property yields

hi - generally what sort of property yields are considered good investments ( gross and net basis) and is it calculated usually at inception or as an ongoing basis too?

What sort of yields would be considered good in this current market, given that rents dont seem to be moving anywhere near as fast as capital gains (especially in Sydney).

 

@slumdogmillionaire: easy, if your rental yield is higher than the interest rate that you are paying against the bank, then you are Cashflow positve.

in this current market in Sydney, 4 % is considered good with mostly 3% in average.

 

Be careful when looking at yields on their own. Whilst gross yields are a quick umbrella comparison tool, the actual figure may be not be a true representation of the asset.

Calculating net yield will give you a better indication of whether your investment will be self-sustaining.

On saying that, if we are going with gross yields, a property needs to be a minimum 6% return with an ability to add value. Prefer 7%+.

 

@Chilliblue is that yield rate possible to be attained in Sydney house in the past ?

my understanding is that yield for house will be always low, but it wins in terms of Capital Gain when you sell it later.

 

Depends who you ask.

Ask a real estate agent, and any yield is a good one to them - means a possible sale if they can convince you that it is good.

No it doesn't.

As a general rule; approx 15-20% of the rent will be swallowed up by holding costs not including loan interest.

If the entire purchase was borrowed funds (using equity for deposits etc) you will still be neg geared unless the yield is a few % higher.

 

Historically yields generally much higher but so were interest rates.
Yields for houses haven't always been so low, after periods of recession for example when the property market has been depressed and full of pessimism yields have been much higher.

 

@Bayview, @Biz and @HUGH72 thanks guys for the clarification.

 

I have seen many 'self funding' investments go no where in many years. Decent CG potential has to factor in somewhere in the equation, otherwise its pointless, imo.

 

• First IP was 5.09% (now 5.54%)
• Second was 4.47% (tenant was paying under market, soon lifted to 4.78%, now 5.2% just over a year later)
• Latest is ~4.5%-4.8%

These were purchased with the aim of achieving good capital growth so I was more than happy with those yields.

If I was chasing cashflow, nothing under 6.5% would suffice.

 

Your own property investment structure will depend on whether you chase yield, growth or a mixture of both.

Lower yield does not equate to higher growth.

 

Just interest?

 

Hey,

I do not really focus on yields, I look at the whole package.
1) Development potential - Low yields can be increased by the development opportunity.
2) I have bought property where there was a lease agreement in place, the rent was really low but i was able to buy the property at a low price and then renovate and flip.
3) With investment interest rates heading up, I think its important that you are buying property not just for yield but for growth.

 

Steven..where did you get your latest place?

 

I think most investors as they expand their portfolios will seek out a mix of both property types - CG and CF (though not always in the same property!)

 

Revealing all in a few days

 

Such a tease!

 

Do these include the cat fee?

 

OK let us know when it goes unconditional...

 

Generally 7.5 to 9 for me.