Minimum yield for CG properties

Hi all,
As we all know, there are two main financial factors in property: CG and yield.
We all care about both of these factors, but I think in general each one of us is either more inclined to CG or to yield.
Personally I'm a more CG kind of guy. For me property investment is all about leverage, and CG is where the leverage comes into play and one can increase wealth substantially. However, CG properties tend to be negatively geared and need financial TLC until they can be self sustaining (if ever).

I'm only starting on my property investment journey here in Australia (has some good success overseas where I come from) and was wondering what is the minimum rental yield that you will accept in investing in a property for CG purposes?

For me, assuming there is good deprecation, 4.7% is the minimum (still neg geared) with 5.2% to be a target that will give me neutral gearing (assuming all funds are loaned).

So, what do you all look for when assessing the rental yield of a potential property?

 

High capital growth does not necessary equal to low rental yield.
You can still get high rental yield in high capital growth area.
After high capital growth it will result in low rental yield.

 

Right, but once a market is rising, prices increase and yields decrease.
If we take away the more speculative areas for investment and concentrate on capital cities, yields are pretty poor.

Looking at <15km from Brisbane CBD, unless I'm missing something, I can't find a house in a decent suburb with yields over 5%. If I go for a unit/th yields will be better but CG potential is lower. Same with going further out to Logan or Ipswich; yields will increase but CG potential decrease

 

Man ha

Chasing CG, one of the most important factors to consider IMO far more important than yield is the market conditions where you are planning to buy, if you focus on areas where there is high demand and low stocks, your success of achieving CG will increase, Why ? because demand drives the market up, lack of demand means prices fall.

Buy blue chip properties for growth - but get the timing wrong regardless of whether it is blue chip you will be screwed, for example if an investor purchased in Syd in 2004 they purchased at PEAK having to wait 8 years, 2012 for growth, ouch you need deep pockets and its a long time between drinks.

Mtr

 

Also the high CG property if negative gear will eventually become positive geared.

Roughly a property will return about 10% p.a. I find and this is broken up between CG and yield.

For example, a property might have a 6/7% yield however it will likely only grow at 3-4% which might be similar to a country town.

Another property might grow at 6/7% but only yield 3-4% take Melbourne/Sydney for example.

Yes I know some properties do better than 10% and others do worse this is just a generalization.

 

Not necessarily, if you raise rents and/or if interest rates fall.

 

How the hell did you necro a post from nearly a year ago lol

 

Hey I like that term - necro

Not sure how I saw the post. Thought it was in page 1 of the general chat forum - maybe I pressed something by accident

 

All good was just reading my post before and was like I don't remember writing this any time recent then looked at the date and was like wow how the hell did max see this post haha.

 

Ask yourself:

• Can I cover the shortfall?
• For how long?
• Am I comfortable with this?

Ask your broker:

• Will it stop me getting to the next, and the next, and the next, and the next?

The final question is by far the most important.

After that, do what you need to do. I bought stuff with CG a priority and cashflow a secondary, but still an important, factor in enabling me to continue buying.

The range for me has been 4.5-5.2% so far.

 

Depends how much money you can borrow and cash you have and what are you looking to spend. If you have 500K or 1 million dollars in cash to spend the types of properties you look would be different? Would it be worthwhile buying 3 X properties for 350K each which would be positive but 3 years down the track be worth 15% more? or would you gamble or a dev site and borrow more to make 30-40% more. One could be 210K but other other could be 500K CG. It is all subject to level of risk, return, and your ability to borrow with your cash base.

 

Is that gross or net yield ?

 

Gross.

 

It sounds like you have experience investing in real estate overseas, you like leverage and your after CG asap with supporting yields.

If you have the finance and the drive, I would choose one of the more proactive 'value adding' strategies to get you the cake and the icing

 

What we or others do has nothing to do with what is ok for you, and I also dismiss this notion of needing low return for good growth, unless one is specifically talking about Sydney at the start of the 2 recent fantastic runs.

5% return for me means it has to be at the start of an obvious cycle.