What is considered a "normal" rental yield

I know there is no 100% perfect answer and I know 6% is considered to be fairly cash flow neutral.

I will explain what I am trying to do and it should give you an insight into why I need it.

I have built a tool that calculates all costs and payments and will plot it against what I electively pay as a monthly payment.

I have worked out that I need a yield of 4.85% for a bunch of properties to effectively not cost me any more than I currently pay. So is 4.85% considered to be a fairly easy yield to attract across IP purchases or do I need to lower my figures a bit to get a more realistic number?

Keep in mind, this is purely theory at this point and I know it can swing far based on suburbs and demographics and purchase price, for price I am running projections on 3+ br in the 400K price area.

 

are you calculating based on 100% LVR or your personal LVR,

for investment valuation, you should be calc on 100%.
and to get true true true cashflow neutral you need to be up as high as 8-8.5%

thats including, rates, water bills, PM management fees, insurance, lease fees

and thats not including vacancies as well!

 

It really depends on location.

6% in one place might be positive in one location but negative in another. For example Adelaide has cheaper insurance, council rates and strata fees than Brisbane has.

 

I don't know the terminology but here is what I have calculated:

(((Purchase Price * number purchased) * rental yield) / 12) * 0.6)

/12 gives me the monthly amount.
* 0.6 because I am allocating 40% for fees, vacancy and associated costs.

 

Basically what I am trying to do is work out the following:

I currently pay $3,200 a month MORE than my scheduled payments on my mortgage, how much can I buy and at what yield does it need to be before I need to sub in more than my $3200 extra per month.

 

Depends where and what point in the cycle the market is at.

Before an upwards cycle...you should be able to buy reasonable quality property at 5-6%. This was the case in Brisbane....now it is more like 5-5.5% due to increases in prices there.

 

I am really just looking for a benchmark, for example if I need 10% yield then it is clearly way out of my budget. I guess my question is is 4.85% a particularly difficult yield to achieve from day one in an averaged scenario.

 

Melbourne and Sydney: Yes
Everywhere else: No

SQM Research

 

I agree with @Befuddled - Sydney and Melbourne will prove challenging at this point, especially for a house.

I think it really comes down to where you are looking. The closer to the city you are looking the lower the yield basically.
Perhaps what you should do is work backwards from your target yield and find a suitable suburb. 4.85% can be easy or difficult to achieve depending on where you are looking.

 

Thanks guys, I am looking in the logan area in QLD.

Befuddled, thanks for the link, looks like I could be sitting pretty at around 5%

 

FYI i think it's more important to look at the average or median yield on a suburb basis instead of applying a broad brush to the whole city. The latter should be for macro level research only. The reason I say this is a 5% yielding house in Logan council is meh, but one within 10km of the CBD would be a great buy.

 

ive never looked at it as a % for fees but here is a formula that Iuse for a quick yield calc

(rent x 52 *0.923 (7,7%) - $1200 Rates -($300-$1200) Water - $800 insurance)/purchase price x 100

obviously depends on what the council rates are water rates are body corp or not

 

Or in my case the constant maintenance costs is killing my returns

 

It really depends on the cost of borrowing.

 

Baby Jebus... wish I had that money to put in offset.

I am not sure what your asking actually, if you buy neutral, you can still pay 3200 extra on your PPOR

This reminds me of someone I know, he has always paid way more than he had to on his mortgage, he also have moved many times, to be honest, he is no better off today than he was 20 years ago & still has a decent mortgage but a worse place (he bought and sold quite a few times and the renos sucked a lot of money from them IMO)

 

That's the difference

I "could" move to a McMansion in an area that is considered "better" but I am happy in my little townhouse and extra funds are better being invested in my future rather than trying to keep up with the Jones's

I didn't know any better at the time, it's all been changed around now with offsets and investment accounts and stuff thanks to my broker.

I did use this as a way to save also. My wife and I were both spenders back then and having money sitting there would have been too tempting in our earlier years, locking it away on my mortgage was the only way, it was either put it on our house or waste it.

 

This is so variable. I live in an area that has a rental yield of 2.8%, a median price of over a million and its not even anything fancy. I live in one of those $1.2M houses and its a smallish 1920s house on a small block and it needs a fair bit of work. You don't buy in this area for the yield, you buy for the capital gains.

 

lol, was just reflecting on some old posts and I came across this little gem, I completely forgot about this number but it's exactly what happened

Well that went well, Tenants found for our new place :)