WA Where to invest 600k in Perth - With high rental return (%4.5 above)

Discussion in 'Where to Buy' started by icic, 14th Dec, 2017.

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  1. icic

    icic Well-Known Member

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    Hey all, I am currently doing some research on the Perth market and I am searching for a house or a townhouse at the 600k mark with a minimum of 4.5% return as a requirement by the bank. As I am not a local, would be great if you guys can point out some of the suburbs and areas where I would likely to find it. Thanks in advance!
     
  2. Matthew Hughes

    Matthew Hughes Well-Known Member Business Member

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    In the current Perth rental market, finding a property with a minimum of 4.5% is not likely going to be straight forward and will not only be suburb dependent, but property specific as well.

    Depending on whose data you use, but let’s say we use REIWA data (see link below) the current Perth Median is $510K (as at September 2017) and Median Perth House Rent is $350 per week so based on these figures the Perth Yield is currently sitting around 3.6%. We are all seeking to outperform the market where possible on this forum, so the best advice is to get a solid strategy in place to start researching possible areas to gain that higher yield. Buyers Agents will generally have research on this type of request by collating information from various sources – for example you might want to consider cross referencing supply criteria (reviewing ABS data for areas with not too high % of rented dwellings, calculating current vacancy rates, anticipated yields etc) then referencing this across demand criteria (who are the demographic – professionals who can afford to pay higher rent and are looking close to the city or major employment centre, or professional families looking to rent within top performing school boundaries etc).

    Generally, closer to the city and northern suburbs will perform better, but they are likely to be above your $600K price point as well.

    Hope this information helps, it’s a great time to start focussing on the Perth market now, but we have a bit to catch up for rental yields to get back to where we want them to be – it’s only a matter of time though!

    https://reiwa.com.au/the-wa-market/perth-metro/
     
  3. icic

    icic Well-Known Member

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    thanks for your detailed answer, in relation to the areas closer to the city, we are happy with duplex and townhouses as long as there's a decent land component. Would that be an issue for this budget?
     
  4. Anthony Brew

    Anthony Brew Well-Known Member

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    Could you expand on what specifics are you looking at in the property itself?
     
  5. Matthew Hughes

    Matthew Hughes Well-Known Member Business Member

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    That shouldn't be an issue for your budget, but I expect you would be looking for the right type of property to suit the demographic to pay the premium rent to get the higher return you need (eg professional couples who want to rent a townhouse would ideally be looking for a high spec modern designed townhouse close to the city over a larger land component as it's unlikely they'll have the time or inclination to maintain gardens etc).
     
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  6. Matthew Hughes

    Matthew Hughes Well-Known Member Business Member

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    The property specifics will come down to the demographic and demand, as mentioned above for inner city living you would want to focus on an up-spec townhouse/villa (or even a smaller renovated character house) with limited maintenance required by the tenant (but needs design features/location that the professional demographic will pay a premium for over other rentals), however if looking more in the northern suburbs or focussing on high performing school zones, then family living is key (again needs to be modern and high-specification to get the premium rent), these families would be looking for specific accommodation requirements (4 bed, 2 bath, study) with a land / yard component (even a pool) etc.

    I have just been looking at some property in Manning and rents range from high $200's to low $500's per week due to the diversity of the property available and who their target demographic is.

    @icic It may even be worth looking at something with renovation potential to buy at the lower end, and add a kitchen/bathroom renovation to get the higher rent, maybe something to think about as well in your research?
     
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  7. icic

    icic Well-Known Member

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    What are the trendy and convenient spots if you don't mind name some examples.


    I am also considering those, if there's a good compromise between convenience, land content and demand, again would be great if you can give me some examples if you don't mind.

    We are not looking for a renovator kind since we are interstate from NSW. We don't want to get too involved as it's a 4 hours flight and it's for SMSF. We want something nicely done on day 1.
     
  8. Matthew Hughes

    Matthew Hughes Well-Known Member Business Member

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    I've just had a quick look at data on Median house prices around the $600K mark with a rental yield above the 4% mark and a couple to note are below:
    • Connolly – Median House Price $640K, Median Rent $520, Yield 4.2%
    • Mindarie – Median House Price $650K, Median Rent $540, Yield 4.3%
    • Samson – Median House Price $587K, Median Rent $500, Yield 4.4%
    Noticeably these areas have a higher median age according to the 2016 Census, an indicator of the type of demographic that are able to pay the premium. These will be a mix though of lifestyle living close to the ocean or family dwellings with land component.

    Trendy areas for professionals in Perth include areas like Highgate, Mount Lawley, Leederville, West Leederville, etc - the median house price is generally above your $600K budget for these areas, but I wouldn’t discount them based on this as the stock you will be looking at varies and likely to be available in your budget (it’s just about whether you will get the returns you’re after at this stage of the market).

    Interestingly, it seems to be the areas on the outskirts of Perth with greater rental yields (and lower median house prices) such as Bullsbrook, Brookdale, Parkerville - however the risk with these areas is vacancy and generally lower growth rates (lower population and demand) but they appear to be doing quite well on the rental yield side of things (however taking into account areas like Brookdale have been hit with an 11.9% drop in annual growth). More food for thought though in your research!
     
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  9. Big Daddy

    Big Daddy Well-Known Member

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    Alexander Heights : Yield about 4.5%
    Buy $420,000 (House)
    Rent $370 PW

    These are yields for the entire suburb and does not take into account property specific or particular pockets of the suburb.

    Dont just chase yield because if the median drops another 20k and rents remain the same then your yield increases but your happiness decreases
     
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  10. Anthony Brew

    Anthony Brew Well-Known Member

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    @Matthew Hughes, @Big Daddy
    Are these yield numbers from realestate.com/invest ? They use an average over the past 12 months so could be off since both prices and rents have dropped a lot in the past 12 months. Actually I would say they are off since their site says far below the numbers you are quoting.
    Is there another site that offers this info with more up-to-date numbers (preferably fee site if it exists) ?
     
  11. Big Daddy

    Big Daddy Well-Known Member

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    Yes , see link below
    Alexander Heights Property Market, House Prices & Suburb Profile

    Each site has its own way to calculate medians etc\
    Unadjusted Median
    • REIWA
    Mix-Adjusted/Compositional Change
    • ABS
    • APM – Price Composition Adjusted
    Regression-based Techniques
    • Residex – Repeat Sales Method
    • Rismark – Hedonic Approach (RP Data)
     
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  12. Kate Hill

    Kate Hill Active Member

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    @icic

    When doing your calcs, don't forget to factor in the crazy high property management fees over there (approx 10%).
     
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  13. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Unfortunately you're probably going to have to put some rings around the CBD like you do with every state and work out what your money can buy in the sub 2.5km, the sub 5km, the sub 10km and sub 15km rings.

    Suburb wide rental yields can be deceptive due to the diversity in each suburb. A 3 bedroom 1960s villa vs a 3 bedroom 1980s villa vs a 3 bedroom 2010 villa will all say they are 3 bedders but the yields may vary greatly.

    If it's for a SMSF what are it's other criteria? You won't be able to renovate a SMSF property if you are borrowing so you are looking for something relatively new or already renovated perhaps?

    Yield is often related to the number of bedrooms. So a 2 bedder will have a lower yield than a 4 bedder BUT it doesn't take into account the land component or capital growth.

    As Perth market picks up yield will pick up but at the moment I would assess each dwelling in your price range on it's own individual merit. Try and get as close as possible to the city if you can to try and get the best change of CG.
     
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  14. radioactive

    radioactive Well-Known Member

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    Hi Matthew

    Just curious to know your opinion on suburbs like craigie,padbury,heathridge and beldon?
    Recently I see many newly built houses in these area but CG has been negligible for past 10 years despite being conviniently located to CBD and beach.
     
  15. spoon

    spoon Well-Known Member

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    Yes, that's something I learned. I have a block of 660m2 land with a 1940 2 BRs old house. When Corelogic quoted it is only a 2 BR when comes to price evaluation but an empty block up the street sold for 40% more than the estimated price. It is the land component. The good old CG vs CF+ argument.
     
  16. Spiderman

    Spiderman Well-Known Member

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    Another thing to note with the WA market is that property managers charge more than they do in the east (often 9.35%). Not only a high base rate but lots of extras as well.

    So even if you can get a good gross yield, check that your net yield is OK as well.