Rent vs house value

[zads]

Hi, I've been given the opportunity to invest in a house in south west Sydney. If the current rent is $315 per week. Does his mean the house value is $315,000 or much less - how much less? Is there a percentage? Thank you.

 

[wylie]

For many years our IPs worked with this equation. But I'm guessing these days the equation doesn't prove very accurate. Our houses don't fit that equation like they used to.

A house valued at $315K isn't likely to get $315 per week rent anywhere that I know of.

 

[Propertunity]

Hi, I've been given the opportunity to invest in a house in south west Sydney. If the current rent is $315 per week. Does his mean the house value is $315,000 or much less - how much less? Is there a percentage? Thank you.

Depending where you are in SW Sydney, you may be looking at rental yields of 6-6.5%?? So, no, there is no % magic figure.

In any event, you can't work out house value like that. True value is calculated on a comparable sales basis.

 

[Corey Batt]

Wouldn't be too fond of a 5.2% yield... But who knows, it may be selling 100k under val, so too little info.

It doesn't correspond to price or vice versa. Price of property is dictated by the market and what a personal is willing to pay, and what a person is willing to sell for. Likewise, rent is determined by what the landlord is able to achieve in renting out the property. Generally if a property is having difficulty in finding a tenant, they will reduce the advertised rent to get someone in, likewise if there are many people looking for a rental and there is a frenzy, a landlord may ask for a premium rent.

I can think of a lot of areas (in Adelaide) where you can get $315 and more for a property valued 315k or less. In metro. Within 30 minutes of the city. With development potential and or reno potential.

Don't be afraid to look outside of where you live to buy BTW. Be it other suburbs, the opposite side of town, even different cities or States.

 

[Rolf Latham]

As an aside


The higher the yield, the "worse" the direct relationship to market val.

recently, again, lenders have started to wet "blanket" rentals > 6 % of market value.

NAB being one that has stated it specifically, and other lenders playing the PC card, being less obvious.

Basically, the higher the yield the more careful you need to be how to present to a lender, if you are dependent on the rental income to service existing and new debt.

The policy is meant to target one industry "mining" towns, because we may be beyond the peak of the development cycle of the current "mining and resources" boom. Makes some sense but ...........

Anyways, the blanket policy drags in things like blacktown grannies at 8 to 10 % and other similar unintended consequences.

So if you are a yield investor, choose your financiers and tactics wisely

ta
rolf

 

[Aaron_C]

The yield is just that, a number. It is a superficial way of comparing properties - it does not indicate the growth prospects of the area. The main money in real estate is capital growth - no one gets rich from earning an extra $100 per week from a higher yielding property.

 

[DaveM]

In Surry Hills you might have a terrace worth $1.2 million renting at 700pw. Or in Mt Druitt you might have a house worth $210k renting at $320pw. Rental yield is a factor of rental demand not house value.

 

[BayView]

Hi, I've been given the opportunity to invest in a house in south west Sydney. If the current rent is $315 per week. Does his mean the house value is $315,000 or much less - how much less? Is there a percentage? Thank you.

Resi IP rent has nothing to do with what a house is worth.

 

[zads]

Thank you all for the tips.

 

[tobe]

The yield is important for you to determine what you think a property is worth. The yield will show you how much of a shortfall there is between the rent and the costs, or whether there is a surplus.

So, some investors have a formula based on the rent which shows them how much they want to pay for a particular property.