Your lowest rental yield / poorest cash flow purchase

[Tonibell]

In "inner" Sydney at the moment it is hard to get anything like a reasonable yield from a house purchase.

Just interested in some low yield purchase stories and how they ended.

We have a place on Sydney's north shore that cost us around $720K all up back in 2008. The rent was around $400 per week - so a gross yield of around 2.8%.

Interest rates were up around 8% (from memory) - so that place and another heavily negative geared place really drained the cash for the next 4 years or so. We got to the point where we thought we just have to get rid of them - but didn't (very happy about that).

Now with rent increases, another reno and a granny flat addition the gross yield is now a very acceptable 6.4% on our invested amount. There have also been some nice capital gains that have made the pain worthwhile.

So ... what is the lowest yield property purchase you have done and how did it turn out ?

 

[D.T.]

My lowest yield purchase was my 1st one. I bought in Clarkson in 2004 for $197K and it rented for $155 to start with. It was a newly built property and nothing but sand for a yard, poorly painted, not many finishings etc.

Bit by bit I added in landscaping, pergola, garage door, misc finishings etc and it eventually rented for $320/wk

 

[see_change]

Our worst cash flow property is our weekender ...

Highly negative , but it makes me feel relaxed every time we go there .

Cliff

 

[Paul@PFI]

My best IP started out with low yield and I was happy. It was a location, location, location buy. The capital growth outperformed the income.

That's one of the strange things about our tax system. It allows CGT discounts if the IP is income producing... It can be negative income producing and still gets the same deal as one which is +ve geared or one which is high yield. A good IP usually pays it way in cashflow but the growth is most important. If property had zero growth who would buy ??

Many investors choose lower yield..eg Holiday lettings can be hit or miss. Low yield except for a few months IF you can get end to end tenancy over Dec - Jan. Others rent their holidays to permanents for a better yield all year round to avoid risk of vacancy destroying their yield.

I think Sydney seems to hold good growth and it avoids major rise / fall like regional areas.

 

[Richard Feynman]

Nothing exciting here.

I settled on a 2 bed apartment in Marrickville for $500,000 in May which is currently returning 4.5% (average is 3.9% for 2 bedders in Marrickville).

When I settled the return was 4.1%. I'm easing the rent up to market value in gentle steps.

I was never chasing a high yield though. CG is my goal.

Shows how significantly prices have moves in Marrickville though. I bought one late last year which has been returning 5.1% from day one.

 

[twodogs]

My mum's home. I own half, last year I didn't charge any rent at all. Highly negative and not relaxing. But you have to look after your mother

Cash flow is well, not there, but there is still some great CG.

 

[property_girl]

My IPS in Canberra have low yields. My latest IP has at this point basically no yield. But for the last 13 years it has grown in value by $100,000 each year. That is why I am keeping it.

 

[MRO]

I bought a house on 5 acres with distant development potential. Paid $600k and get $380 per week rent.
Terrible cash flow but hoping the development will make it more than worthwhile.

 

[skater]

My worst yield was around 6% from memory.

 

[Brady]

4.7% gross yield on purchase price.

But property will be knocked down in 12months.

 

[tess85]

2.6% gross yield on purchase price, but offset by some other IPs that were around the 7-8% yield mark upon purchase.

 

[jackbak]

Worst yield is last months purchase - 3.5% in Hawthorn, VIC. Always buy for CG.

 

[Tonibell]

2.6% gross yield on purchase price, but offset by some other IPs that were around the 7-8% yield mark upon purchase.

How long ago was this this - and how has the overall investment gone compared to your other higher yielding properties ?

Pretty much all of our purchases have started out as low yielding properties but then have performed very well overall in capital appreciation- probably because they generally have a higher land component (which doesn't get you extra yield but does get extra capital gain).

 

[tess85]

Thanks Tonibell, I hope that is the case for us too. We just bought in Sydney and it hasn't settled yet. It won't be an IP forever as we will move into it down the track - so I suppose it is not a "true" IP like the other ones that I have. But nevertheless, while it is being rented out and not our PPOR, I suppose I have to count it as an IP...

 

[r3ckless]

worst yield is 2.28% NET (including expenses)

 

[Tonibell]

worst yield is 2.28% NET (including expenses)

That sounds similar to the one I described.

What made you buy something with such low returns and how has this worked out ?
Have you been able to increase the yield over time ?
Has it made enough capital growth to offset the holding costs ?

 

[Erica]

bad to good in 3 yrs

Started with 5% yield for a house with large land component in Southern Adelaide, yield dropped woefully over 3 yrs as money was pored in to subdivide off the back yard and build a new house, now finished and tennanted, 7% yeild for both properties (on ALL money in), plus generated some capital growth during a period of absolutelly no natural growth in the market.

 

[r3ckless]

That sounds similar to the one I described.

What made you buy something with such low returns and how has this worked out ?
Have you been able to increase the yield over time ?
Has it made enough capital growth to offset the holding costs ?

I settle in 2 weeks. Bought this for parents in law..banking oj strojg cg...

 

[Deltaberry]

In "inner" Sydney at the moment it is hard to get anything like a reasonable yield from a house purchase.

Just interested in some low yield purchase stories and how they ended.

We have a place on Sydney's north shore that cost us around $720K all up back in 2008. The rent was around $400 per week - so a gross yield of around 2.8%.

Interest rates were up around 8% (from memory) - so that place and another heavily negative geared place really drained the cash for the next 4 years or so. We got to the point where we thought we just have to get rid of them - but didn't (very happy about that).

Now with rent increases, another reno and a granny flat addition the gross yield is now a very acceptable 6.4% on our invested amount. There have also been some nice capital gains that have made the pain worthwhile.

So ... what is the lowest yield property purchase you have done and how did it turn out ?

In Hong Kong, 3%. But it has had the best capital growth, better than anything I would've found in Syd/Melb last 3 years. Almost tripled. Bought for around $320k, now worth around $750k after A$ fall, in 3.5 years.

 

[DaveM]

My lowest rental yield is $0 pa as its vacant land.

Lowest yield with a house on it is 5.5% but thats a no easement quarter acre block to be subdivded and will then yield circa 150k equity.