$390/wk rent, what should I sell for?

Hi everyone,

So I've got a few properties we've built and have on the market, they are rented for $390/wk each with most having long term tenants (2 year agreement with annual increases in place). less than 12 months old so significant tax depreciation benefits. Situated between Brisbane and the Gold Coast. What would you consider reasonable asking price??

I worked for a mortgage broker back in the early 2000's and I remember deals coming through where rent was $400/week so they would buy them for $400,000. Obviously the market is very different now but I still can't get my head around some of the investors I've spoken to that are wanting 8% rental yield or 5.5% yield net of expenses on our property. So I guess what I would like to know is how much do you think is a realistic price for a property tenanted for this price? Also what rental yield do you expect from your properties?

 

What is the median rental yield of the suburb?

Also what are comparable properties advertised and selling for?

 

What are the agents suggesting?

Rental return on residential is not a method for gauging value - the rent may be way off the mark (high or low), rates, insurances etc also differ.

 

Hi WGC,

There are a number of factors that determine the appropriate price for a property. Rental return does come into, but so do a few other factors

Ie) supply and demand for area
- location within suburb (desirable/not desirable)
- is the property typical for the area and what investors are looking to purchase
- how quickly you want to move the property
- how good your selling agent is

Do you know what comparable sales have achieved in the area or spoken to local agents to ask them what yield investors are looking for for that particular area. It does change depending on the suburb. So very difficult to approach it as broadly as looking at yield overall.

 

We bough the land with DA in early 2012 and we were quoted $360k for sale price on completion. The market was pretty glum back then in Brisbane. Tenants all pay for their water so net of water $670qtr on rates. The body corporate is $30/week and includes insurance, repairs and maintenance, future capital expenditure. The issue we have is there is nothing in the area similar to our product, most are old 40yr old plus houses so our properties are compared sale price to those sale prices.

 

We've had it bank valued quite a few times and even the valuer said it was difficult to find comparable properties in the area because ours are 3 bed, 2 bath, 2 garage whereas most 3 bedroom houses on the market are 40yo + 1 bath, 1 garage, no aircon.

 

There are numerous ways to skin a cat, yes it isn't 100% but it is better then stabbing in the dark.

If you know the rent is below market rate (or above) then you cannot use this method but if it is at market rent it is one way, otherwise look at what comparable properties are renting for

Most common ways are;
Comparable Method
Repayment Method
Investment Method
Residual Method
Cost Method

You can even look at the council rates to give you a better indication of price, however these are typically lower than actual value.

Ultimately the only way to know what price the property is to sell it, even bank valuations are most likely to be less than true value, however I have bought below what the bank valuation was (about 4% below).

If you went to a house and it was rented for $100 a week (market rent) and the vendors wanted 1M yet median yield was 5% and there was no other comparable properties along with no development opportunities, would you buy the property?

 

Agreed the only way to know what it is worth is to sell it. I guess what I'm worried is that with our campaign (which basically consists of realestate.com.au through an agent) that we aren't getting genuine investors, we seem to be getting bargain hunters. I guess I figured investors would look at two things - return on investment and risk. ROI being net income, capital growth potential and risk to that ROI. I feel that location wise and demand for our product is clear. We aren't selling something that isn't tested in the market, 5 units in the same complex all rented within 2 weeks of going on the market at the rate we asked, all tenants accepted the rental increases with most requesting long term contracts which we offered them 2 years (some wanted 5 years +). Risk to income is therefore low, we aren't selling off the plan with 'potential' rental return where people get stung. This is actual signed up paying tenants through a property manager. Capital growth potential - I know enough to know that I can make a few educated guesses but that is about it. The area is it is good, we are on the 'good' side of the M1 in a suburb that is having a lot of infrastructure being invested into it by the local and state government. New town centre, new plans have come through and plenty of places are being picked up by developers putting in apartments and units. Ours is differentiated from the market because we are duplex units and a house, one storey within a minute of the M1 so what we are getting are mature age tenants (that don't want to contend with stairs) that want a small yard for the grand kids that work in Brisbane, Gold Coast & Ipswich - so they are commuters and being close to the M1 is a major drawcard. Having said that we've done full acoustic report and acoustic treatments including fencing so they have access to the M1 but don't have any noise issues. Fair amount of development is going to take place so I think fair amount of capital growth but most importantly the development that is taking place around is not in direct competition to our product which means hopefully average property price goes up but none of that is in direct competition with our product because what we have is differentiated.

 

@WGC we really need more information then the rent to give you a better indication.

However if it is marketed and you have 100 people come through then it is probably priced low.

If you have 1 person come through you probably priced high.

It isn't where you start that counts it is where you finish

 

Most definitely - if the land was zoned R4 (high density) & if combined with my adjoining properties became a development site. You always need to know the full picture.

 

Yeah absolutely agreed with what everyone is saying. The offers we've had so far have the buyer is getting a return on investment after expenses at 5.5% yield, I have knocked back because I'm like well if it is net 5.5% why would I let go of it? Net 5.5% income yield + capital gains + depreciation benefits is pretty solid property investment and I'd want in on that. Our asking price is at 5.4% gross rental yield with net return on investment sitting at 4% + capital gains + depreciation benefits.

I guess what I'm trying to work out is
a) is my property priced correctly
b) is the investor market expectation really at 5.5% net or 8% gross rental yield or am I getting tyre kickers/bargain buyers?

If I'm only getting bargain hunters - how do I find genuine investors? Where are they hiding? How in the thousands and thousand of properties advertised on real estate, how do investors find the best buy if it is probably impossible to go through everything. I have considered going with marketeers however I tend to find the ones I've spoken to morally corrupt about pushing properties onto SMSFs and first time investors and I don't want to do that. I just want to sell a good product where they get the return they want at the same I get what I need out of it to go on to the next one.

Sorry so many questions!

 

WGC giving the yields means nothing unless you provide further information. Something in broken hill will receive 14% rental yield (taking a wild stab in the dark), where as 1acre block in Sydney would yield 0.

PM me the address, I am not looking at buying your stock (no offense, just not part of my strategy from the information you have mentioned previously) and we might be able to talk a lot easier in private.

 

I know we are just bantering but I did say no development opportunity, this would include rezoning and owning the block/s next door otherwise it would be a development opportunity.

So you still up for that million dollars, I will get something organized right now for you.

 

Why are you selling if you don't mind me asking? Good yields, solid area and potential for growth? Would holding on be better?

 

You could get 330 per week for a serviced apartment in the middle of whoop whoop worth 250k

You could get 320 per week in blue chip suburb thats about to boom for 500k

Apples vs oranges

 

He has PM me and I have given him a lot more detail feedback about the advertisement along with my thoughts on what the price is.

I have only given it about 30-45 mins worth of effort/thought but I think we would be 95% there. Just not going to spend hours looking at comparable properties to make it closer to 100% (no incentive for me haha).

I hope WGC appreciates the comments and if he wants to disclose anything that is up to him but I would be interested on the final outcome (either through PM or on this thread).

Best of luck WGC hope it all works out.

 

Sale price based on yield is more a commercial property rule of thumb

 

If you treat your property purchases as a commercial/business deal why cant it also be a rule of thumb?

I treat all property purchases in a commercial way.

I would rather $400 p.w. than $300 p.w. if the market allows me to, I am into property to make money not have x amount of them or be emotional about my purchases. Even my PPOR was more from the investment viewpoint then emotional. There is always another house around the corner.

 

Hey @Big Will Thanks for your time and feedback, greatly appreciated. The reason we are selling is we have another development that I've got going through DA, so we need to sell this one so we can move onto the next. Otherwise we would keep, we are planning to keep the next one. Finance was a hassle (to put it mildly) so it will be easier to get the next one through if this one is sold and we have more cash behind us.

 

makes sense, thanks WGC