Rental return indication of property value?

Hi All,
I have a duplex on the market. Did a reno with new kitchen and bathrooms retiled and new vanities etc.
My first and only offer is $490,000. I had a rental appraisal done by 2 agents recently. Both said $580-$600 per week.

What are reasons that sale price and rental return can be out of sync, or are they?

I once read that the rental return on a residential property is a good indication of the value of the property give or take.
I think this mostly applies to properties in the lower end of the market.
Only with properties that have not been set up or altered for extra rental income.
I found this pretty much to be a good guide over the years with the properties I have owned. Also been accurate with properties that I have looked at purchasing.
The give or take , at a guess would be about 10% either way.
Rental returns being mostly between 5-6.5 %. Although 6.5% not common.
Cheers and Happy New Year :)
 
How did you derive your offer figure?

What do you mean by out of sync? Rental prices and sale prices both go up and down along with market conditions and often independently of each other.
 
get some competition on the property

They best way to get to the market price is with more than one buyer. Now that you have one buyer, spend some marketing dollars to get more buyers and try to create competition.

Cheers,

Jerry Parker
 
I think you're saying that - in your experience - properties yield 5% rent. With this theory in mind, since your property is getting $580-$600/week rent, then the property should sell for around $580-$600K. Give or take 10%.

Not wanting to make any 'blonde jokes' but this isn't how it works and that's why people talk about cash flow, negative gearing, dud properties, inner-city vs regionals etc.

It's ridiculously simple. A real estate agent said it to me recently when he was trying to sell a house but the area usually yields around 7%. It's just a bit of spin.
 
I've heard this rumour as others have said it doesn't exist/is a very bad method of getting a estimated value. Someone told me that if you add 50 to your rental amount and added three zeros to the end of it than that's what its worth. Terrible method if it was accurate broken hill investors would be very happy
 
Rule of thumb

I have always used a similar rule when assessing what I feel a property is really 'worth'. Add 3 zero's to the rent and that should be the sale price (or less). I am an inner Sydney investor (less than 10km from CBD).

A lot of higher priced properties will come in at much lower yield so you would need a great future capital gain and/or improvement potential to offset the negative cashflow.
 
I remember about 16 years ago my sis was renting a property in Bris. She really liked it, I thought it was really nice too. There was some magic formulae that it was rented at $400/wk, therefore worth $400,000. That was in Tarragindi. Maybe that was a rough rule at the time for Brisbane. .... Actually, would be interesting to compare today's prices!
 
For quite a long time I found that (in my area of Brisbane) houses and rent seemed to be linked like this (coincidence?). That is not the case now though.
 
not saying "should" at all

Simply wondering what others thought of this formula for gauging the value of a property. Obviously I don't assume its a hard and fast guide.
Yes it has been my experience and observation that its panned out this way most of the time , in the bottom end of the market. This duplex Im selling is not at this time fitting this loose guide. It did when I purchased it. It did the last time the other one sold. Rents are higher at the moment in this area.
 
Living on Gold Coast. Three units have sold in a walk up block Im renting in over the last 2 years . I predicted the sale price rather accurately by knowing the rent. Units can rent a tad higher due to landlords factoring in body corp to an extent. Its certainly not absolute , think the rule can give a general idea.
 
My first and only offer is $490,000. I had a rental appraisal done by 2 agents recently. Both said $580-$600 per week.

What are reasons that sale price and rental return can be out of sync, or are they?

A couple of things, 1 you have one offer is $490,000 a fair price? without any comparable sales that makes it hard but this is my best indication on price. It is also a first offer

580-600 pw rent by some REA means nothing, they don't have anyone how did they come up with the estimate are they buying a rental listing?

What are the rental yields?

The median sale price for surfers paradise was 330k and median rental was 370 pw which is 5.8% rental yield.

Using the estimate rent of the lower end of $580 pw and 5.8% rental would mean the price is about $520,000 so $490,000 might not be to far off or could be even a good offer..

490,000 would mean the rental yield is just over 6% (6.2% = 584 p.w.)

Out of sync it could be higher owners corp, not as desirable location, higher council rate, bad area, location (further away from the beach), the size of the rooms anything really.

I would look at comparable sales to get a better indication and if you can secure a second offer it would put you in a stronger negiotating position however you can always negoite with the purchaser as you said it was their first offer.
 
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