G'day Lily
By high yield, I presume you mean higher than inflation and / or current bank lending rates?
It is almost, but not impossible, to find a property that is truly cash flow positive ie if borrowing the gross purchase price including stamp duties, legals etc, where the rental income would cover all expenses.
It can happen, but often relies on depreciation benefits, calculated as if you earn at least the amount claimed for depreciation, at 47.5% tax bracket. In other words, to get the maximum benefit from, say, $15,000 depreciation, you would have to earn $75,000 per annum, or $15,000 above $60,000 when the top tax rates apply.
Capital growth occurs over time, and tends to average out at 9% per annum when taken backwards. To predict forwards is closer to fortune telling than calculated planning.
The median sales figures hide many factors.
eg my current project will probably sell for $75,000 more than I bought it for in May 2002. Wow! Yep, but I've put $73,495 into renovations and redevelopment. So the figures would give a false impression of growth, when really we are talking a different property in a different market, and not capital growth of the same property.
New projects now include one eleventh GST, making new properties appear to have 'jumped' when really they are simply more expensive.
OK, to consult my crystal ball:
I'd look at areas about 45 minutes from the CBD via any new or planned freeway extension, then evaluate those areas point by point.
Remember, it's your Internal Rate of Return, not just the absolute figures which are important.
So if you can buy in for $10,000, and top up the investment with, say, $5,000 per annum (shortfall in rent & outgoings), hold the property for three years, then after the tenant leaves spend your annual leave and $2,500 dollars on paint, floor and window coverings and gardening, then you sell the property for $45,000 more than you paid for it, deduct selling expenses and a bit of tax, you will have made approximately $27,500 net, which is more than 100% / 3 years (yes, yes, I know this isn't totally accurate but you get the drift).
(Naughty, naughty! Silly me. You don't want to sell, you want to refinance. and buy more!!! However, same principles apply)
From my point of view, the less money goes into a project the better. My money, that is. I'm always happy to pay interest, it's a genuine business expense. And the old saying of leaving the pennies alone and the pounds will take care of themselves, applies to your question, too.
Choose wisely, leave it alone, and the investment will look after itself. But remember, it is only the property with your name on it which will make you any money.
So do your research, but at the end of the day, there are people living everywhere (even West Heidelberg - actually West Ivanhoe is a good buy and undergoing gentrification at a rapid rate), make sure your rent is affordable for the area ($500 per week is not going to happen in West Heidelberg), maintain your properties, and be pleasantly surprised by the capital gain.
My Hot Tips?
Scoresby with views (7 years hold time)
Asvcot Vale unrenovated 1960s yellow brick (20 year)
anything in Richmond (forever)
the fringes of Seddon (could be slow - 15 years to reach potential)
West Ivanhoe (be prepared to invest the same dollars again in renovations)
parts of Fairfield between Upper Heidelberg Road and the Yarra
Thornbury, Preston and across to Coburg (strong student shared house market - habitable but not fancy, ignore the hydroponics in the wardrobes!
Cheers
Kristine
