usual suspects that will affect your bottom line.

 

[Ross Sneddon]

Hi Lady Lea

The previous post answered many of your queries, however, may I suggest another consideration of which of course, you may be quite familiar.

Total return on investment - ROI

Add the yield to the capital gain and it should exceed 12%. THIS IS CRUDE, VERY CRUDE but a rule of thumb and may be considered.

Yield
Lets say investment is $100,000 and rent is $100 per week for 50 weeks, yield is 100 X 50 = 5,000 / 100,000 % = 5%

Cap Gain
Harder to evaluate but if Real Estate opinion for your area is an increase of ~ 7% then the sum of the two is 12%

Generally cities have a higher cap gain and a lower yield and country or city fringe more inclined towards higher yields and lower gain but continue to do the sums and see how it fits your personal investment strategy. Everyones strategy differs.

Many of the city areas like Sydney and Melbourne are experiencing high sale prices and now a flattening or softening effect with modest to poor yields. We are at the top of the market, but look around.

Regards

Ross

 

[Lady Lea]

hiya

I sold all of them because there was more money in them that I could use right now to make a lot of money fast - than I could ever get in rental income. Plus the areas I had bought in had severly dropped in rents but increased in equity. It was the right thing for me to do at the time.

I know it is difficult to talk about a market generally - and my question was quite vague - but as an overall picture I believe the UK has had falls in rentals and increase in equity in a big way over the last 2 years.
Some areas that you may have invested wisley in - due to new investors not doing research this has turned the market upside down and meant that your wise investment is now rubbish.

I guess I am trying to see if this has or could be happening in NZ or Australia?

 

[Waverlybay]

Why arent people selling their Ips in this market of low rental yields and high vacancies? As the posts indicate above, the answer depends very much on the particular state, the particular property product, the location, the strategy etc ! However, I would like to add a couple of general points as food for thought:

1) I dont believe a "Buy to Sell" mentality is strongly embedded in the Australian investor psyche. The typical OZ investor prefers to accumulate "Buy to Lets" (or in oz terminology "Investment Properties") - and preferrably for the long term - as the ideal wealth creation strategy. Go to any seminar, read any book, buy any tape - and the overwhelming message is "Ride out the volatility and hold for the long term !". I use the word "accumulate" loosely...as the stats apparently show most OZ IP investors only ever own 1 IP !

Some sophisticated investors may "trade" IPs or sell on vendor terms ("wrap") to generate cash flow - but they would be a minority amongst the property investing/owning OZ population.

2) In the UK, 5% gross yields maybe a crisis... but in OZ, some inner city investors are braving rental yields close to 1-2%... with a majority of inner city investors being lucky to reach 5%. Falling rental yields and higher vacancies has probably hit some investors forcing them to sell - but I think the historically low interest rates has cushioned the majority of investors from a cashflow crunch. Whilst there is talk in the UK of rates falling.. in oz they are expected to remain on hold at least well into 2003. Of course, the volatility of market conditions /forces could see a return to a tightening bias - but with the US in deflation and still very much sniffing...if not coughing, Euro flat and Asia struggling - investors still have time on their side before contemplating an emasse exit imposed by a cashflow crunch of higher borrowing costs.

3) Unlike the UK, losses from IPs have real tax benefits to investors - as both "cash" losses and "non cash" losses (such as tax depreciation") can be offset against salaries. So...the AFTER tax cost of holding an inner city apartment with poor rental returns BUT loaded up with huge tax depreciation - is probably manageable (just ). This strategy of "negative gearing" is popular amongst Oz investors and is often marketed/taught/communicated as a long term buy and hold strategy as its success depends on the long term gains offsetting the investment losses.

cheers
waverly

 

[Ruby]

I have been going in the chat room a bit - and lurking - is there a popular night / morning?

You are probably at a slight disadvantage with the time difference, but check out Sim's stats.......it gives you a complete rundown of the chat activity.

http://stats.hampel.com.au

Look forward to chatting again soon

Ruby

 

[Luke]

Welcome to the Somersoft forum Lady Lea,

Just writing to say that it was really interesting to hear your comments on the UK scene. I've spent a few hours exploring your excellent website, and I think I remember the story of one of your days/weeks etc being copied and put up here on the old forum. A great read and insight - thanks!

It seems like across the world there has been a huge increase in new property investors. (I'm one of them) For me it was part of my long-term plans anyway, but I wonder if you could comment on the UK relationship between the stockmarkets and property values (equity) rising?

btw, I heard/read somewhere you say you were thinking of moving down to New Zealand (or maybe Australia.)
Is that still on the cards?

Regards,
Luke

 

[Lady Lea]

Thankyou everyone for your posts

Yes Luke - my hubby is a Kiwi - so I have been preparing myself over the last year to move by sept 2004 (I hope)
Seems by business grew overnight and so not sure of exact dates anymore - would like to think I would be there by Sept 2004. I will be going over sometime next year to buy a large plot of land tho - and traditionally I spend at least 6 weeks there to explore the sands and forests.

I am only 29 so I guess I can calm down on rushing to do everything before I am too old - LOL

Thanks Ruby for Stats - still figuring out all the buttons - my forum is different so I am learning to walk again!


Waverlybay - did I read right - 1-2% rental yields?what if you have a costly situation? how to cover the new boiler? burst pipe? termites? Sounds almost dangerous to me - have I missed something - other than the tax breaks?


does anyone do take away houses? ie pick up a house, relocate it and sell on for profits? I would love to hear more about how this works for real (not what the relocaters tell me)- as I looked at several house lots whilst in NZ.
Anyone know if you can get funding for the whole process?

 

[Sunstone]

Dear Lady Lea,

As a courtesy thought you would like to see that you original post on relocating houses became the following thread.

http://www.somersoft.com/forums/showthread.php?s=&threadid=5238

Cheers,

Sunstone.