So I was talking with Ross a good client of mine who has been doing developments for 30 years now and he mentioned that one of his friends has been investing in properties under 0,000 for a few years now that rent out for ,000 per year.
Today we are going to Moe to see what some of the best deals are in the area. This is one of the suburbs Ross’s friend has been buying in, for the past few years.
So we just did a quick search and Moe has 19 properties for rent currently and 78 properties for sale. Last years median price for houses was 1,000 and 0,000 for units. The average house rent is 0 per week which makes a 6.7% rental yield and units average rent is 5 per week making a yield of 6.1%
the growth over the past five years for houses has be 3.4% per year and 7.8% for units.
This tells us that the units have caught up to the houses recently in price but their rents haven’t followed yet.
The average visits to real estate.com.au is 278 per property vs Victoria’s average of 841 per year so that means properties are going to be on the market for longer periods of time due to lower demand but we already knew that based on the low prices.
If there was lots of demand the rental yield would not be as good because there would be more people buying there than renting. An area only has a good rental yield when people would rather pay more to rent a property than what they could own the same property for. This also means the average turn over of the tenants will likely be higher because they only plan to stay a while hence not wanting to buy the property themselves.
What we are doing here is heads I win tails I don’t lose much.
What I mean by that is the risk is low because of the price. Let’s say I can’t get a tenant and the house sits vacant. At 3.20% verible principle and interest the house will cost me 4 to hold Per month. That’s not a huge expense.
The upside is if I’m right about the price moving up over the next five years and even if it doesn’t, I’ve got a good rental yield on my money.
Eventually the tenant pays it off and you own it out right having now really done anything.
Ok so I’m looking to expand my portfolio the rental yield is good because I can keep buying more properties without the payments becoming to high. If I was buying closer to the cbd where the rental yield is 2.5% the rent would not be high enough to make the mortgage repayments without me putting some of my own money in. Which we don’t want to do.
But at the same time 6.7% on our money still isn’t going to grow the portfolio dramatically so we need something that will also increase in value.
Now I don’t know if the property is going to go up in value over the next ten years. If I had to bet I’d say it would because we’ve already seen it’s slowly going up and the population is still growing so demand for housing is going to continue increasing.
If we can buy something that rents well and also has a big enough backyard that be can subdivide we could buy a few properties and sit on them until the land goes up enough for there to be a profit in building some townhouses.
The average 3 bedroom unit is going to cost us 300,000 so the unit would need to be selling for 400,000 before I’d do that. Now the brand new units are getting just under 300,000 at the moment so it doesn’t yet make sense to do that but it might in another five years.
So be buy something that rents well and pays the debt off over the next five years and then we build on it. To make the return better than 6.7%
Plus we aren’t really getting 6.7% because that’s not taking into consideration the costs of holding. Council rates, water rates, insurance invade the tenant burns it down.
Would I buy here. Yeah I would. But I’d be picky about which properties I bought.
This is entry level investing, people say they can’t afford to buy property in Australia but they just aren’t looking hard enough.