I have totally forgotten – what is the general rule of thumb to round off your rental return?
Say a property is purchased for 800K – what would you expect (or hope to) lease the property @ to keep it within 8-10% return?
Could you pls post the formular to work this out
Cheers!
BA very rough calculation i do in my head when looking at potential properties is that the weekly rental income needs to be around double the cost price (if you remove the thousands).
That is:
A property costing $400k needs to pull in $800 per week in rent.
A proprety costing $140k needs to pull in $280 per week in rent.This is an approximation, but it is useful in quickly working out in your head how close to positive cashflow a property is.
Originally posted by kirby_pk:A very rough calculation i do in my head when looking at potential properties is that the weekly rental income needs to be around double the cost price (if you remove the thousands).
That is:
A property costing $400k needs to pull in $800 per week in rent.
A proprety costing $140k needs to pull in $280 per week in rent.This is an approximation, but it is useful in quickly working out in your head how close to positive cashflow a property is.
But these are pretty tough to find in areas where you might reasonably expect normal capital growth.
As a property price rises then the expected yield tends lower.
Without knowing an area then it is impossible to predict return.
The local agents should be able to give you a feel for what rents might be achievable.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I agree 100% Mortgage Hunter, although your comments do seem a little off topic.
I guess most of us here are aiming at positive cashflow rather than capital gains (as is the recurring theme in steves books – make money from day1). Any capital growth is just a bonus.
Local rents are definitely a good place to get an idea for how much your house could be rented out for.
Thanks for your help every1
Obviously positive cashflow investments are v. hard to find especially in Bayside City Fringe locations – ie. Port Melb, South Melb and South Yarra.
I am currently researching for a friend, Property Developer, and compiling info on current market stats as well as rental returns. I will be in touch with my local agents to find out exact rentals in these vicinities.
I think the purchase price x 2 / 100 was the formular I was looking for
Thanks again!
B.Rent is really the key to the cash+ property, so start by understanding the rental markets in your target area.
What suburbs have places that vary widely enough in price. What suburbs have housing stock that is mixed, but with a decent proportion of unimproved properties.
You probably wont be looking at nice bayside suburbs all of a sudden.
I don’t know anything about the Victorian market (I never leave Brunetti’s in Melbourne) but I think you’ll probably be looking for satellite towns that have welfare recipients shunted off into them. That used to be Frankston, but if the phenomena is the same across Australia it’s more likely Geelong or something these days.
Because there is an artificial lower limit in rent thanks to welfare, but not necessarily in the property market, this is a place to look for opportunities. [Assuming the experience translates].
Hi Beth_ Macleod,
I am from Melb, and I agree with glengyron; I am pretty sure you won’t find any decent rent returns in the nice Bayside suburbs. Plus, this is a high entry level area. Land value alone for a standard block is about $500k in the inner and bayside suburbs close to the city. This area is more for the cap growth. (read Monique Wakelin, Michael Yardney).
Satellite towns like Frankston and Dandenong (I live about 25 mins away from these two areas) and also Geelong, are historically low in purchase price etc, and the returns are better; but not that much.
Having said that, we own an I.P in Frankston (bought 2 yrs ago). We paid $156k for a 2 x 1 with a garage, and it returns $165 per week rent. Based on the whole purchase price, including costs, our return is approx 5.5% at the moment. That is not that good, but at the time it was all we could afford and we knew it would be neg geared, but we knew the area would boom soon. Ours is worth $175k now, based on recent sales, and we bought at the top of the Melb cycle apparently, so we have done o.k with it considering the market in Melb has stopped. On today’s value the rent return is only 4.9% approx.
You need to be able to add value somehow if you buy now as the rents haven’t moved much, but the purchase prices have gone up.
Frankston is a city that is going up, and has lots of infrastructure, schools, transport, proposed Marina and a new freeway extension into the city in progress. Worth a look.Cheers,
Marc.
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