What sort of yields in todays climate>?

[Property Meister]

assuming that you are purchasing in a relatively established area,

in todays market of economic uncertainity, rental trends etc.

what sort of yield would people expect or are they getting or would they expect to enter the market now...

the only reason is 12-16 months ago, when I was searching around, yields were around 3.5%-4%, and all the agents, were saying that this was the norm....

however, now if you do the maths, basically anything I look at seem to be 4% and above.....

what % yield would people be looking at now (realistically) unless they find the bargain of the century or over paying tenants???

 

[plusnq]

what % yield would people be looking at now (realistically) unless they find the bargain of the century or over paying tenants???

Hi PM

I thought looking for the bargain of the century was the idea

You can obtain yield info from a lot of sources including Residex, RP Data etc and certainly the average yield would depend upon where and what you are looking at. I recently purchased a block of six units with a yield of 7.98% The recent rate drop makes these CF+ from day 1. Would I expect this return in inner Brisbane? Probably not.....but I wouldn't close my mind to the idea that I could find or create a deal that could be better than the average yield for an area.

Good luck.

Cheers

Shane

 

[Property Meister]

yep, sure is!

I am just consdiering VIC,

about 12-18 months ago, I was looking in established areas, so not the South Yarras, tooraks etc, and not the regional or dodgy suburbs.

when I spoke to a few REA, they were all saying "well this property we have here, the yield is almost 4% which is quite good", which at the time was quite good, I frequently saw properties that were yielding say 3.25%-3.9%, and this seemed to be the norm.

however, in todays market, I was just curious what the sort of yield we can expect. I was looking at south yarra, and I saw a property in the same block, which was yielding 4.7% based on an auction result....

so if the current rate was 7.5% then that is a deficit of 2.8%.
my questions to the experts out there.. is this a good yield in todays markets??

and say there were two similar but slightly different properties next to each other, that were quite similar but yet had a few differences, maybe, one had a bigger lounge, while the other had bigger rooms while having the same area, and to be honest, its very hard to say which one is better, but assuming you assumed that both properties were worth about the same, but one was renting for $10 per week more on the assumption that both were fair market value, would you simply purchase the one with the higher rent???

I saw the previous poster got 7.98% but that was in brisbane and it seems like a out of the city property, obviously I am not expecting to be cashflow neutral from day 1, however, should I be looking for a higher yield. ie is mine too low, or is this normal for this kind of suburb...

I hope I make sense. but I ahve 1000 questions!

 

[Property Meister]

but I wouldn't close my mind to the idea that I could find or create a deal that could be better than the average yield for an area.

Good luck.

Cheers

Shane

P.S is htere a way to CREATE a better yield if you are simply buying a existing property without renovating etc?? I understand that you can renovate, edit, modify little things to increase yield....

 

[BayView]

yep, sure is!

when I spoke to a few REA, they were all saying "well this property we have here, the yield is almost 4% which is quite good", which at the time was quite good, I frequently saw properties that were yielding say 3.25%-3.9%, and this seemed to be the norm.

however, in todays market, I was just curious what the sort of yield we can expect. I was looking at south yarra, and I saw a property in the same block, which was yielding 4.7% based on an auction result....

so if the current rate was 7.5% then that is a deficit of 2.8%.
my questions to the experts out there.. is this a good yield in todays markets??

R/E gents love to say this, and I bet if you asked them; "well, are you going to buy it if the yield is so good?" they'd say no.

The yield is what it is.

I'm a cashflow investor first, cap growth second, so a 5% yield is never going to be "good" to me. I can control the cashflow when the purchase is made, but I can't control the cap growth. I can only hope it is good, and try to make some educated guesses that it will be good. But what if it isn't?

If the deficit is way below the interest rate on the loan, then you are going to be tied to supporting that property with earned income dollars for a very long time unless you have a massive cash deposit to start you off.

"Established" areas seem to always yield around 5% in good times and drop away when there is a price spike. They don't seem to go much higher than this generally; maybe for a brief period, but then back down, and the agents then feel justified in saying what they say.

That doesn't mean there will continued, steady growth with it either, and you could be left with a long period of little growth and lots of neg cashflow.

Bugger that; there are plenty of other areas that will return a much better yield, and can deliver decent growth that aren't "established". Why not have both, and some decent depreciation along the way for extra cashflow?

You just have to find them, and they are out there.

People usually go for established because it is easier and supposedly better for growth long term, and the trade-off is neg cashflow.

If you are doing the IP thing to set up a retirement nest-egg way off in the future and are willing to keep working to support the circus, then that's fine, but if you are doing it to exit the rat-race much earlier, this probably won't do it for you - especially in this current climate if the house prices stop rising for a few years

 

[Aimjoy]

assuming that you are purchasing in a relatively established area,
in todays market of economic uncertainity, rental trends etc.
what sort of yield would people expect or are they getting or would they expect to enter the market now...

Hi PM, you are right, as rentals have surged and prices taken a bit of a hit, then yields have increased and it is not uncommon to see 5-6% generally available.

what % yield would people be looking at now (realistically) unless they find the bargain of the century or over paying tenants???

Most ppl on this forum know that I tend to only invest in houses with granny flats (and have done for many years). This gives yields of 7.5 - 8%.

 

[ffc1883_1996]

Most ppl on this forum know that I tend to only invest in houses with granny flats (and have done for many years). This gives yields of 7.5 - 8%.

Hi Aimjoy,

How do you go about achieving that sort of yield? Does your council allow granny flats to be separately let?

Regards - Ben

 

[want2bewealthy]

Yields will certainly vary depending on where and what you buy,
for instance, buying now where Im from, approx rent return on a 2br unit would be approximately 6% whearas a 3 br house might be 4-5%

 

[Witzl]

In my particular target area, i'm looking at places that will yeild around 6-7% on purchase price.

HOW? Buying at 15-20% below current values, in a strong rental area. In particular, western sydney suburbs like St Marys, Blacktown, Lalor Park, etc.
These suburbs have already experienced drops in prices, and you can still pick up bargains below the current [already reduced] values.
These areas have strong rental demands, even in the tough times, and do also show strong CG in the boom times - however im not relying on that at this point in time, that is a future benefit.

.... I'm betting that by selecting such a property in such an area so that my yeilds are strong on purchase, and should remain strong for the near future. Besides, unless i refinance, the yeild vs debt will always remain the same or better - and ultimately that's what hits your back pocket, so that's what i care about.

 

[sydprop]

Besides, unless i refinance, the yeild vs debt will always remain the same or better - and ultimately that's what hits your back pocket, so that's what i care about.

I agree with your logic and risk profile but for others, remember rents can go down. This is rather unlikely in Sydney of course - given occupancy and immigration but stranger things have happened. (e.g. Asia, Mining towns etc)

 

[Trogdor]

I agree with your logic and risk profile but for others, remember rents can go down. This is rather unlikely in Sydney of course - given occupancy and immigration but stranger things have happened. (e.g. Asia, Mining towns etc)

With inflation hitting 5% today its unlikely that rents will go down in the major capital cities for median priced properties 3 - 15km from the city centres - unless this recession is much, much worse than anticipated.

Once inflation gets this high, it will drag on for a while - as unions will lobby for govt sector jobs to collect 5% payrises just to "cover CPI", and although the private sector wont move that far now with increasing job loses, it will be playing catch up in a few years when things pick up.

As for mining towns - couldnt agree more!! If rents halved (or worse) over the coming years in some towns (especially those with more staff on mine expansion rather than mine operation jobs) I wouldnt be at all surprised.

 

[GoAnna!]

I think that if you are buying a negatively geared property with little prospects of significent improvement in yield then you have to ask yourself how will this investment give back to me? If capital gain is unlikely in the next few years then how exactly is it an investment? Don't just buy for the sake of buying. That can be a costly mistake.

You might want to compare the projected performance with just saving your cash...

 

[Aaron Sice]

i'm seeing 5-6-7% in the greater Brisbane area - all newish units as well.

i'm also seeing some 6% jobbies in Perth as well - all units as well.

 

[imonmyway]

I've seen this mentioned somewhere before on here but do people here have a rough calculation they use for calculating yield?

 

[Witzl]

yeild% = (annual rent)/(purchase price)*100

for example: $240,000 purchase, $290/wk rent ($15080 annual rent)
15080/240000=0.0628
= 6.28% yeild.

I agree with what you are saying Goanna... thats why selecting somewhere like sydney, in a strong rental area is a good idea to me. Yeild is likely to keep improving for some time, making holding costs virtually nill - a nill cost for a chance at some good CG (some time in the future, who knows when) is a safe bet in my books

 

[Aaron Sice]

if you're a long term buy'n'hold then Sydney is a good bet if you want to minimise holding costs.

that said, so is the whole of Australia if you can find a good yield...