Your Minimum Acceptable Rental Yield?

Hi realist, there is no guarantee for capital growth but what is gauranteed are your holding costs. If interest rates go up, these will also go up and you may be holding onto a property that might not increase in value for a few years+. It will take many rent rises in order to get you to a 4% or 5% yield.

I hear what you are saying about capital growth though and it's worked for many OO who have bought in more inner city areas. It's a tough call that you have to make as to what strategy you follow.

Margaret Lomas advocates for a balance between growth/cashflow and to me this makes a lot of sense. My first property had a yield of 5.85% (now 6.12%) and this new one will be 4.85% and it will take another year or two to get above 5%. I think a yield of 5% is good though with some depreciation and I don't mind average CG (5%) because I'm comfortable with the holding costs.

However, my question for you is...

Whats your back up plan if you don't achieve the capital growth you want in the next 2-5 years? Will you be okay with holding on costs / waiting on the sideline until this happens?

Just something I had to weigh up personally too...

 

@Big Will What suburbs are you looking, if you don't mind?

 

It is in the south side of Brisbane is where we have bought (hasn't settled).

 

Thanks a lot mate. Those are really good questions.

My plan B, in case I don't achieve the desired growth in the next 2-5 years, would be to just keep holding the property. My strategy is actually pretty boring, simple buy and hold strategy for 10-15+ years. Of course, the trick is to be able to hold it for such a long period, which I believe I would be.

Good work on achieving such a good yield. Was it a townhouse maybe?

 

Yes, the first one is a townhouse

Don't worry, my strategy is like yours too - buy and hold up to 20 years, and then review. Add, change or drop along the way...

 

My 3 ip's in Brisbane have yields of 4.9, 5.4 & 6%.
I consider them as capital growth properties as I've managed to pull about 150 k equity from 2 of them

 

Is your yield a net yield after repairs rates and insurance ?

 

Are your yields net yields after all expenses (except interest and tax) ?

 

The yield valve is based on (weekly rental x 52) / purchase price.
E.g., my 4/2/2 in Wynnum has a weekly rent of $540 so 540 x 52 / 465000 = 6%

About a year ago my return was 6.3% (560/wk), but had to reduce due to pressure/ supply in the area.

 

So it's not yield at all.

 

What are the cost as a % of the rental ?
Rates
Insurance
Repairs
Replacement of assets that wear out eg stove . roof . hot water cylinder . painting inside and outside .carpet . vinyls . etc

 

Yes you are correct
I like to see how much the property really cost ...otherwise you can never work out the profit

 

And costs include management - about 10% of gross rent.
And vacancy - you will rarely collect 52 weeks. Better to use 48 weeks.
This is why your initial note re 3.8% gross will have you in the poor house

 

Yes you are correct with all your points
With many of my properties where the tenants pay the outgoings i would not have a clue in the world (and i do not care to know ) what the gross rent is
I also allow 4wks a year for residential
Three weeks for commercial
Zero for my land rentals
I also allow management fees too
9pc for residential
5pc commercial
0pc land rentals (sending out one invoice for 7 to 12 yrs is pretty easy)

These are all real costs

 

H

Hence ...I love it where the tenant pays all outgoings!