Would you buy at is 4.75% Return

Hi opinions wanted please,

Is a return of 4.75% reasonable in Western Sydney, St Clair area.

Current value of property is $480,000 with rent being $440.00

Would YOU buy at that price ?
 
ABCD

I don't know the area at all, but would have to say that the yield doesn't exactly do it for me.

Does this property have some redeeming factors?

(eg. rezoning / redevelopment potential, a gold deposit :D , etc)

If not, then you may wish to look a little closer to home (or at least in the other direction, ie. North).

You're in Brisbane right? I imagine that for what it costs you to buy one property in Sydney, you could buy several in Queensland (depending on where you buy) that not only yield more than 4.75%, but have as good, if not better, CG prospects.

MB
 
Last edited:
abcdiamond

4.75% sounds crappy, but if you are looking for capital gain and you can pay the mortgage and you like the deal who cares what I think.

I've looked at similar things and decided that I would be better off buying more cheaper properties in good locations this way I make more money.

Currently waiting for response on offer for house & unit at $195k, $300 wk rent, on the market low to mid $200k, this would be around the 7.5% which is OK for my portfolio. If we don't get it something else will show up, just have to wait.

Good Luck
quoll
 
Hi abcd

Because this is a neg geared proposition I wouldn’t be rushing out to buy this one (possibly flat growth over the next couple of years). Is land tax applicable? If this was an investors 2nd or 3rd deal the land tax would blow the deal totally out of the water. I would see this property in the hands of a newbie investor (1st property) who really thinks’ investing in property is all about the tax deductions.

Of course if you can induce capital gain / rental increase (re-develop, re-furbish, rarity factor etc) it could be worth it.
 
4.75%! Crikey, mine must be about 3%. Can somebody show me the math on how to work this out? Purchase price $337K, $250 per week rent. Although some consolation, the price of this house is now about $370K - $380K. Thanks.
 
ABCD,

Well, you certainly wouldn't be buying it for the cashflow!
Before any tax benefits are taken into account, and assuming you borrowed the entire $480K, the repayments would be as follows:

Based on a 30yr loan at 6.95%:
P&I wkly repayments would be $793.83.
IO repayments work out to $695 p/wk.

Questions to consider:

Can you afford the cash loss each week?
Could you still afford it if interest rates were another 2% higher?
Do you believe the area has enough future capital growth to make up for your negative cash flow?


Jim,
To work out your gross yield on a property, do the following:

Yearly rent/Purchase price X 100= Yield as a percentage.
In your case, that's 13000/337000 X 100= 3.8%
 
For the area the return is reasonable. Returns are usually lower then that. Do your research on the area as their are many changes happening.
You also need to look at your tax situation as well as discuss it with your trusty accountant.

I sold (2001)in a higher cashflow area to buy in a more sought out high CG area. I though I was paying too much, and the RE's were saying the cycle had peaked. I now make more CG per yr than those dumps out in the sticks are worth if they were renovated and sold.
I also did not spend $1 dollar on the house I sold, even though it needed plenty work.

2 sides to every story...and a time an place for each

bbg2003
 
St Clair

I wouldn't buy for that return.

I would also either be looking closer into the city for that price - say Blacktown or in a newer area, like Rouse Hill, or in an area that has some more "interest". I was just looking at some ads for houses in the lower blue mountains/ hawkesbury area, and there were some around that price, with large blocks and it's an area that I think has price growth still in it. and a more "pleasant" area.

Penny
 
The returns are not bad, (Jacque didn't include depreciation
in the calculations)
But I would also look at a bit north and closer to the city.
Remember M7 is going through the NW region and it will
join with the M2
It will shorten traveling time to the city particularly for blacktown and outer baulkham hills districts.
Kellyville, Rouse hill, Quakers hill are nice areas and they will benefit from this motorway. QHill is about 5 min drive from Rouse hill but a bit older area and more established with shops, Uni, TAFE, nice schools, train stn etc and with a little older residence you pay less.
 
Hi ABCD,

Just a quick question:

Why are you looking somewhere with apparently poor growth prospects and a poor yield when your own backyard seems to offer so much more?

SEQ is the pick of the majority of property pundits for the next few years...

Your purchase price would be a lot less...

Your yield would be better...

You are nearby for Property Management issues...

You have more local knowledge of the market...

You can respond to changing market conditions better than you can if your property is 1000kms away...

Youre out around $200 a week after a major boom, when it seems yields can only rise, and hence CG slow.....

IS there any particular reason youre looking in St. Clair?

Jamie.
 
Thanks for all the replies. I didn't make it clear at the beginning, that I already own the property, and that a local REA valued it at $480k. It was such a good value, that we decided to sell it. But i wanted to know what others thought of the value.

Well, to cut a long story short; The agent, after 3 weeks, advised us to drop the price to $435k so that it would sell !!!!!
I told him, very politely, what to do with the selling agreement.

We are now actually thinking of selling it, but I would never use that agent again. We had another agent value it, after that event, who said about $440k would be the right price.

The reason for considering selling, is to re-invest up here in Brisbane. We've maxed out on borrowings, (against income) so it seems the only option.
 
Hi all,

I'm interested to explore Jamie's statement in regards to yeilds, which seems to be consistent with others opinions, particularly with those of you who have been in property through previous "booms".

"Youre out around $200 a week after a major boom, when it seems yields can only rise, and hence CG slow."....

It seems to me that when we have quick capital appreciation, this makes yields look weak for a while. But for how long?

I'm assuming that after previous booms that yields eventually improved, whether because of inflation , investors slowly cranked up rents or tenants gradually accepted the higher rents.

But how long does it take for yields to return to "reasonable" on a purchase price in todays market, such as just discussed with ABC's property?

Do yields always catch up, only to be followed by another capital boom?


GarryK
 
abcdiamond,

Have you thought about drawing out the equity in some of your properties and placing it into a cashbond/annuity, then using this money for towards servicability for another loan?

Much better than selling, paying CG, Stamp duty etc.

Have you done Steve's Course

Cheers
BUNDY

abcdiamond said:
Thanks for all the replies. I didn't make it clear at the beginning, that I already own the property, and that a local REA valued it at $480k. It was such a good value, that we decided to sell it. But i wanted to know what others thought of the value.

Well, to cut a long story short; The agent, after 3 weeks, advised us to drop the price to $435k so that it would sell !!!!!
I told him, very politely, what to do with the selling agreement.

We are now actually thinking of selling it, but I would never use that agent again. We had another agent value it, after that event, who said about $440k would be the right price.

The reason for considering selling, is to re-invest up here in Brisbane. We've maxed out on borrowings, (against income) so it seems the only option.
 
Garry K said:
Hi all,

I'm interested to explore Jamie's statement in regards to yeilds, which seems to be consistent with others opinions, particularly with those of you who have been in property through previous "booms".

"Youre out around $200 a week after a major boom, when it seems yields can only rise, and hence CG slow."....

It seems to me that when we have quick capital appreciation, this makes yields look weak for a while. But for how long?

I'm assuming that after previous booms that yields eventually improved, whether because of inflation , investors slowly cranked up rents or tenants gradually accepted the higher rents.

But how long does it take for yields to return to "reasonable" on a purchase price in todays market, such as just discussed with ABC's property?

Do yields always catch up, only to be followed by another capital boom?


GarryK


Interesting question GarryK, but sorry i can't give you a good answer.
I guess the question is what would be considered a "reasonable" yield.

This would be determined by the cost of money which is about 7% at the moment. So, if looking purely at cashflow, something about 9% would probably be ok (+2% for outgoings) to remain fairly neutral.

But then that doesn't take into consideration any CG, and whether you factor that into your total return.
Example, yield of 6% p.a. plus growth of 7% p.a. = 13% p.a?

Is this how other calculate their total return? I've read somewhere that this is the true return, but it doesn't mean much if you don't intend on selling and are relying on cashflow.
But then again, i guess you can always draw down on the equity if growth is good.
 
BUNDY said:
abcdiamond,

Have you thought about drawing out the equity in some of your properties and placing it into a cashbond/annuity, then using this money for towards servicability for another loan?

Much better than selling, paying CG, Stamp duty etc.

Have you done Steve's Course

Cheers
BUNDY

Bundy,

Seems like an interesting concept and would like to learn more, Can you direct me where i could get further information on this concept please Bundy....Thanks

Also...Forumites,

If i recall correctly, wasn't Steve Mcknight saying in his book "...3.5years", that when calculating return we should take into consideration the closing costs of the purchase against the annual income, THEN giving the investor a true reflection of their return/yield. Is this a better way to calculate?
 
BUNDY said:
abcdiamond,

Have you thought about drawing out the equity in some of your properties and placing it into a cashbond/annuity, then using this money for towards servicability for another loan?

Much better than selling, paying CG, Stamp duty etc.

Have you done Steve's Course

Cheers
BUNDY
Bundy, Thanks for that, I have considered it, but the chosen route has now been decided to sell it. In all good partnerships, the wifes vote is always bigger than the husbands :)

So it will be going on the market soon at $435k (I think) :)
any offers ?
 
Back
Top