ATO Data on IP Ownership - The Truth

ATO data for 2015-16 shows that about 2.1 million persons have an interest in an IP. Just over 20000 persons have six or more, a very small number of the15 million working Australians.

If my math and assumptions are correct, assuming a net rental yield of 2.5% you'd need to own $2.4 million worth of IPs outright to earn a comfortable retirement income of $60000/annum to avoid relying on the age pension. It's not hard to envisage this might require owning 4-5 properties, or 2-3 assuming your income was supplemented by some superannuation. Reaching such an objective can easily take one's entire working life and Labor want to make it even harder.

 

You got figures for people who own 7,8,9,10 -- up to 20 investment properties? I'm still trying to find this information for a research document. I cant find that info anywhere at all not sure if that even exists.

 

No sorry. ATO lumps 6, 7, 8, etc. into the one group.

 

i look at rental loss over 900k people..

Sheep counter = 900k

 

"Assuming a net rental yield of 2.5%"

^^^
There is your problem.
I don't know about you, but personally I like my rental yield to be much higher then that.

 

So do I. I did say net not gross. So gross yield would be higher.

 

Even my net yield would be much much higher.
For example my gross yield on my current IP is 7%. My net yield is somewhere between 5 - 6%. (No mortgage, so only minimal holding costs).

 

$2.5 million at current market value.

Please note you may have purchased 10 years ago and purchase price may have been 900k.

If so this scews the yield curve dramatically.

Did I understand correctly or am I off ?

 

If you bought 10 years ago $ 2.4m could be 12 very ordinary houses houses, if you bought recently 8 houses . If they are paid off and you got very ordinary rent and had highish expenses at 5k, You should still net 13k a house or about 4.5% yield . So it would give you about $100- 150k depending when you bought.

 

Way too many assumptions to draw any conclusions when looking at the entire population and comparing single investors data.

An inner-ring Sydney property is worth well in excess of $2m, gross yield <3%, net yield EBITDA <2%

Land tax will reduce net yields considerably for land-rich owners

 

As always, this data doesn’t include properties owned via companies and trusts.

Lies, damn lies and statistics etc

 

It's very easy to think of the numbers in a linear fashion. In fact, it's the way our brains work and we struggle to perceive the compounding effect of holding assets.

I use the 1 cent example often:

If you have 1 cents and double it, tomorrow you have 2 cents...on day three you have 4 cents and only day four you have 8 cents, etc. How long does it take you to get to $1million?
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It's a surprising 27 days! The main point here is that you made the vast majority of your wealth (well over 75% of it) in the last 10% of the time frame. Of course, this is compounding at 100% per day which isn't realistic, but the theory is the same. We struggle to perceive the compounding of growth rates and therefore investors often sell too early. If you hold on long enough (and have the time frame to do it), there's a big chance it will only require one sale to pay off the rest of your assets and achieve that retirement figure you're looking for.

(How many of you actually got your calculator out to check that 27 days? )

- Andrew

 

+1

 

whinge whinge whinge. Each government makes policesp based on what they want to achieve.
Labor seems to be more concerned with housing people rather than lining your pocket. LNP made a number of policy choices that are economic vandalism but are celebrated by the Gray voters or the misguided voter that believes they did it all by themselves. Just be glad that any of your current properties can be neg geared and have 50% cap gains reduction. Personally I'm looking forward to it, new NRAs and the opportunity that it will bring and/or the opportunity for small block development.

 

your yield is based of purchase price or current market value ??

 

Current market value.

 

not bad.


details ? just roughly no need specifics like suburb and unit/house and rent vs market value will be good.

 

It's a duplex in Toowoomba, QLD.
Value ~ 400k (based on real estate appraisal, needs a an actual vaulation as we have just renovated. Bought last year for $300k.)
Rental income - $285 per unit per week.

But finding good yielding properties is possible in a lot of places, you just need to be willing to accept smaller capital gains. So it's looking what your overall investment strategy and goals are when purchasing.

But even when we built our IP in Canberra (3 bed house), we had really good capital gains, but our rental yield still started at about 5% gross. (We now live in that property, so not entirely sure what the gross or net yield would now be, IP costs have increased a fair bit in Canberra over the last few years).
We don't even look at properties that are looking to return less then a 5% gross yield, because of serviceability issues. Leveraging isn't a big issue for us, as we have lots of equity; we just cannot seem to access much of it without actually selling.

Armidale NSW is another location we have found to have good rental yields, if you look arpund for the right properties. Again, not that good for capital gains though.

Our strategy has always been buy and hold though, our plans being to use rental income to subsidize our lifestyle and fund our retirement. Our goal is to have 3 or 4 IP's paid off in full with decent rental income to support our costs of living in retirement, and a PPOR paid off in full to live in ourselves. Then on top of that super and other investments which will mean we don't just get to live a quiet life in retirement, but that we can travel and do whatever we want to do without worrying about relying on any pensions. I want a lot more then just 60k pa to live on in retirement. But just two IP's with decent rental return will get me 50 - 60k gross (at todays rental rates).

Our serviceability sucks, so rental yield always plays a big role for us anyway. Good rental yield means the property isn't costing you anything and it is putting money back into your own pocket. People get caught up chasing capital gains, but they forget that rental yield itself can be a good way to get a return on your investment as well. If you buy positively (or even neutrally) geared, you can make it pay its own mortgage off, and then its just paying you profit; and you can potentially earn more profit over the years from rental renturn, then you might have gotten from a sale of a house chasing CG. It pays to sit down and do the math. Obviously capital gains is good as well, but its not the be all and end all.

 

I've always wondered if people with a block of units (not strata titled) fill in their tax returns as one property, or one for each unit.

Apart from that, our properties might show as negatively geared, but the interest is paid to a related party, and comes back to us.

The ATO really could get a lot more useful information by asking the right questions!

 

If you buy for yield then capital gains are potentially irrelevant. Capital growth is preferred over capital stability of losses of course.

We see that issue with shares. Someone bought original CBA shares in 1991 at $5.40 now receives $4.31 pa fully franked. Yield (ignoring tax refunds) is 79.8%. And none of them consider selling them as there is just a huge tax bill expected and they cant reinvest the proceeds elsewhere even if they do sell these shares at $73.28 today

Its important that yield is not based on current market value but on the amount of the investment. And given that loan balances dont vary with market prices then the upwards change in value increases equity and also potential rental returns since rents may be typically based on a present yield of say 3.5% pa.

A true property investor position will also reflect their proceeds invested. In year one they may have invested $0 as they borrowed 108% incl acquisition costs. But after 15 years they may well have solid equity and also be producing income. For what remains a $0 outlay investment

A property purchased in 1991 for $100K may well produce a rental income of $25K a year. Yet many people would assume its yield is meant to be 3.5%. Thats fairly meaningless other than as a benchmark for rental income at the present value.