Rental reality.
- Thread starter Bugs
- Start date
Rental Reality:
This is well explained on www.navra.com.au, but to paraphrase:
1. Find a property that you might consider buying.
2. Identify (eg. via a Property Manager etc) what the actual YEARLY rental is likely to be for that property.
3. Find out (via a statistical organisation such as Residex) the average 5-year yield (in %) for the suburb that the property is located in.
4. Divide the YEARLY rental by the 5-year % to give you your rental reality figure.
5. If you can buy the property for less than the rental reality figure, you're doing good! If not, look again.
Example:
(Whether this is realistic or not - no idea)
Property is likely to rent for $185 per week. Average 5-year yield for the suburb is 4.85%.
Yearly Rental = 185 * 52 = $9620.
$9620 / 0.0485 = $198,350.
The $198,350 amount is your rental reality figure. If you can buy the property for less than this amount you have found a property at a realistic price.
It's important to not be too pedantic about the numbers. For example, even if the property is $203,000 it might still be reasonable value, but if it's $255,000 it is overpriced as far as "Rental Reality" is concerned.
This is well explained on www.navra.com.au, but to paraphrase:
1. Find a property that you might consider buying.
2. Identify (eg. via a Property Manager etc) what the actual YEARLY rental is likely to be for that property.
3. Find out (via a statistical organisation such as Residex) the average 5-year yield (in %) for the suburb that the property is located in.
4. Divide the YEARLY rental by the 5-year % to give you your rental reality figure.
5. If you can buy the property for less than the rental reality figure, you're doing good! If not, look again.
Example:
(Whether this is realistic or not - no idea)
Property is likely to rent for $185 per week. Average 5-year yield for the suburb is 4.85%.
Yearly Rental = 185 * 52 = $9620.
$9620 / 0.0485 = $198,350.
The $198,350 amount is your rental reality figure. If you can buy the property for less than this amount you have found a property at a realistic price.
It's important to not be too pedantic about the numbers. For example, even if the property is $203,000 it might still be reasonable value, but if it's $255,000 it is overpriced as far as "Rental Reality" is concerned.
Hi bugs
I believe that using stats are a great way to add weight to any argument but have little value in reality. I also believe that Stats and formulas work well for those who need an excuse not to take action or on the other hand, to sell something to others.
Apply sound fundamentals to your property selection and the rest will take care of itself.
Rental reality is what you know a property will return in the current market(as Kevmeister has indicated)
Choose a property with unique features and benefits with good land value content in a proven historical growth area . Couple that with a sound safety net stategy to keep the boat afloat and the proccess replicable and when that is set up, do it again and again.
Y
I believe that using stats are a great way to add weight to any argument but have little value in reality. I also believe that Stats and formulas work well for those who need an excuse not to take action or on the other hand, to sell something to others.
Apply sound fundamentals to your property selection and the rest will take care of itself.
Rental reality is what you know a property will return in the current market(as Kevmeister has indicated)
Choose a property with unique features and benefits with good land value content in a proven historical growth area . Couple that with a sound safety net stategy to keep the boat afloat and the proccess replicable and when that is set up, do it again and again.
Y
Hi Yeslist,
While I tend to agree the too much stats can get one infected with the analysis / paralisis syndrome, having some fundemantel stats can improve your efficiency and effort of looking at properties. What I mean, when some basics stats do not make sense, I and there is no twist to the deal, I leave the property alone after 10 minutes. It can also help to provide "cure for sanity" when one starts to feel "I will miss out on it".
I ahve also found that all other points you noted are absolutely essential for good investments.
Cheers.
Tibor
While I tend to agree the too much stats can get one infected with the analysis / paralisis syndrome, having some fundemantel stats can improve your efficiency and effort of looking at properties. What I mean, when some basics stats do not make sense, I and there is no twist to the deal, I leave the property alone after 10 minutes. It can also help to provide "cure for sanity" when one starts to feel "I will miss out on it".
I ahve also found that all other points you noted are absolutely essential for good investments.
Cheers.
Tibor
Hi Tibor
I believe in the KISS principal (Keep it simple stupid) when making decisions on investments.
To many "would be" investors are afraid of making a mistake and thus get bogged down in academic pursutes of theores and formulas and do nothing other than confuse themslves and others with their indecisions.
One of the biggest untruths I have heard by these people is their belief that they want to get it right (perfect) the first time. Life aint like that.
You get good at whatever you practice, no matter what it is.
Y
I believe in the KISS principal (Keep it simple stupid) when making decisions on investments.
To many "would be" investors are afraid of making a mistake and thus get bogged down in academic pursutes of theores and formulas and do nothing other than confuse themslves and others with their indecisions.
One of the biggest untruths I have heard by these people is their belief that they want to get it right (perfect) the first time. Life aint like that.
You get good at whatever you practice, no matter what it is.
Y
Last edited:
Hi YesList,
If you are serious about investing in property you should have a plan that can be extrapolated out 5, 10, 15 ... nn years. Rental reality is just another parameter that helps you model your portfolio over time to give you realistic estimates.
You should be able to look at a property and estimate the rental income in a couple of minutes. It isn't rocket science.
No two properties are the same but you should be able to guage if a property is 'average', 'executive' or 'low end' and plug in an appropriate 'rental reality' figure to work out the estimated rent.
This should also be done by comparing current rents for similar houses.
If you are serious about investing in property you should have a plan that can be extrapolated out 5, 10, 15 ... nn years. Rental reality is just another parameter that helps you model your portfolio over time to give you realistic estimates.
You should be able to look at a property and estimate the rental income in a couple of minutes. It isn't rocket science.
No two properties are the same but you should be able to guage if a property is 'average', 'executive' or 'low end' and plug in an appropriate 'rental reality' figure to work out the estimated rent.
This should also be done by comparing current rents for similar houses.
Hi Bugs,
I have arttached a small doc that may help you. You will need to fill in the details, price, rent etc and I have also put in criteria that I use to evaluate property.
After you have entered details , asking price, yearly rental and 5 - year rental yield the bottom right hand row will give you a price based on calculation used in calculating rental realty.
Cheers
I have arttached a small doc that may help you. You will need to fill in the details, price, rent etc and I have also put in criteria that I use to evaluate property.
After you have entered details , asking price, yearly rental and 5 - year rental yield the bottom right hand row will give you a price based on calculation used in calculating rental realty.
Cheers
