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

So to recap the PM with @Big Will

The property market in our area has median rental yields of 5.9% for 3 bed house and 7.6% 3 bed units. Ours are duplexes and a house that are strata titled so don't fit easily in either category.

So obviously as investors we want to look at total ROI - both income and capital. So what makes you think a suburb is about to boom vs a suburb that isn't? From an investors perspective how much emphasis do we place on 'emotion' with I 'feel' like this is a hot spot as opposed to I've added up x + y + z = Boom. or is that the million dollar question?

 

It is the million dollar question, there are indicators out there but no results are guaranteed. If you are able to crack the code of where the largest growth was going to be coming from (e.g. over 10% capital gains p.a) you wouldn't be here. Instead you would be going to every bank leveraging as much as possible and purchasing in the boom areas.

E.g. 100k 80LVR = 500k purchase
Loan would be 400k so interest is or $20,000
Capital gains would be $50,000.

Profit $30,000 p.a.

You could leverage more but it was more about the concept.

 

What?

Commercial properties are a business premises, hence yeild is a factor when considering selling.

Residential has many more factors at play. I can think of 10 more important factors that would affect purchase price rather than yield. So why would you work backwards off yield to calc you SELLING PRICE? I use yeild as a function when looking to buy a property sure but I don't judge my properties worth on it's yeild..

Edit, what I'm trying to say is, I have never heard of someone pricing their resi IP to sell based on current or desired yeild...

 

Sorry to sound like an idiot.... but what would you say are the 10 more important factors? Just out of interest. I've noticed a few people in here get stung with maintenance bills on buying older homes... is that a factor in buying? I feel it should be.

The other question I have ... a bit off topic... is it seems a lot of people are focused on properties only within 10km of the CBD..... what is the magic of 10km from the CBD?

 

So you use it when buying but it cant be used as a rule of thumb to determine what the value is for selling?

Every method of determining the value has its flaws.

Why use comparable to determine the value of your property what if 3 idiots let it go really stupidly low are you now going to sell yours low?

Like I have previously mentioned there is more than 1 way to skin a cat and the only way to see the actual TRUE value is to sell it, all others are guesses.

 

Land is most valuable closer to the city, since generally land appreciates and buildings depreciate having a higher land content % in the purchase price will generally lead to higher capital gains.

With this in mind there is less area within 5km then at 10km or 20km from a CBD.

For example, lets assume every house is a 1/4 acre block.

5km - 78.55 sq km area which is approx. 19.4k acres or 77,604 1/4 acre blocks/houses
10km - 314 sq km area which is approx. 77,558 acres or 310,232 1/4 acre blocks/houses
20km - 1256.64 sq km area which is approx. 310,390 acres or 1,241,560 acre blocks/houses.

So there is roughly 4x more houses each time you double the area from the CBD.

Lets now pretend that each bracket you have 30,000 people looking at buying this year but only 10% of the houses will be up for sale throughout the year.

5km - there is 0.2586 houses per purchaser, meaning about 3/4 of purchasers will miss out or have to fall into the 10km, since there is such high demand then the prices will sky rocket.
10km - There is about a 1-1 ratio so supply and demand are even, vendors will get what they sort of expect, however if the 22,240 purchasers who missed out cross over from 5km then there is more demand then supply now (prices increase)
20km - In this bracket the supply of housing far exceeds the demand being over 4 houses for the purchaser. Even if the left over 21,217 purchasers moved from the 10km bracket to 20km there is still a 2.4 house per purchaser which means no real capital gain.

I know the above isn't how it works in real life but everyone wants to live closer to the city (generally speaking) due to better infrastructure, jobs, education, health, transport, shops, convenience.

This is why generally close to CBD stock will out perform out perform stock located further away.

P.S Mathematics is fun!

 

Looked at a few of your posts mate. You seem very disagreeable..

Yes I would use it as a rule of thumb for buying and not selling.
I want to know if it fits my budget and what the Cash flow impacts are of buying that priced property based on that yield.

Everyone's circumstances are different.
But I still believe working backwards based on yield to calc a sale price is relevant, considering over 70% of the market is made up of owner occupiers.

 

Thanks for looking at my post, I really don't have time to look at yours but you will find I am an agreeable person if what you post is agreeable (strange that).

Yes majority of residential properties are Owner occ how weird but thanks for the tip.. However if a property is rented or not rented you can still see comparable sales to get price.

You can also look at comparable rentals (as you will need this information if you become owner and renting) and work out a price based on yield or are you buying and just take whatever rent. If it is rented then you can see if the rent is to low (way to increase profits) or high (got to question why) but also what the property would be for that yield.

If you don't want to use this method that is fine no skin off my back however this thread was about how to work out value using yield which beyond any doubt you can do for BOTH residential and commercial. Remember there is value (what something is worth generally) but no method can accommodate the emotion factor.

I treat property as a business decision as you can tell and if the numbers don't stack then why purchase?