I am looking at buying a house in a rural area of South Aus for $100,000. It is currently being rented for $150/week. Is that considered a good return? Any comments would be great
Hi DS,
Rent return is 7.8% which probably would not leave a great deal of surplus rent after all the bills have been paid.
Looking at the price I assume this property is a smaller country town – if this is the case you may be in a position to negotiate heavily on asking price.
But rent return is only one part of the equation as you also need to consider what sort of capital growth you can reasonably expect for this property.
Further to Derek's good comments – financing may be an issue too depending on the size of the town.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks for your comments! I am buying the house off a family member so interest won’t be as high as it would be if I was dealing with the banks. What would be considered a good ROI for small town properties? I can’t seem to find a website that tells you what an acceptable return would be. Thanks in advance
Old time historical returns used to be about 10% of the property value as payment for rent … per year.
As you might guess in the modern era .. with much more flexible monetary practises for borrowing … there has been a new standard of acceptable returns allocated to the property market.
The return/value equation seems to make 5% the new acceptable return. As far as accounting goes its easy. At 5% return on a 360,000 dollar property .. you would be expecting a rental of $360 per week (roughly). And that seems to be the accepted standard that is used at the moment.
This of course varies with risk levels and area. As you move into higher risk areas .. the level of return goes up .. but the chances of either longer term capital growth or rental increases .. is significantly less.
So as you move into inner city areas .. with a good chance of achieving a rental .. the rental rate drops .. and continues to drop the further in you are. In some suburbs they accept as low as 3.2% return just for owning a perceived solid asset.
Whereas in Mildura and Horsham at the moment its possible to get 8% or higher. And thats balanced with the current risk levels.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
