Property Economic Cycle

[Steve Navra]

Originally posted by f.f

. . . API someties make reference to a '10 year rent rate'

Would these figures provide the necessary guidance when determing rental reality?

f.f

Hi f.f

Ten years is a 'long' time in an economic cycle. Going back that far tends to place one in a different inflationary and interest rate environment.

Having studied this data over some time now, I have come to the conclusion that the five year average gives a variance in close approximation with the "5%" rental yield expectation.

Note that different post codes will vary from the "expectation yield" due to price fluctuations and rental supply / demand: hence Rental Reality being an objective measurement tool.

Regards,

Steve

 

[f.f]

Steve,

Thank you for the explanation re:value of ten year trends. Just trying to highlight a readily available source of information that may have done a similar job to the Residex report - Oh well back to the drawing board.


f.f

 

[Jas]

Originally posted by Steve Navra

Having studied this data over some time now, I have come to the conclusion that the five year average gives a variance in close approximation with the "5%" rental yield expectation.

Hey Steve,

Given that the past five years has been a boom, do you still think that five years is accurate?

Jas

 

[Kevmeister]

[/b]3. Secondly, at Rockingham, Perth, WA 6168, the median house price is A$128,000 and the median weekly rent is A$120, giving a maximum viable property investable value of A$124,000. Yet I know that the recent "land-and-build" house package investment at the Anchorage Project marketed by Australand-Perth (as well as other projects at the nearby Palm Beach area) and can easily cost more than A$200,000 and easily re-sold for more than A$235,000 upon the house completion. Another of our buyer agents in Perth, also a licenced valuer, has given an completed house value of A$205,000-A$225,000 and an assessed weekly rental of A$180-$210 per week depending on the type of the house to be built. Consequently, if we use the assessed weekly rental rate of A$180 - A$210, the maximum viable investment value for the house-to-be-built, will be revised upwards to A$187,200 - A$218,400 accordingly, which seemed to be more realistic, in our opinions. Again, how then and which's house median rental rate are we to safely trust and use in this regard?[/b]

How does one compute $124,000 from a median house price of $128,000 and median weekly rent of $120. Median Yield = $120 * 52 / $128,000 = 4.875%. Then what? Do we have a circular calculation here?

Now the current yield of 4.875% is not necessarily the 5-year average yield, but I'll use that anyway.

So, if the NEW houses can get $180 per week, their rental reality figure based on 4.875% would be $192,000. If their rent is $210 per week, their rental reality is $

If the median weekly rent and the median house price are used to compute a yield, then the the rental reality is $224,000. Assuming a rent somewhere in-between gives a rental reality of $208,000.

 

[Kevmeister]

Originally posted by Steve Navra
Having studied this data over some time now, I have come to the conclusion that the five year average gives a variance in close approximation with the "5%" rental yield expectation.

Hi Steve,

If the above is generally the case, would you suggest as a "rough" rule-of-thumb that we are therefore usually looking for properties where the rental income per week is >= the cost of the property in $'000's.

For example, $320K property at $320/week is likely to meet the rental reality equation?

 

[Steve Navra]

Originally posted by Jas


Given that the past five years has been a boom, do you still think that five years is accurate?

Jas

Hi Jas,

You are as astute as ever!

Given that the past five years has been a 'boom' as you say, then undertsand that the 5 year average yield% is a MOVING average.

So each year, as the prices increase (yield is thus decreasing) the average is also declining. (Which brings it back in line with current reality.)

To some degree then in a booming market, any variance in error of the exact reality will cause one to be more conservative in approach. (Which I think in the current climate, might be a good thing )

Regards,

Steve