Yield question

[suggo]

We have found a country town property (QLD) that is returning $150/week for $87000.
On that calc.

150*52 *100 =8.96%
87000

Just to show it is possible to still find places like this!
(Because I know we didn't believe that were still about till we found this one, and if there is one, well, there are always more!!)

 

[Vdoubleyou]

I am glad I live in NZ, positive cashflow properties seem plentiful, I can understand why there are posts on this forum about investing in NZ. 8.5% sounds like a good return

 

[abcdiamond]

Originally posted by Vdoubleyou
I am glad I live in NZ, positive cashflow properties seem plentiful, I can understand why there are posts on this forum about investing in NZ. 8.5% sounds like a good return

But whats the Capital growth like in NZ ? (in the areas that you get 8.5% )

 

[Vdoubleyou]

Some area's have terrible capital growth. however some have incredible growth, it varies alot, you can get resaonable yield (8-12%) with reasonable capital growth too, just got to find the good areas.

 

[tonyd]

Originally posted by abcdiamond
But whats the Capital growth like in NZ ? (in the areas that you get 8.5% )

Last 12 months I got ~30% CG.
And the yield was 17% before that.

The previous 15 years the CG was probably 1-2%

cheers, Tony

 

[Vdoubleyou]

You cant complain about growth like that

The town I live in probaby has growth of about 15% a year, unfortunately its out of my price range.

 

[voodoo]

Originally posted by abcdiamond
What area is this in ?

Is it Residential or Commercial ?

That sort of return sounds right for commercial property in this area.

If it is Residential, it sounds like a reallky good deal.

abcdiamond,

The property is a fully managed Holiday resort on the beach. I am going to find out more info this week, sounds to good in these times.

 

[tonyd]

Originally posted by Vdoubleyou
You cant complain about growth like that

Yeah, I got lucky with timing. It was bought purely for cashflow with an assumption of zero growth.
Those yields have almost halved over the past 3 years.
It has been a positive experience for a novice.

Originally posted by Vdoubleyou

The town I live in probaby has growth of about 15% a year, unfortunately its out of my price range.

Getting away from the thread subject but...

I would be saying the same thing if I lived in Sydney.
You may need to look outside your city or perhaps you are in a position to be a bit more creative e.g. wrap/lease option.
Even a loan from a family member?

cheers, Tony

 

[prakash balia]

Sorry Jan, but this doesn't make sense!

Yield = rent / current value

So if i bought a pi for, say $290,000 and the rent is $375/wk
therefor the yield is
$19,500 / $290,000
6.7% . correct?

But if i was a dummy, and bought it for $20,000 too much, then the yield therefor should be
$19,500 / $270,000
7.2% !

should i be crying or laughing?

pb

 

[Vdoubleyou]

Tony, thanks for the advice. I am looking outside my area as I want my first property to be positive cashflow. The area I am looking at has grotwn of probably 5% a year but easy to find cashflow, I think the area will be good for furture captial growth though

Scott

 

[tom1000000]

I disagree with Jan Somers

Hello,

Yield is simply income / purchase cost.

If I bought a property 20 years ago for $50,000 and its now rented out for 200.00 per week, my gross yield (assuming no vacancies) is (200*52 / 50,000) = 20.8%. If I was lucky enough to be in that position there's no way in hell I'd sell the property. If it was yielding only 2% according to market value then it would sound like a bad investment. Its obvious the purchase price determines the yield.

Expenses such as property rates do rise up as the value increases, but they would be subtracted from the income eg net income = gross income - expenses.

On the other hand if you are trying to sell the property you would use the "selling value" to look at the yield, coz purchase cost will be what the buyer looks at.

In conclusion I guess you would use the current value to work out yields when you try and sell a property. If you are not selling (which is hopefully most of the time!), the purchase price should be used to work out the yield.

 

[Les]

Looking deeper (another BFO??)

Thanks for the varying inputs to this (now older) thread. I happened to be "cruising" and found I now have a different "take" on things - let me share it:-

Tom made the point that a property bought (say) 20 years earlier is now displaying a woeful yield (2%?) and comments that "It's obvious the purchase price determines the yield". And I'd tended to agree in an earlier post in the thread.

But today (20 months later) I now see the value of calculating yield on current value (as Jan says). And that is this:-

If a previously great return (yield) is now looking pretty awful, perhaps this should be a flag to show that I should be looking at ways of increasing that yield !!!! Of course, my mortgage has not grown, and the effective cost (or return) is as it was ........ So it in no way indicates that I'm putting extra bucks in (i.e. NOT -ve geared...)


BUT, what REALLY showed from the current yield (based on current value) is that I've now built up a HUGE BUNCH of lazy dollars (and THAT is why the yield is showing at 2% now). So, I should be looking at utilising these instead of settling for a 2% return on the capital that is now caught up in this property !!!

No need to sell, perhaps, but certainly a need to recalculate how best to utilise these extra bucks !!!! Onya, Jan - still way ahead

And, to Prakash:-

But if i was a dummy, and bought it for $20,000 too much, then the yield therefor should be
$19,500 / $270,000 = 7.2% !
should i be crying or laughing?

I think you should be crying, you dummy If you've paid too much, then you'd have paid $310k, not $270k - try the yield on that !!!

Regards,