what is considered a good return on an investment property.
is there some calculation for working out what is good.
if i was to pay 330,000 for a property and get 32,000 a year return what is that classed at. sorry if this sounds dumb, just would like to know.
Thanks for your response.
The costs are I guess the average costs such as insurance , $900 a year, I dont use an agent so there are no costs there. Basically the tenants pay the rent each week and thats pretty well it. The property is a large double block which has a very solid tidy renevated 3 bedroom house at one end and at the other end is a new 2 bedroom home. Each have there own entrances and utilities. There is as I said no maintanance as the property is in perfect order.
The property is a very large block of land in East Maitland nsw, which has on it 2 seperate homes. One is a very tidy solid 3 bedroom home and the other is a new 2 beroom home . Each has its own utilities and access. Both are rented out to seperate families, rent is paid weekly. No maintanance as they are in perfect condition.
Cost was 300,000 , borrowed all but 20,000. Fixed ,interest only for 5 years.
Yes you are right even houses in perfect order require maintanance, however my question was is that return a good return for the outlay.
A lot of people pay 300,000 plus for one home and get only half that return . My original question was - What is considered a good return on out lay for investment property's. thanks Kym
The yield you have described is good, but I don't know the area you are talking about and whether or not that is average for the area. I don't know what the quality of the homes are, nor the quality of the tenants.
Generally there is a perception that the yield can be looked at as a direct response to the quality of a property/area and that high yeild equals high risk. There is also a perception that high yield equals low CG.
While this is not necessarily true, you do need to weigh it up when you do your DD on a property. In the past, I have purchased 2 properties with in excess of 20% yield. While the yield was good, I onsold both for a small CG mainly because there were problems with the neighbours, which probably explains why they were priced so low at the start. I still came out with a substantial profit, but the annoyance factor with both these properties was quite high, so it was a relief when they were sold.
It depends on how you look at return on investment. My take on it is something like this (assuming )
You invested 20k
Your gross return is 32k + capital growth
Your costs are around 4k per yr (rates,water,insurance,landtax etc)
Interest costs are 300 x 6% = 18k
Your nett return is therefore 10k
Your return as a percentage is 10k/20k (not including Capital gains)
= 50% per year
As you can see the less money you put into a property the higher the Return On Investment. If you didn't put the 20k into the property would it be sitting in the bank getting 5%