Understanding Property Performance

Hi

I am not sure how to view whether a property is still as good as when you bought it.

Say you bought a property at $300,000 for a rent of $400pw which is nearly 7% gross yield.

Over the next 5 years of holding this property the value is say $470,000 rent now $450pw which is approx 5% gross yield.

From a capital gain perspective you have done not too badly. but the rent has not sustained the yield.

How would one view this property.

Assuming all has been done and all figures are market prices etc.

SG
 
Hi Star Gazer,

Here's my 2c

It depends what stage of your investment journey that you are at, if you currently in the "building Portfolio" Phase so something like your above example would be viewed as a core part of your portfolio and be held. It's providing growth/leverage at a cheap cost.

Now if you were at the "Retirement" Phase you would have more of a focus on Cash flow from your investments, I'm not saying you would sell the above asset, BUT if i had a bunch of them and my cashflow was weak and i was wanting to retire. Selling the above would now be an option for me and i would put the proceeds into a vehicle for providing less management intensive cashflow.

So in short to answer the above it depends on were i am within my investing journey as to how i view the above.

I am still in asset building phase, so i am keeping my houses. When i come to retire some houses will be sold to release profits and give me Cash flow.

Regards,

RH
 
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Hi

I am not sure how to view whether a property is still as good as when you bought it.

Say you bought a property at $300,000 for a rent of $400pw which is nearly 7% gross yield.

Over the next 5 years of holding this property the value is say $470,000 rent now $450pw which is approx 5% gross yield.

From a capital gain perspective you have done not too badly. but the rent has not sustained the yield.

How would one view this property.

Assuming all has been done and all figures are market prices etc.

SG

In the example you've given I'd use the new rent and the old value to describe the yield, ie 450*52 / 300K since the loan behind it would stay constant (or possibly reduce).
 
Hi

Yes my way of thinking is that you look at the loan outstanding and then look at the current rent.


It was suggested in the above thread that you should look at the current dollar value of the property to work out the yield. If you do that then the property yield would not look too good if the property value rises but rents dont keep up.

Thankyou for your comments
SG
 
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Your capital growth is part of your annual return. You need to look at current value also in calculating yield, as this will help you compare investments
 
That's the beauty with holding onto property - the mortgage stays the same or lowers over time, but the rents will probably increase!
 
Hi

Yes my way of thinking is that you look at the loan outstanding and then look at the current rent.

Should I sell my IP in FNQ

It was suggested in the above thread that you should look at the current dollar value of the property to work out the yield. If you do that then the property yield would not look too good if the property value rises but rents dont keep up.

Thankyou for your comments
SG

Star gazer, where are you in your investing journey?

Regards,

RH
 
bought a property at $300,000 for a rent of $400pw......Over the next 5 years.....value is say $470,000 rent now $450pw

How would one view this property.


Depends which hat you are wearing....


Pop on your Sellers hat and you'd probably say "I've done OK in CG, there are quite a few buyers out there who value my house, but the yield has dropped off heaps, my Tenants simply refuse to keep up a decent rent. I'm gonna flog this off and buy something that yields a proper income."


Pop on your doey Buyer's hat and you'd probably say "Place is priced about right I suppose, but the yield is pretty crap at only 5%, not to worry, it'll be a great negative gearing opportunity."


Pop on your switched on Buyer's hat and you'd say "Next !!"


Pop on your current Tenant hat and you'd probably say "This joint sux. I'm paying way too much rent for this dive. I've been a really good Tenant for that *****, and all he's done is put the rent up on me $ 50 p.w. over the last 5 years. I swear to God, next time he tries that incremental $ 5 p.w. creeping up ****, I'm outta here."


Pop on your Govt hat and you'd probably say "Let's keep churning these things, I love stamp duty payable."


Pop on your neighbours hat "I can't wait for that stupid guy to sell it to me for a song via a hidden nominee clause. I'm gonna then bowl 'em both over and build a block of flats."


Pop on your Bank's hat "We were gonna foreclose on that stargazer guy anyway, so by him putting it up for sale he's just saved us some legal paperwork."


All you really need to decide is, which hat are you wearing ??
 
Hi all

Riding High this is where i am at.
My situation is this.

IP1.....Current Val $541k

Loan..$344k

Considering refinancing the new val @ 80% which would give me some buffer
541k@80%=432800-344000=$88000 either loc or offset

Rent $430pw


IP2....Current Val $371k

Loan $210k
Loc $40k

Rent $330pw

371k@80% 296800

Im in my late 40s.

Dazz
great way to look at things in that manner brings some clarity to a situation.

Appreciate all your replies.

SG
 
Hi
cu@thetop
I say ask your local real estate agent whether now is a good time to sell

Why do you say that? Are you suggesting both properties or one to reduce debt? I have thought about selling one, but would not be able to buy back in at what i had paid previously.

SG
 
I think he meant it tongue in cheek as your local REA will always tell you that it is a good time to sell to represent your property.

Exactly and I apologize Stargazer if you initially missed it. Most posters have dealt with enough agents to spot this bit of sarcasm. Conversely ask (as a buyer) "is this a good time to buy?" and see what the Agent's reponse is.

Read Dazz's reply- whilst it may not be immediately helpful to you there is a lot of truth in what he says.

Ultimately you need to decide what is best for yourself - when you take advice from anyone they may have a vested interest in a particular income.
 
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