Hi everyone
Just wondering what the average rate of rent is compared to the price of the house. From looking around the houses in my area say the cost is $100,000 rents at 100 a week. Is this normal i keep seeing people talking about 40,000 renting for 150 a week is this possible in today’s market to find place at this lower price and rent it for that much or do u need to buy them now and get those returns in 5 years or so. Any input would be a great help.
Madcat,
Yes these kind of yields are possible, although mostly in remote rural areas throughout Australia (in Victoria almost impossible) and growth potential for same can be very risky (at best).
On the other hand, there is always New Zealand, returns are still very good, house prices still very affordable, and your chances of high returns (and CG) are more probable than currently available on our shores here in OZ!!!
Current rental yields in most major Australian cities is between 3-4% with some areas being slightly more or less.
Cheers,
Jo
Hi Madcat
you will find that these types of returns (40k for 150 pw) are not available in NZ, this is a 19.5% return.
Jo i’d be very suprised if this was available anywhere in OZ also ??regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
what kind of returns can you expect to find in NZ i hearing a lot about NZ from this forum. but would it a good place to get a 1st IP.
Eewwww !!!! shocked2]shocked2]shocked2]
Heavens I only just noticed Madcat said 40K with 150 p/w rent, I read it as 80K with a 150 p/w, giving you 9.8% gross return!!!
Certainly, these kinds of returns are NOWHERE to be found ANYWHERE in Oz!!! Well not to my knowledge anyway!!!
Jo
westan,
Interestingly, in article on CF+ property in the last API magazine, a CF investor said he would ensure he got yields of 20% when there was no real opportunity for CG (tested over a 10-year period).
MadCat, sorry to advertise API here :o) but if you buy it, you can see rental yields ofr all towns and cities in Australia, and there is a percentage done of yields over the past ten years. Re your question of yields rising over 5 years… well, not necessarily. Some do and some don’t. Think about how much unempoloyment benefits, for example, have gone up over the last 5 years- not much. It depends on the demographic you’re lending to. Some mining towns can have high income earners, so yields can be dictated by a small IP market. But if your IP is in a town with a shrinking population and a number of empty houses, and much of the town is unemployed (as is the case with some very tiny isolated towns), then it’s a renter’s market, and you may have to *reduce* rents.
The same can be said, of course, for some inner-city oversupplied markets- if IP’s outweigh the number of renters, sometimes we have to compromise.
kay henry
Hi Kay and
that is very interesting, i haven’t seen the story. I can’t deny his claims but i’d be suprised if they weren’t in the middle of nowhere. These deals aren’t available anywhere within 500km of Melbourne and probably Sydney also. As you know i’m a stong believer in buying cash positive but i realy wonder if that type of investing is worth it.
Mad-Cat in NZ the retruns vary a lot larger Cities you van find deals for 7-10% and smaller places 10-14%
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
Originally posted by Mad-Cat:would it a good place to get a 1st IP.
I beleive at present, it would be the best place to get your 1st investmenst property. PM or email Westan and Minimogul and they’ll help u out.
Kind Regards,
George.I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how
westan,
Get your hands on the article if you can- it’s a good one. It has some very contrary beliefs about CF+ to this forum. For a start, it says cashflow positive can be achieved on about 6% yield. I can’t remember the formula they use (i’ll look it up later) but it’s interesting to read different ways of thinking about the same issues.
When he was talking about 20% returns, he was speaking about places where there was unlikely to be any growth. Really, in the next few years, I think growth is unlikely to occur to a significant extent in many markets… so he was saying to compensate for zero growth, he would only accept 20% returns. Yeah, I reckon that would be difficult to find too. It seems a bit like robbing people.
kay henry
Hello Kay & Westans,
Given that this whole website is devoted to cash flow positive property acquisition, how many people (such as yourselves) actually have cash flow positive property??If you have cf+, did you purchase before the most recent property boom to get the cheap house price to rent OR have you all done as Steve did and do wraps?? And, now that all the prices have increased dramatically and there are no cf+ deals left, what are the recommendations of Steve McKnight?…to continue with wraps or something else?
Cheers Karen B!
Karen,
My first two properties had rents which paid for the mortgage, but my partner and I had a very high deposit and two incomes. We tried to pay them off as quickly as possible, so we chucked the rents, plus every spare cent we had into them. Those were in the Jan Somers book days, before I had heard of CF properties. The rents we charged were cheap, and we weren’t focussed on yield. Those properties were pre-boom.
These days, I don’t have CF properties (westan does but he’ll tell ya about it)
) I don’t do wraps and never will. I am pretty much a tortoise in the RE game, and I work, so I don’t rely on the income of it. Actually, i have no income from it- just a few mortgages which will take me 20-odd years to pay for Steve’s new tips? Well, he’s bringing out a new book, but I think that will focus on case studies of the MAP folks, and will be discussing his past strategies. I think we’ll have to wait for his 3rd book, or attend one of his seminars (he’s having one in sydney late October, I think) to find out what he’s thinking. Or ask him on here and get the free tips
kay henry
Hi karen B
like kay i’ve never done any wraps. all the properties i’ve bought in the past 7 years have been cash positive. However i haven’t bought any in Australia since about July last year because i couldn’t get the returns, since last year i’ve been buying in NZ because of the returns. I’ve sold about 20 properties (in OZ) over the past 18 months and bought a similair number in NZ.
Kay as far as cash positive on 6% that is a bit of a joke, because it all depends on how much cash you put in. If you pay $300k cash for a property that at the end of the day has a profit of $1000 sure its cash positive but the return on investment is .3%, This is hardly the return i’d want on my money. Sometimes i’ve seen deal that show a 10% yeild that in reality aren’t cash positive.
regards westanI live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
Originally posted by KarenB:Hello Kay & Westans,
Given that this whole website is devoted to cash flow positive property acquisition, how many people (such as yourselves) actually have cash flow positive property??My IPs were all bought since March 03.
Of these:
No 1 is cf+ before tax with a gross yield of 10.2%.
My spreadsheet shows it loses $200pa before tax, but that assumes $1000pa set aside for repairs. Provided I spend less than $800 pa on repairs, it’s (just) positive. But it’s post 88 so gets building depreciation, making it strongly positive after tax.
But if I was to paint it the yield could most likely increase to >11%, making it a McKnight-style IP with a positive cash on cash return before tax.
No 2 is slightly negatively geared in a coastal suburb of a growing regional city. It returns 8.3% gross but was built pre-85. So it’s a classic -ve geared IP, though the loss is smaller than a similar IP in a capital city.
No 3 is negative before tax but due to a 9% yield and building depreciation is positive after tax. This is the sort of property advocated by Margaret Lomas.
On 6% yields, I’d agree that you’d need heaps of deductions to make it positive, and even then only if you were on the highest income tax rate and/or put in a large deposit.
Depending on other costs it should be possible to be positive with a gross yield that is:
* the interest rate plus about 4% (before tax)
* interest rate + 3% (after tax)
* interest rate + 2% (after tax, if you can claim building depreciation)
BTW, I much prefer the above guideline to the 11-sec rule as it takes interest rates into account, whereas the latter doesn’t.
Regards, Peter
I’ve done more than 30 property deals this year (for other people) for cashflow positive properties (all in NZ) with our lowest yield being 10.5 percent, but that was in a capital gains area with all the usual statistical indicators, and the highest being as high as 20 percent. The current typical deal is around 12-14 percent yield.
I also did about 10 or so deals last year for myself, my family and friends, while I was still just investing and bird-dogging on my own.
The demand in NZ is high at the moment, which is why you can’t get the yields you got last year – basically there is more competition for the properties, (someone must have been talking NZ up to Aussie investors on the forums or something, HAHAHAHAHA) but you can still get yields and capital gains in my opinion, though like anywhere else high yields can mean less capital gains likelyhood, and conversely, high capital gains areas tend to have lower yields.
but I have found that EVERY area will expect capital gains. let’s say you have a spike and one particular hot spot starts taking off. The people who can now not afford to buy there look elsewhere, which could be the next suburb out (cities) or comparable properties in a completely different market (i.e. Australian investors see a house here for 150K rented for $150 but they can buy the exact same comparable house in NZ for 68k rented for 150 p.w.)
For the time being, and for various reasons such as I know it cause i’m from there, I have connections and teams on the ground and know lots of relevant property investing kinda info on it, it’s close (ish) and I can visit my parents for a tax deductible trip, etc etc – NZ is the only place I am investing at the moment in property.
However this is just RIGHT NOW. Anything could change, and Australia will be very attractive again in the future, I am sure, one just has to wait for the appropriate point in the cycle. Interest rates, demand, rentals, prices, all have something to do with when you buy and how long you decide to hold for. For example doing a short term renovation and on-sell works in an up market but it’s a waste of time in a down one. Buy and renovate and hold for rental returns works great in a down market provided you can hold it for long enough. Because when nobody is buying, everyone is renting, so rental demand goes up and so therefore so do rents and yields. I have done the numbers on one property bought in 1991 and the cashflow yield in year 13 is 130 percent per annum! (it was 20 percent in year one) . This is in one of those classic kiwi towns where people always say (yawn) you won’t get capital gains. But you so do, as the prices in those towns tend to keep in exactly the same proportion to your Auckland etc prices as they always did. Plus your cashflow yields go through the stratosphere in year two. Now I am getting 24 percent cashflow yields in year two, so even though I have had capital gains and that might not go on forever, who cares, because cashflow yields are so strong and will improve over time as analysis of the past 13 years has shown. So it’s just swings and roundabouts. I always try and make my properties ‘painless holds’. this means I try to get the right yield on purchase, and I fix up every single problem first up and /or renovate to ensure that that property is as likely to be ‘sorted’ for a long time as possible. Now there are no problems and it is appealing, I expect that my properties will be continually rented with little maintenance. (and I have achieved that, give or take the odd instance of Murphy’s law. But if you are prepared for your (realistic, not panic-stricken) worst case, then there is nothing to fear, which is a wonderful place to be.
cheers-
Minijoy to the world
Are there any good site to find out more info about NZ. You people have got me very intriged
Originally posted by Mad-Cat:Are there any good site to find out more info about NZ. You people have got me very intriged
Good luck!
Kind regards
Jet Dollars
“The road of some-day lead to the town of nowhere”Hi madcat
also try http://www.realenz.co.nz
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
g’day,
never done this before so dont know if it will get posted but if you are after some examples of positive cashflow properties then have a look at some of the properties in mining towns. I moved to kalgoorlie about 6 years ago and in that time i’ve rented a 5 bedroom house (with a few mates) for $320 a week and it got sold at the end for $170,000, $250/week for a 4 bed house that cost $120,000, $200/week for a 2 bed appartment in a secure complex thats worth around $150,000 these days. I only decided last month to invest in property and havn’t done any fact finding missions regarding vacency rate, capital gains, state of the market but there are alot of mining towns all around this country and the 6 or so i’ve visited with work all appear to be the same.
Let your mouse do the walking and never give up.Hi thanks for that Ben.
I guess the things to ask if it’s a one industry town is a) is the industry on the up?
(possible expanding the plant, more people, more demand, capital gains and more rents)
or is the industry on the downturn
(possible closure, your house plummets in value, becomes negatively geared if no more tenants, or if tenanted means demand has gone way down so the yield has now turned to crap, no income now and can’t sell the place – no investors interested and no home buyers in sight.)
I think I read somewhere that mining in Aus is down, though whether that’s because they were running out of whatever they were mining or due to the world economy and demand, I don’t know.
but also add into the mix that most of the mining towns are remote and not on some main thoroughfare let alone on the coast or at least close to something, it seems these towns exist purely because of the mine. (or mill).
So your property fortunes will be linked.I think to buy in these places *could* still be OK IF people were crying out for rentals and there was high demand which was also expected to continue, if there were plans to develop, if the town had a long term trend of population increase not decline, AND the yield was super-high (20s to 30s) to make up for the risk.
I went to this place called Gove a couple of months ago and it’s a great place, lush and tropical, and though remote it’s on the coast, it mines something or other which you can see when you fly in, (bauxite perhaps??) and they are crying out for rentals, BUT houses are really expensive, so they wouldn’t be ‘cashflow positive’.
I would personally be looking to invest in places that are in transition (just about to go off, developers starting, houses still undervalued on a global scale, high yields in towns with stable populations and industries, within a couple of hours of major regional towns or main cities and airports etc, and on a main road so they get through traffic, rental demand, etc etc
but Kalgoolie is pretty stable isn’t it? Been there for yonks and is growing isn’t it??
cheers-
Minijoy to the world
) I don’t do wraps and never will. I am pretty much a tortoise in the RE game, and I work, so I don’t rely on the income of it. Actually, i have no income from it- just a few mortgages which will take me 20-odd years to pay for 
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