my gross yields have dropped

Rents always lag price growth. Prices can literally go up overnight but rents are locked in on 6 or 12 month leases. This is perfectly normal.
When price growth slows or stops for a breather, rents typically go up still, until rental yields return to more normal levels again. Then investors buy for rental yield, pushing up prices and the cycle continues. You can't decide to sell based on this kind of normal market behavior IMO.

 

That is the strangest explanation I've ever seen. Bat **** crazy in fact.

It's been a few decades from school. But I'm pretty sure the teacher said you can't divide a number by zero.

I have no debt - what is my yield?

 

If no debt then divide income by value. Its just another way of looking at it that others have alluded to in this thread as a gauge of yield using debt.

Not that hard to conceive is it?

Cheers.

 

It's very hard to conceive rental yield has anything to do with debt. In fact it's impossible as I stated.

You then change it into something else - so the metric you are describing is not rental yield at all. Perhaps it's debt to rent ratio or something.

 

Lets leave it at that then.

I usually talk to people online the same way I talk to them in person, just saying

 

Different strokes for different folks I guess.

Hard to give advice on your particular scenario.

However, for me if I have an opportunity to make more money from selling a poor performing asset I would not think twice about it.

One thing I have learnt over the last 3 years, wish I knew this much earlier.... if you start trading property its critical to get the right tax advice and I mean have the correct structures. I am currently saving a fortune on tax, because I switched to an accountant who is very smart and thinks outside the box and most of his clients are high net worth individuals, he has some very clever ways to minimise tax.

MTR

 

I sense that I have offended you - no intention. I'm not sure what I have said in this place that I wouldn't at the local pub.

There are lots of metrics used to evaluate investments. Not sure how the rent to debt ratio is useful. Perhaps as a measure of how much debt to take on/taken on?

 

Makes sense.
I think it could be a useful metric for directly comparing rental yield to the IR on outstanding debt which will give you a margin. Eg yearly rent 180,000 debt 1,600,000 rent/debt 11.25% IR 4.25% gross margin 7%?
Not a conventional way to look at rental yield but interesting.

 

No sweat @Ed Barton if you talked to me at the pub like that I would probably interpret as confidence and want to no more.

 

In my opinion you should use current value to rent.

Otherwise your numbers become very distorted.

E.g.

One house bought for 100k now worth 400k and rents for 400 p.w.

Using original purchase the yield is 20.8% yield - sounds amazing compared to the 400k being 5.2%.

However if the median rental yield is 8% you should be getting 615 p.w in rent which you are unable to determine using your 'bought price'.

Really blowing it out of proportion my parents had a 2 bed unit in st Kilda and sold it for ~30k if they were getting 600 p.w (not unreasonable) their yield would be 104% yield (sounds stupid to me).

 

Its just a tool for initial purchases and probably better described as a yield to debt ratio rather than a yield to value ratio. No biggie.

 

Its legit;

How to Calculate The Debt Yield

I cant ever remember reading about it but perhaps I did and forgot or just one of those things you manage to realise yourself?

Seems like a more accurate way to determine yield based on total debt involved as thats the true return on investment to me. Would be best applied as a pre purchase metric.

 

How does any of that help anything?

 

Read the link.

 

I read the first line. We're discussing residential here not commercial. Debt has absolutely nothing to do with rental yield.

 

2 things I see...

The debt part ignores cash position, such as say offset

With resi your looking for CG, without the growth, it is not worthwhile for many places.

 

Hi Colin
I am very familar with a similar debt ratio
The banks explained this to me 20yrs ago and i include a similar ratio each year with my reports
I use interest cover (to net income)
It's very handy to show ability to pay principal and ability to cover interest movements
Eg
Net income $3m
Interest $1.3m
Interest cover 2.3
In recent discusion with the bank a 2 times cover is considered adequate
(When interest rates were high the considered cover was about 1.65)
We are required by the bank to maintain a ratio higher than 2.
Important point you have featured Colin keep the good work up.

 

Hi ed
This particular ratio (see my posting on a similar ratio) is not really used to evaluate investments but more for the banks to assess ability to withstand interest changes and principal paynents
Ps I am not a banker but i have had many meetings with bankers reviewing my financials
When i run out things to do i will do a list of ratios and the worth of then!

 

Both yields are useful
On cost. .its a nice pat on the back for a good choice of investment
On market ...creates a question ...should i hold sell or swap

 

Exactly, that was the original question before we went off topic.

QUOTE="Beano, post: 269231, member: 5112"]Both yields are useful
On cost. .its a nice pat on the back for a good choice of investment
On market ...creates a question ...should i hold sell or swap[/QUOTE]