Western Sydney - Rental Yield - Is it real?

[neK]

Just trying to figure out how the purchase price / rental income work in Sydney's West.

I've noticed some threads lately that talk about how property in Sydney's West is purchased for $250k and rents out for $300 per week. To me, this just doesn't make any sense.

How is this possible?

($300 x 52) / $250,000 = 6.24% (ignoring stamp duty, agent fees, etc).

If a renter can afford $300 per week, why wouldn't they have just purchased the property. Surely with discipline they can save up a bit and borrow 95% loan.

Is there something I am missing here? The only logical explanation I have to this is rent assistance. That is, because of rent assistance, they can afford to pay $300 per week. However if they purchased, they wouldnt get rent assistance, therefore not be able to afford the mortgage repayments.

 

[BV]

neK

yes you can still buy units for $250K or less in several Sydney suburbs and houses around Mount Druitt but this won't be for long because like you said sooner or later tenants will wake up and buy their own.

However, it isn't as easy as you think to borrow these days and you need to have a savings history and a decent deposit.

cheers

 

[nhg]

My 3 purchases in the last 14 months:

1. $302k rents $370/wk
2. $310k +25k reno rents $550/wk
3. $249k renta $320/wk

Yes the returns are/were there even though I came late to the party IMO, prices are rising there again.

Affer meeting my tenants, reasons they havent purchased:

1. Cant save, blow money as it comes
2. Bank wont lend money due to age and work is done cash in hand (no proof of income)
3. Are saving to buy a place in Newtown so living somewhere cheaper (also cant save)

Not everyone can put a deposit together, and age, income, serviceability is poor in general.

 

[Shahin_Afarin]

Because you are not taking into consideration all the other costs associated with owning a property.

Regards

Shahin

 

[DaveM]

Just trying to figure out how the purchase price / rental income work in Sydney's West.

I've noticed some threads lately that talk about how property in Sydney's West is purchased for $250k and rents out for $300 per week. To me, this just doesn't make any sense.

How is this possible?

($300 x 52) / $250,000 = 6.24% (ignoring stamp duty, agent fees, etc).

Only getting 6.24% in western sydney means you are not trying hard enough

It is possible by balancing prices in slow markets against high rental demand. Last couple of years have been good buying in a sluggish sales market with tight sub 1% vacancy.

Right now is not so great as prices are booming across greater western sydney, time on market in my suburb can be measured in hours in some cases. Interest rates low, rents high, people are buying first homes which is the fast moving market segment right now.

Trouble is some owners get too greedy and agents are in 3 year ago rental boom la la land... I see rentals for 3br places in my suburb come on at $450pw when actual value is more like $380pw, they sit around for a month and then drop and drop. Keeping a place tenanted is a fine line between rent and equivalent mortgage payment, you cant price gouge too much.

If a renter can afford $300 per week, why wouldn't they have just purchased the property. Surely with discipline they can save up a bit and borrow 95% loan.

95% lending is harder to get these days, especially for more working class families on average incomes (and we arent talking $150k struggle street politician talk average incomes either), we are talking husband earns 50k wife earns 25k part time style families.

Saving up 35-45k + stamps is hard when rents are high and there are bills and kids to pay for, so people stay renting.

Is there something I am missing here? The only logical explanation I have to this is rent assistance. That is, because of rent assistance, they can afford to pay $300 per week. However if they purchased, they wouldnt get rent assistance, therefore not be able to afford the mortgage repayments.

While not saying you are being stereotypical, not all of western sydney is bogans living centrelink to centrelink payment while their commodore rusts on blocks in the front yard. There is plenty of good income in the area and some people just prefer to rent due to flexibility or price or they are saving up etc etc.

 

[LoneWolf]

My 3 purchases in the last 14 months:

1. $302k rents $370/wk
2. $310k +25k reno rents $550/wk
3. $249k renta $320/wk

Yes the returns are/were there even though I came late to the party IMO, prices are rising there again.

Affer meeting my tenants, reasons they havent purchased:

1. Cant save, blow money as it comes
2. Bank wont lend money due to age and work is done cash in hand (no proof of income)
3. Are saving to buy a place in Newtown so living somewhere cheaper (also cant save)

Not everyone can put a deposit together, and age, income, serviceability is poor in general.

Would you mind sharing the areas for Western Sydney?

Or anyone for that matters with a budget of max 250k

 

[nhg]

Would you mind sharing the areas for Western Sydney?

Go to realestate.com.au, type in Western Sydney as location and set your max budget to $250k, start researching whatever suburbs come up. This works for all of Australia.

I personally have started looking at other suburbs as I feel I missed the boat in the 2770s (I was only just starting to look at Whalan, Tregear, etc), though there are quite a few members who have already posted in this thread who could provide you with more information.

 

[LoneWolf]

Only getting 6.24% in western sydney means you are not trying hard enough

I am actually referring to this statement above

 

[Luckyrooster]

Just trying to figure out how the purchase price / rental income work in Sydney's West.

I've noticed some threads lately that talk about how property in Sydney's West is purchased for $250k and rents out for $300 per week. To me, this just doesn't make any sense.

How is this possible?

($300 x 52) / $250,000 = 6.24% (ignoring stamp duty, agent fees, etc).

If a renter can afford $300 per week, why wouldn't they have just purchased the property. Surely with discipline they can save up a bit and borrow 95% loan.

Is there something I am missing here? The only logical explanation I have to this is rent assistance. That is, because of rent assistance, they can afford to pay $300 per week. However if they purchased, they wouldnt get rent assistance, therefore not be able to afford the mortgage repayments.

Yes, you're missing something here. It's called better research

 

[neK]

Sorry, wasnt trying to stereotype with the rent assistance remark, I was just trying to figure out a logical explanation to all of this. This was one i could think of. Granted there are those who earn 6 figures, rent and find it impossible to ever buy. But thats because of the way they treat their finances.

But it just seems it is more prominent in western sydney where the rent paid actually exceeds the mortgage repayments - even if you borrowed 100% of the property price + stamp duty.

So from what has been said in this thread, the people who do have jobs spend all their money making ends meet that they arent really able to save a deposit... so really a vicious cycle for these people.

My 3 purchases in the last 14 months:

1. $302k rents $370/wk
2. $310k +25k reno rents $550/wk
3. $249k renta $320/wk

Yes the returns are/were there even though I came late to the party IMO, prices are rising there again.

Affer meeting my tenants, reasons they havent purchased:

1. Cant save, blow money as it comes
2. Bank wont lend money due to age and work is done cash in hand (no proof of income)
3. Are saving to buy a place in Newtown so living somewhere cheaper (also cant save)

Not everyone can put a deposit together, and age, income, serviceability is poor in general.

Do you guys feel there is any correlation between good tenants and bad tenants when you look at points 1 & 2 stated by ngh?

 

[neK]

Yes, you're missing something here. It's called better research

Care to share what this "better" research you're referring to here is? An area just doesn't give better yield for the sake giving better yield. There are underlying factors as to why. This is what im trying to figure out.

 

[mumbai]

Yes, you're missing something here. It's called better research

Not a very helpful answer, is it?

 

[neK]

Only getting 6.24% in western sydney means you are not trying hard enough

I'm talking straight out 6.24% as an example. Not manufactured yield (ie building granny flats).

There is plenty of good income in the area and some people just prefer to rent due to flexibility or price or they are saving up etc etc.

But with the way Western Sydney is booming, would these people have not been better off buying then selling later to fund their purchase in another suburb?

Or if its a temporary thing (ie renting while they are figuring out what to do), would that not translate into good tenants (in terms of paying on time etc) be volatile in the sense they aren't long term tenants resulting in searching for new tenants every 6-12 months (hence losing 1-2 weeks between searching for tenants and paying 110% of the weeks rent as a placement fee)?

 

[nhg]

I'm talking straight out 6.24% as an example. Not manufactured yield (ie building granny flats).



But with the way Western Sydney is booming, would these people have not been better off buying then selling later to fund their purchase in another suburb?

Or if its a temporary thing (ie renting while they are figuring out what to do), would that not translate into good tenants (in terms of paying on time etc) be volatile in the sense they aren't long term tenants resulting in searching for new tenants every 6-12 months (hence losing 1-2 weeks between searching for tenants and paying 110% of the weeks rent as a placement fee)?

My question to you is... how much do you earn?

The average wage in Western Sydney as a family is really really crap.

Also my best tenants have been those with a poor financial record. Simply put, they can’t afford to get a bad rep as they will have trouble moving in the future.

 

[neK]

Because you are not taking into consideration all the other costs associated with owning a property.

Regards

Shahin

Sorry Shahin, not quite following you there. As i see it, the key differences between owning and rent are:

Owner pays council and water service, tenant does not.
So thats $1200 p.a for council and $600 p.a. for water?

Yes there are maintenance costs, but how many landlords actually act on the slightest issue. Unless its a major issue such a broken plumbing or electricity, tenants are told to put up with it (eg curtains are dirty or something silly).

The last thing i had to fix at my own place was the roof (sure it wasn't cheap - about $3k, but its not like that occurs every year... well i'd hope not).

Everything else has been cosmetic because i wanted to change it, not because i had to.

 

[neK]

My question to you is... how much do you earn?

The average wage in Western Sydney as a family is really really crap.

Also my best tenants have been those with a poor financial record. Simply put, they can’t afford to get a bad rep as they will have trouble moving in the future.

Thats a very fair point. Never saw it from that perspective. Thanks

Keep in mind, im not saying that western sydney is crap and i think im better than everyone else. My drive is that i grew up with minimal money, so every dollar is important. Its amazing how quickly you learn the value of money as a child when there isn't much of it.

Anyway, the whole point of this thread is that before i jump into an area i like to analyse the key drivers to minimise risk. Money can be made anywhere, except when you decide to run blindly into a brick wall and knock yourself out in the process

 

[nhg]

Thats a very fair point. Never saw it from that perspective. Thanks

Keep in mind, im not saying that western sydney is crap and i think im better than everyone else. My drive is that i grew up with minimal money, so every dollar is important. Its amazing how quickly you learn the value of money as a child when there isn't much of it.

Anyway, the whole point of this thread is that before i jump into an area i like to analyse the key drivers to minimise risk. Money can be made anywhere, except when you decide to run blindly into a brick wall and knock yourself out in the process

New infrastructure, amenities, low price in, not many rentals pushing up rent, gentrification in some areas as housing commission stock is sold, etc.

It's all there.

 

[neK]

Just to put things into perspective, stuff like this seems too good to be true (from a numbers perspective)

Same street in the same suburb.

The one for sale is a newer house. The rental is a older house but renovated. Inside is comparable.

Even using the top end of the price scale of $350k and the rent of $360 per week... just doesn't seem right.

Going in with $0 deposit and borrowing stamp duty @ 5.5%, my calculations indicate the shortfall is $250 per month (interest only) - after accounting for council/water rates of $1800 p.a.

I cannot see where else in Sydney this can be pulled off.

http://www.domain.com.au/Property/For-Sale/House/NSW/Shalvey/?adid=2010247375

http://www.domain.com.au/Property/For-Rent/House/NSW/Shalvey/?adid=8284154


And another one

http://www.domain.com.au/Property/For-Sale/House/NSW/Kings-Park/?adid=2010360216
Asking for $489k

http://www.domain.com.au/Property/For-Rent/House/NSW/Kings-Park/?adid=8290563
Rented (not renting) out at $500 per week (price isnt listed, but if you look at the bond of $2,000, you can work backwards and realise it was listed at $500.

Quick numbers $489,000 + $17,515 (stamp duty) = $506,515.
$506,515 @ 5.5% = $2,321 per month
Rent equivalent @ $500 per week = $2,166
Less council/water rates of 1800 pa / $150 p/m
$305 p/m shortfall - ie $70 per week, pack of smokes, couple of beers each week...

And these properties i just found in minutes. I would have to pour over properties over several hours over several weeks just to find something in other parts of sydney - and those don't even come remotely close to the numbers.

 

[DaveM]

Anyway, the whole point of this thread is that before i jump into an area i like to analyse the key drivers to minimise risk. Money can be made anywhere, except when you decide to run blindly into a brick wall and knock yourself out in the process

My gut, being an investor in the area and also living there, the market at the low price end is very hot right now and FHB'ers are raising the floor significantly. Properties worth $350k are selling for more like 385k.

I would use the currently market boom time to research and then be ready to buy one some of the heat comes out as we get into winter when the market typically slows.

As a comparison, 2 of mine in the area are $310k rent $395pw, $185k rent $300pw.

 

[Edmond Dantes]

My gut, being an investor in the area and also living there, the market at the low price end is very hot right now..

Same situation here. live out west, have a small townhouse. One in the same complex was sold in a matter of hours, approx 30~40k more of what I paid 2 years ago.

Not a major capital gain some would say. But I didn't buy it for this. I bought it for the future yield if I ever move out, and for how cheap my mortgage was going to be.

Your main question is basically the reason why I bought here. It's not the lower north shore, for sure, but it's not that bad. Right now using my spare cash for investments and trying to accumulate as may assets as I can, while I pay a ridiculous low mortgage. I did the maths as you did, and I agree 100% you.

Have a couple of friends living in lane cove. renting. I pay 30% cheaper rent than they do, and I pay mortgage . But I guess it comes to mentality as well. Some will never live here for many reasons, but I'm doing it in order to build a foundation for future years.