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Drop three zeros rule

Discussion in 'Real Estate' started by Rod_WA, 1st Aug, 2007.

  1. Rod_WA

    Rod_WA Well-Known Member

    Joined:
    18th May, 2007
    Posts:
    324
    Location:
    Inglewood, WA
    I used to have a 'rule of thumb' for direct property investing:

    If you drop three zeros off the purchase price of an IP then that's what you'd like in rent a week

    eg purchase at $300k, rent at $300 per week. That way, direct rental yield is 5.2%.

    Do such properties still exist (they certainly don't in WA!) - or are they ever likely to? Has investing in property changed forever?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    With the ultra-tight rental market in Adelaide, we are starting to see yields creep up again, I'm sure you can find yields close to this in the outer suburbs right now.

    However, it wasn't that long ago (5 years) that we were buying houses on 7%+ yields within 10km of the CBD, so 5% seems like a poor return for the areas you have to buy in.

    If we get a couple of rate rises before the end of the year, I suspect we'll see a sharp decline in most real estate markets, which may drive yields quite a bit higher ... that's when I start to get interested !!
     
  3. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    The old 5% yield becomes naturally harder to attain as the purchase price increases, however it's certainly not unachievable and particularly in the sub $500K market, in Sydney at least. I've been looking for clients in this range recently and rents are likely to be around the 4-5% gy as rental demand is strong- particularly for units with parking closer to the CBD.

    If two rate rises do occur, there are still some suburbs that I don't think will be as affected- they simply seem to be recession-proof and demand is just constantly there- especially in the semi/housing quiet street market.