Saturday, August 30, 2014

Top Yields

Today's paper had a chart with the top rental yields for inner-city Brisbane.  All were apartments.  A summary of some of the data:

  • Spring Hill - based on 170 sales, median sale is $380,000, median asking rent is $485, so indicative gross yield is 6.6%
  • Brisbane city - based on 666 sales, median sale of $500,000, rent $600, so a yield of 6.2%
  • Woolloongabba - 86 sales, sale price of $400,000, rent $465 so yield of 6%
  • The Valley had an indicative yield of 5.6%
  • South Brisbane had an indicative yield of 5.4%
These figures are a little rubbery.  The apartments being sold may not be the same apartments listed for rent.  The rent is the asking rent, not the rent achieved.  The figures do not take into account vacancy.  And the sales price does not include stamp duty.

Take the following example, of an apartment sold for $431,000 and then rented furnished for $550 a week.  On a simple calculation using these numbers, the yield is 6.63%.  If stamp duty of $13,510 is added, the real sales price is $444,510, so the yield changes to 6.43%.  Once letting agents fees, body corporate fees and rates are taken into account, the yield drops to 4.5%.  And this does not include vacancies and repairs.

I recommend focusing on net yield, after expenses.  For a one bedroom apartment, you should aim for a net yield of 5%.  For a two bedroom, aim for a net yield of 4.5%.  For a three bedroom, 4%.

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