minimum rental yield you would take for a buy/hold IP?

minimum rental yield you consider for a buy/hold IP?

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mixedup

mixedup

Would be interested to know what the minimum rental yield you would consider for a new rental property if buying currently? Assume would be for a buy/hold strategy. Assume property is in a major capital city (say within 15km).

I know there are other factors but I thought yield would be a useful one to ask. If you have another key criteria you're using at the moment (minimum cash flow projection) then would be interested.

Note: Rental yield here being: "Rent for Year" / "Value of Property"
 
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Yield

Hmmm....is that net or gross yield?

Suggestion:

why don't you pay $300 plus dollars and get yourself a PIA software ...best thing i have ever done....then it takes the guesswork out of it:p

i have tweaked it everytime interest rate changes (and for each different bank too) ...and i know how much cash flow i get per week...and i can project to a certain degree how much my cash flow in 5 years, 10 years time with estimated rental increase

all this helps in being able to decide whether you can afford to buy the next IP:p
 
Hi, 5% is about as good as you can get. I bought at the 'best' time & still the yield was only about 5%.

$300 pw against $225000 = $15600 gross over $240000 total cost [approx]
Net yield around 5% give or take.

This was a very good property poised on a boom in the next following 10 years. The value went up to $650000 eventually

Another one in the same period. $170 pw against $88000 price
The yield is around 6.5% +cf on 80%LVR
This was in a less salubrious address.

Eventually, the cheaper property achieved $300000

At present, the higher priced property would get $400 pw maybe $450, the cheaper one $280-$300

So if buying for cf, the more expensive property sucks.

KY
 
Mine would be 5% gross yield on the purchase price, assuming a new property with high depreciation. With 100% borowings it would be marginally CF neutral.

If you put say 20% down then it would be about 3.5%.

This based on the highest tax bracket.
 
kum yin lau said:
Hi, 5% is about as good as you can get. I bought at the 'best' time & still the yield was only about 5%.
Click to expand...

Depends.

It's not all that difficult to find regional properties with yields above 5%, but regional isn't for everyone.

Nathan is the most obvious poster child so far as capital city yields go, but there are a few other members (Skater, Virgo et al.) who seem to easily manage 7%+ yields in outer western Sydney. Once again, these areas aren't for everyone.

Yes, you are correct in saying that premium and even middling properties have appalling CF. Sub 2% in some areas. Shocking stuff.
 
There are properties within 40 km of Sydney (i.e., roughly within the circle of Campbeltown - Emu Plains - Gosford ) that offer 7% net yield, if you're prepared to do some work renovating and buy very wisely. Single occupancy.

Properties with granny flats easily >7% net yield.
 
kum yin lau said:
Hi, 5% is about as good as you can get. I bought at the 'best' time & still the yield was only about 5%.
Click to expand...

Yup, 5% is as good as you can get.

Not me.

I just looked at a property (not yet on the market) the asking price is $229,000 the rent return should be $320 per week after a clean and some paint. That's 7.3% gross yield, or (by my figures) 6% net yield after all expenses and assuming 100% loan at 7%.
 
My two soon to be three IPs run between 5% and 8% on purchase price.
I worry more about the hip pocket. I work out the weekly cost to hold.
Basically not a lot so bring on ip 4.
 
vaughan said:
Yup, I just looked at a property (not yet on the market) the asking price is $229,000 the rent return should be $320 per week after a clean and some paint. That's 7.3% gross yield, or (by my figures) 6% net yield after all expenses and assuming 100% loan at 7%.
Click to expand...

Not sure about that - easily 2% off gross for rates, PM, repairs etc...then there's AT LEAST 1% off on top of that for land tax. Rule of thumb is to subtract circa 3% from gross to get to net for sub $400K props.
 
We go for at least 7% yield...Between me and sis we have 8.43%, 7.52% and 7.39%. One is positively geared, the other two need a rent increase to be positive (at current Interest Rates). All three have been purchased in Western Sydney since July 2010. Each is in walking proximity of train, hospital, tafe, major shopping mall...:D

Also the reno costs have not exceeded 5k for the first two. The third barely needs any work. Each has been purchased with built in equity.
 
vaughan said:
Yup, 5% is as good as you can get.

Not me.

I just looked at a property (not yet on the market) the asking price is $229,000 the rent return should be $320 per week after a clean and some paint. That's 7.3% gross yield, or (by my figures) 6% net yield after all expenses and assuming 100% loan at 7%.
Click to expand...

Hi Vaughan

By expenses do you mean buy-in costs like stamp duty, legals etc?
 
Fifth said:
Nathan is the most obvious poster child so far as capital city yields go, but there are a few other members (Skater, Virgo et al.) who seem to easily manage 7%+ yields in outer western Sydney. Once again, these areas aren't for everyone.
Click to expand...

Why do you think these areas aren't for everyone? I think if it makes money - then why would you discount a purchase?
 
Just did the maths - our properties range between 8.8% and 9.6% yield. I underestimated this in the poll and chose 7% as I thought this would be about right.
There are a number of caveats to this though:
1. This is obviously a gross rather than net situation. We do however manage to at least break even on our portfolio (before taxation benefits such as depreciation etc).
2. The properties are all self-managed, and my other half and I do the majority of the maintenance & renovation work on them. eg. we do all the painting ourselves, rather than get painters in to do it for us.
3. The properties are fully furnished, which obviously impacts on rental return.
4. On the flip side, the wear and tear is also substantial, as we need to replace things like linen, crockery etc regularly, plus we pay for utilities like electricity.
5. It also takes a fair amount of time in terms of turning over properties between tenants, which we also do ourselves most of the time.

Yield to us isn't important - we run the numbers and if the property pays for itself, with costs and vacancies included as part of the calcs, then we buy.
 
monalisa said:
Why do you think these areas aren't for everyone? I think if it makes money - then why would you discount a purchase?
Click to expand...

There are some on this forum who would never, ever invest in low-income areas regardless of yields, usually those who invest in blue chip areas and focus on potential CG rather than current CF. Different strokes for different folks.
 
The higher the better. The only requirement is that i can possibly forsee some sort of CG (unless the return is astronomical, that is)
 
Fifth said:
Nathan is the most obvious poster child so far as capital city yields go, but there are a few other members (Skater, Virgo et al.) who seem to easily manage 7%+ yields in outer western Sydney.
Click to expand...

LOL! Thanks!

You are right. I won't touch a property unless I get a decent yield and I usually look for better than 7%. They are out there!
 
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