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Is there a rule of thumb calculation for rental return?

Discussion in 'General Property Chat' started by Dan Donoghue, 30th Jul, 2015.

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  1. Dan Donoghue

    Dan Donoghue Well-Known Member

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    obviously I know there are market factors and the like but is there a general rule of thumb where I could guesstimate that property is worth X hundreds of thousands and should return X hundreds per week?
     
  2. Leo2413

    Leo2413 Well-Known Member Premium Member

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    I find the best way to work out the theoretical value of a property is to do research in the area for comparable sales, making sure your comparing apples with apples. That should give you a good price range indication of the value of the property. Now, what someone may actually pay for it can sometimes be completely different. Same approach for potential rent returned. just my opinion.
     
  3. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Not sure I understand the Q but here goes...

    I think you're looking at the "rental yield" for a suburb and property type.

    I've found realestate.com.au to be a great guide believe it or not. Why? It breaks down properties to bedroom numbers.

    Search for a place e.g a 2 bedroom apartment and click on a listing e.g.:

    http://www.realestate.com.au/property-apartment-nsw-marrickville-120353149

    Then scroll down and you'll see the median price and rental yield for a 2 bed apartment in that suburb.

    Click the rental yield figure and you'll wind up on a page with more investment info and filters e.g.:

    http://www.realestate.com.au/invest/2-bed-unit-in-marrickville,+nsw+2204?pid=investor:source:pdp:buy

    So if the median yield is 3.7% and you want to work out a rough idea of a weekly rental return on a place worth, say, $600,000, do the following:

    (600000*.037)/52 = $426.92/week
     
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  4. thatbum

    thatbum Well-Known Member

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    Are you trying to figure out the theoretical rent or the theoretical price?
     
  5. Gingin

    Gingin Well-Known Member

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    How long is piece of string?

    Depends on what your strategy is. You are young, CG may appeal to you as your income can support short fall.

    If you are dependant on CF+ , you need to let the numbers talk.

    Rick has software which may help
     
  6. Dan Donoghue

    Dan Donoghue Well-Known Member

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    Yeah sorry I have a tendency to be a bit vague at times :). I am looking at this from this point of view:

    If I were to rent my house out what would I get, it is worth around 750K if I were to sell it. My folks said in the old days you can calculate 750K to be $750 a week for someone to rent it off you but that seems extremely inflated to me.

    This is purely out of interest I am not making any plans to move or rent my place out.
     
  7. Chilliblue

    Chilliblue Well-Known Member

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    There is no real rule of thumb as each property in each market in each state is different at differing times.

    There are websites that will give you the median yield but these are umbrella figures only.

    Unfortunately no easy way.
     
  8. Greyghost

    Greyghost Well-Known Member

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    In your case, just look at comparable houses in the area, # of br's etc that are available for rent (previous posed spoke about RE.com).
    Market determines the price it will be rented for..
    I don't think your 750K = 750pw is of any relevance...

    Also, if you do go to list it, a reputable agent will tell you if your research based on above is on the money or not..
     
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  9. Leo2413

    Leo2413 Well-Known Member Premium Member

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    It would rent for comparable rentals in the area at the time. That's all. No formula is going to have any use here.
     
  10. Vassago

    Vassago Active Member

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    I use the $750k = $750pw estimate not for calculation of rent but for elimination of potential investments. That is if a property is $750k and based on my research the rental return will be less than $750pw I will normally eliminate that property immediately if I am looking for a buy & hold.
     
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  11. Dan Donoghue

    Dan Donoghue Well-Known Member

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    Cool thanks for the info guys, I looked at something comparable and it came in at 620 :). The only reason I wanted to work it out was because the missus and I were estimating and she used the hundreds of thousands value rule minus a little bit and I based off what tenants paid 2 years ago in another one on the block then added a bit. I said about 550 she said 700, new rule of thumb for me, both the missus and I estimate then somewhere in the middle will be reality :).
     
  12. Art Vandelay

    Art Vandelay Well-Known Member

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    Your folks rule of $100k per $100p/w is a good way to gauge the yield at a glance - which would be 5.2%
    If a property is renting for more than $100p/w for every $100k it costs, then your yield is higher than 5.2%. The opposite is obviously also true.
     
  13. 2FAST4U

    2FAST4U Well-Known Member

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    The way I judge rent is by looking at the suburb where the property is located and than going on realestate.com and other sites to compare what the median rent price is for the suburb, yields etc. and match my rents along with them. I'm not too familiar with the Sydney market but in Adelaide the further out you go the better the yield you can expect.
     
  14. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    The further away from median the value gets, the more the deviation from 5.2% it seems.
    Lower priced properties usually go above this rate as a gross return, and then there's multi million dollar properties which may only yield 2%.
    Residential obviously.
     
    Last edited: 30th Jul, 2015
  15. Bayview

    Bayview Well-Known Member

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    No.

    Every area has it's own rental yields, based on the demographic (wage level) and rental demand.

    The only thing that is probably accurate is the higher the property price is, the lower the rent yield will be.
     
  16. Big Will

    Big Will Well-Known Member

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    For Sydney typically you would be looking at around 3-3.5% yield (again depending on area). In Brisbane you are probably looking more 4-4.5% yield. Yes you can get 6%+ yields in Logan but I don't classify that as Brisbane.

    These are rough figures and using RE.com I find is a good start but the best is look at comparable and if you are in QLD you can look at the bond claims for their median price for the suburb as this is closest to actuals.
     
  17. wylie

    wylie Moderator Staff Member

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    For a long time, the houses we were looking at (and buying) were pretty close to $150K purchase, $150 per week rent, $300K purchase, $300 per week rent. That seemed to be the case for many years, and made for a quick, easy, back of the envelope way to work out if this was a good deal.

    It has not been like that for quite a while now. I'm guessing your parents are likely my vintage, and probably used this as a quick calculation like we used to?
     
  18. Big Will

    Big Will Well-Known Member

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    Brisbane used to be about 4.5-5% just found in recent times it has gone back. When dad was actively investing it was about 5% (400pw for 400k). However with lower interest rates the yields have suffered.
     
  19. Befuddled

    Befuddled Well-Known Member

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    Historically, do rental yields track interest rates?

    I know rental yield is primarily a function of rental demand and supply but wouldn't an increase in interest rates put upward pressure on rental yield and vice versa?
     
  20. Big Will

    Big Will Well-Known Member

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    Has an influence in an indirect way, low interest rates typically mean more investors and owners which means more stock able to rent and less demand (as renters might be now owners) means lower rent.

    Higher interest rates typically mean less investors and owners which means less stock but more demand so higher rent.
     
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