What ratio of rental return to capital appreciation do you guys want?

[Ocean Architect]

I'm unfamiliar with cashflow/capital appreciation type investors like yourselves, and have the ability to tweak stuff like capital appreciation/rental return with a few changes in a building that I have going up

background is that this is a blue chip investment in a blue chip area, first suburb out of the CBD type deal, 4x2BR apartments. Features are:

gym
pool
spa
BBQ area
rubbish chute
elevator
bigger by competitors apartments generally by about 10% (sometimes more)
porcelain vitrified tiles throughout
man made stone benchtops
2 carparks
high ceilings
sea views from upper
good size bed rooms (3.8 x 3.8)
2 patios per apartment (living plus master BR)
bath plus big ensuits
WIR in master
BIR in second
network ports throughout
sequestered aircon area
strata fees in line with everywhere else, but minimised through landscaping/finishings/security choices

The suburb is rated #1 performing in the NT, and one of the best performing in Australia. Darwin is built on a penninsula of land, and so there are only 4 suburbs immediately out of the CBD - this is one of them

Capital growth potential is huge anyway, but I can tweak the complex a bit with a couple of features/fixtures etc to improve it

Rental return is already going to be excellent, and a function of sale price anyway. I can tweak which units will be for sale and thereby massage that as well.

Ive been reading about some investors preferring larger rental yields with smaller capital growth, others prefer smaller yields and larger growth. Obviously everybody prefers both but alas, that isnt really going to happen so much.

so, when you guys are investing mathematically, what ratios look favorable to you?

keep in mind also that the NT is poised to have a giant pile of money thrown at it based on a gas deal (4 billion a year in an economy of 100 000 people with a total of 30 billion over the next few years) owned by a japanese company...I feel like a vulture, but the tsunami/meltdown are helping my business by accellerating that project. Besides that, there is a 300 million dollar detention centre being built, as well as the plethora of mining deals that go with the NT.

Thoughts?

 

[evshaun]

Hi Ocean Architect,

For me personally, I look for yields between 4 - 5% in a suburb which has potential for good capital growth. As I understand in Darwin the yields can be higher?

This combined with depreciation schedule will get me close to break even. This allows me to meet my mortgage repayments without too much stress on the family budget. So aside for some start up capital for stamps and transfers the investment can almost pay for itself. So obviously still looking for good capital growth, but an investment that doesn't break the bank.

Hope that helps.

If you make tons of money, perhaps you can donate some of your gains to the tsunami appeal? It will you feel heaps better.

 

[Ocean Architect]

It helped greatly, but I'm going to shut my yap so that other people may comment without me influencing them

Also, didn't you read that other thread? If I make any charitable donations, it has to be to the Bipolar Foundation

 

[murph14]

You almost assume CG in the cities hence there is a greater focus on factors that reduce vacancy risk. Parking, security, crime rates, demographics, supply+demand of similar props all have a greater impact on your "ratio".

High BC fees are a big turn off.

 

[DaveM]

In this market I am working more towards increasing yield since CG is in a slump for the most part.

I look for 6%+ gross rent return, and minimum 4% net with CG less tax net expenses.

In my calculations I am now working off 2% CG annualised, any more is a bonus.

 

[ozsupra]

Ocean,
It really depends on ones personal portfolio at any given time.
Whilst I have been happy to invest at 2-4% with good CG in the past I am currently looking for 9-11% with Nil CG, and yes they are out there.
A.
And on the Subject of Darwin I would be looking at 1-2 bedroom accommodation to capitalise on the factors you mention.