What are your strategies for high yield IP's???

[Mindmaster]

Through research, experience and studying various methods, I'm getting better at finding IP's with decent yields. I actually though I was doing ok until I read a recent thread where people where said they would not accept IP's with less than 6.5-10% yeilds

http://somersoft.com/forums/showthread.php?t=82577&highlight=yield

So now I'm wandering what strategies/methods do people use to find these yields?

-hunt around for rare gems that are way under value so yields are good?
-certain types of properties that have low cost/high rent such as (wild guess) villas?
-mining town IPs?

Please pity the ignorant and share your wisdom

 

[devank]

~ small Reno like converting a wasted space to a bedroom
~ Granny flat
~ NRAS (I don't have one but some people in claim it can)

 

[Mindmaster]

Hi Devbank, thanks for your reply.

I'm in the middle fo a GF project now that will push the no GF yield of around 6.2% to around 8.0 to 8.5%. The strategy I have (so far) to get decent yields.

I did not know that a small reno that allow you to add on a bedroom and increase rent to give yields that high. Easy to research, just look at rent differences between 3bd and 4bd properties.

Read a bit about NRAS's lately. Don't they tend to give good yields because the property is undervalued accounting wise?

~ small Reno like converting a wasted space to a bedroom
~ Granny flat
~ NRAS (I don't have one but some people in claim it can)

 

[Jen_PFR]

We rent completely self contained properties for 2+ month terms. A lot of work, but they are rented for 48+ weeks of the year, and all have yields of between 10-11% (on current property vals - higher if you look at the initial purchase price).

Works well at the moment, but when the shortage of available properties in Perth eases up, we may have to reevaluate.... but that will be at least a few years away, perhaps longer, so we have some time

 

[westminster]

We rent completely self contained properties for 2+ month terms. A lot of work, but they are rented for 48+ weeks of the year, and all have yields of between 10-11% (on current property vals - higher if you look at the initial purchase price).

Works well at the moment, but when the shortage of available properties in Perth eases up, we may have to reevaluate.... but that will be at least a few years away, perhaps longer, so we have some time

Jen - are you coming to lunch next week? I'm dying to hear about how your business works. If you aren't then I'll shout you a coffee at B Bar.

 

[Mindmaster]

Wow, $600 a week for a two bedroom apartment

I can see how using your strategy of fully furnished small properties close to Perth's CBD for short term lease can give excellent yields.

A hands on strategy and I'm OS so can't use it but nice to know. Well done Jen.

We rent completely self contained properties for 2+ month terms. A lot of work, but they are rented for 48+ weeks of the year, and all have yields of between 10-11% (on current property vals - higher if you look at the initial purchase price).

Works well at the moment, but when the shortage of available properties in Perth eases up, we may have to reevaluate.... but that will be at least a few years away, perhaps longer, so we have some time

 

[euro73]

Hi Devbank, thanks for your reply.

I'm in the middle fo a GF project now that will push the no GF yield of around 6.2% to around 8.0 to 8.5%. The strategy I have (so far) to get decent yields.

I did not know that a small reno that allow you to add on a bedroom and increase rent to give yields that high. Easy to research, just look at rent differences between 3bd and 4bd properties.

Read a bit about NRAS's lately. Don't they tend to give good yields because the property is undervalued accounting wise?

NRAS offers good yields because the incentives inject an additional tax free amount of money ( currently $9981) in return for reducing your rental income by 20%.

The outcome varies from property to property of course - variables such as weekly rental, debt amounts and so on, have to be considered. For example, if you are forfeiting 20% of $300 per week on a 300K property with 300K of geared debt ( whether that be 10% from equity in another property and 90% debt against the NRAS investment property or 20% from equity in another property and 80% debt against the NRAS investment property, of 30%/70% etc ) and receiving $9981 tax free, you're going to see better yield than if you're forfeiting 20% of $500 per week on a 500K property with 500K of debt.

 

[Lofty]

Hi Brendon

We originally used vendor finance (VF) to increase the yield on our portfolio, i.e. we believe our long term wealth is in our buy and holds but we used the high yield from our VF properties to cover any negative cash flow in our portfolio.

That was the original plan but happily we now live off the positive cash flow from these VF properties as well.

Cheers, Paul

 

[Kent Cliffe]

No one has mentioned:

• Commercial Property
• Retain and Builds - sell off the back block
• Buy, develop and hold.

However, I don't know why people are bothering in this market. Buy something in a high capital growth area, land bank, lock the rate for 3 years for 5.75% to 5.99% and rents in Perth are yielding 4.5% to 5.5% depending on how well you buy. IPs are pretty much cash flow neutral from day 1 and your buying in at the start of the next Bull Property Market.

 

[devank]

rents in Perth are yielding 4.5% to 5.5% depending on how well you buy. IPs are pretty much cash flow neutral from day 1 and your buying in at the start of the next Bull Property Market.

How is that 'cash flow neutral from day 1'?!? That is not even enough to cover the interest on mortgage!

 

[HotRod]

How is that 'cash flow neutral from day 1'?!? That is not even enough to cover the interest on mortgage!

Depreciation???

 

[Propertunity]

Just my 2c worth for higher yields.

1. Buy rundown property for bargain basement price (ex houso stock, fire damaged, termite damaged). Fix up inexpensively. Rent for full market value.

2. Add a granny flat.

3. Buy an "existing use" resi building that has multiple tenancies. Very often these are terrace houses in the inner CBD areas of Sydney / Newcastle. I've seen a number lately that have at least 3 x leases and have been that way for 25+ years.

4. Rent the garages separately - possibly for storage or for commercial parking - if you are near an area with limited parking opportunities.

5. Mixed resi / commercial. Resi flats upstairs, commercial downstairs.

6. Commercial.

7. Rent furnished (as opposed to unfurnished).

8. Rent by-the-room - i.e. student accommodation near Universities.

9. Sub-divide off part of the block and pay down the mortgage on the remaining existing house.

I'm sure there are more, but that's all my brain will do at this stage of a long day.

 

[firstmillion]

Just my 2c worth for higher yields.

1. Buy rundown property for bargain basement price (ex houso stock, fire damaged, termite damaged). Fix up inexpensively. Rent for full market value.

7. Rent furnished (as opposed to unfurnished).

9. Sub-divide off part of the block and pay down the mortgage on the remaining existing house.

I'm sure there are more, but that's all my brain will do at this stage of a long day.

use these 3 strategies along with buying sub dividable blocks.

 

[nhg]

If you have a yield in mind and look hard enough, you'll find it eventually ;P

I can find 7% gross yielding properties with my eyes closed now. It's so obvious I don't know how people can't see them. Why would you waste your breath on 5% yields.

Then again, there's someone thinking the same thing about my 7% yields as they see 10%+ yields all around them.

And yet another with 20%+ yields in plain sight.

Each investor has their own unique circumstance and strategy, there is no one size fits all. Your just have keep researching and find what works for you.

Lol kind of like Peter Pan in the movie Hook, if you don't believe there's food, how will you ever be able to see it.

 

[A'PEXi]

If you have a yield in mind and look hard enough, you'll find it eventually ;P

I can find 7% gross yielding properties with my eyes closed now. It's so obvious I don't know how people can't see them. Why would you waste your breath on 5% yields.

care to shed some light to those who find it hard with their eyes open? are you primarily looking locally through agents, online, or another method?

 

[euro73]

Running a workshop in Parramatta on Nov 14 for anyone interested in learning more about the ins and outs of NRAS. Parkroyal Hotel Parramatta 7pm-9pm
http://www.hibernianwealth.com.au/events/

 

[jackbak]

Hi Devbank, thanks for your reply.

I'm in the middle fo a GF project now that will push the no GF yield of around 6.2% to around 8.0 to 8.5%. The strategy I have (so far) to get decent yields.

I did not know that a small reno that allow you to add on a bedroom and increase rent to give yields that high. Easy to research, just look at rent differences between 3bd and 4bd properties.

How do these granny flats work exactly? Do you subdivide the property and build a GF on the back block with its own area and rent the house and the GF to 2 separate tenants, or do you leave block as it is and just build the GF in the backyard and rent it to someone who is looking for a house and GF?

Cheers

 

[nhg]

How do these granny flats work exactly? Do you subdivide the property and build a GF on the back block with its own area and rent the house and the GF to 2 separate tenants, or do you leave block as it is and just build the GF in the backyard and rent it to someone who is looking for a house and GF?

Cheers

No split, build in backyard, two electricity meters and two separate tenants. Granny flats are expensive now IMO, everyone involved is trying to draw blood from the stone. Too many people in the know too so every ad states gf potential STCA and charge a premium.

As for 7% yields. I'm just starting so still novice, I just look for something a little different than the obvious. More to do with the strategy that fits my unique circumstances than the product (property).

 

[menty]

Wow, Im only looking at about a 7% yield and I would be happy (still a novice)

Still confused about people's way of calculating yield. Do you include stamp duty in your purchase, or just the amount you are borrowing?

These are my numbers
Granny flat build in a decent area.

Purchase price: 513K house + 3K stamp duty = 516K
Granny flat apprx: 118K.

Loan amount : 432K

Rent: approx 870/week; 4.4% PM fee.

There are SO many ways to work it out. It could be 10% (loan amount/rent), or more like 7% (property value+gf / rent). THEN, you could either use gross rent or net rent.

 

[redwing]

How is that 'cash flow neutral from day 1'?!? That is not even enough to cover the interest on mortgage!

Maybe Kent can throw an example up

Buy something in a high capital growth area, land bank, lock the rate for 3 years for 5.75% to 5.99% and rents in Perth are yielding 4.5% to 5.5% depending on how well you buy. IPs are pretty much cash flow neutral from day 1 and your buying in at the start of the next Bull Property Market.