Discussion in 'Real Estate' started by Simon Hampel, 17th Oct, 2005.
Use this thread to discuss the article Rental Reality
I know it wasn't discussed in the article but what happens with RR when you're looking in a new estate or suburb that's less than a few yrs old?
I would assume you'd assess the rental data from the closest similar suburb?
You mentioned in your article that you source the yield history from Residex? I've had a look at their website and dont see any reports that mention this category of information. Could you name which report it is?
Also, is there information available for WA? I'm guessing not as we usually miss out on this kinda stuff
Thanks and great article !
Great question! And one I was going to post real soon anyway. I'm off on a shopping trip to Brisbane on the weekend and I know that Roger is going to show me around some new developments up there. I was wondering how we confirm that these meet Rental Reality as I am assured that they do. I'll be noting the postcodes and expected rents then checking them for RR upon my return.
Would appreciate some assistance on this one before I headed off this Saturday.
" I was wondering how we confirm that these meet Rental Reality as I am assured that they do."
Do not worry about worry !!!!.
Roger will give you an answer.
Might be a good idea if you take camera with you ....
Happy Hunting ....
I know he will, but I'm a thorough Due Dilligence kinda guy so will be doing a lot of checking myself on any properties suggested!
I'm definately taking the camera, and the video camera too. Oh, and I'm in the process of writing an exhaustive checklist to fit a single A4 piece of paper so I can take notes on every property proposed and then compare notes on them all when I get back to Sydney.
Has anyone got a proforma checklist that they use? The sort of things I'll be including are:
Proxmity to shops, schools, public transport etc.
Distance from CBD
Gross Rental Yield
Postcode Rental Reality Yield
Likely demographic changes
Rental vacancy rate
Residex growth projections
Age of building
Land content % by value
Initial repairs/maintenance estimate
Ongoing costs (Council rates etc)
Pros / Cons (personal narrative)
Council development plans for the area
Anything else I've missed? Jacque, thanks for the Due Dilligence documents you submitted to this site. I've printed them both off and will go through them in detail to assist in producing my proforma checklist.
" I know he will, but I'm a thorough Due Diligence kinda guy so will be doing a lot of checking myself on any properties suggested! "
Every point from your list will be covered by Roger and MUCH more !!!.
Make sure that you'll remember all what he'll tell you....
I dont believe it's a good idea to delegate it completely to someone else. IMHO, Independent figures should be sought and interpreted.
You are correct....
That is precisely what Michael is going to do... and Roger might be of great help in this case - don't you think ??.
You are wise to carry out your own DD or rely on that of a trusted fellow investor/friend/colleague. It's really the only way to ensure that you are covering all bases and gathering the information you require to make a fully informed and independent decision before purchasing.
It's your money, after all
Your list pretty well covers the investment aspect of the property purchase, though I'd also include the following:
Time on market
Offers on property (some REA's will tell, some won't)
Reason for sale
Comparable sales (available from RP Data, HPG or Residex for a price or get friendly with some agents up that way!)
Comparable rents (and this is vital in establishing a true estimate of rent for the property. Don't rely on PM estimations only, especially in a new dvpt! Ring at least 2 other local PM's and get them to give you an appraisal. Also ask them what properties are currently achieving the rent you've been told you will receive and ask them to physically appraise the property as well)
Any commissions or kickbacks must be disclosed by the agent showing you the property- make sure you are aware of these, if any.
Makeup of owners vs investors in the area/estate. This is important as rental saturation can occur and you could end up having to drop rent to compete with too many other rental properties.
I know this last point is a relatively minor one, but take the time to stand back (perhaps take a walk around the neighbourhood) look at the property with an unbiased eye and ask "Why would a tenant want to live here instead of in property x?" Finding that point of difference (whether it be street position, such as end of protected cul-de-sac, addition of desirable feature like storage room, ducted air, closer to shops etc) can get you a better rent and, down the track, a better resale
I also keep a checklist of the features of a property as well, though this is not going to all fit on your A4 sheet! No doubt you've already thought of this, but it helps to know the nitty gritty and layout of your IP, especially when you haven't seen it for a while because you live interstate.
Take heaps of photos (the camera rarely lies!) and enjoy the thrill of the chase! Negotiate hard, do your sums and be prepared to walk away if it doesn't stack up. It is an investment decision, after all
Good luck and looking forward to hearing the end result!
I'm with you on this one, Dave. I'm sure that Roger will be very helpful, but it never hurts to do your own research as well. He also may not have the specific data on hand that you require.
Yes this is a good question . . .
In the first instance you might use the data from the postcode, which generally includes a few suburbs.
However you might then make adjustments to include the positive (or negativie) attributes of the particular (new) estate. You might find that rentals in a very new estate are low, simply because of the ongoing construction and because few owners have moved into the area. This would make the property seem expensive in terms of RR. You might then make an upward adjustment for what will be reasonable for the completed article. This is similar to the adjustment you would make for a pre-renovated property.
An example might be of an older property that requires much work, in a reasonable mature area. What you might then find is that the achievable rent before the reno is low, because of the state of disrepair of the property. Your calculations for RR should then be based on the achievable rent post the renovation.
Rental Reality for the postcode = 4.62%
Current rent (Of the pre-reno property) = $300 p.w.
Therefore value = $300 X 52 / 4.62%
Real Value = $337,662
However with a cosmetic reno the achievable rental might (Compared to what is available in the area) go up to $380 p.w. for the completed article.
$380 X 52 / 4.62% = $427,705
NOW: The purchase price + the cost of the reno must be < than $427,705 to fit the rental reality formula.
The same principle can be applied to the quoted question.
Yep, part of the education given at the workshops covers this self DD aspect. We try our best to assist our clients by having performed the DD checks before recommending any properties, however ultimately you need to tick off the relevant criteria to make sure it conforms to requirement.
Comparable sales are (only) a useful indication . . . Rental Reality will give a far better indication of true value. (See original RR article)
Roger will generally be able to provide ACTUAL comparable rents.
Roger is the agent . . . and as such ALL commissions are FULLY DISCLOSED in the NFS plan.
Jacque makes a good point here, but accurately assessing the owner / rental ratio is a very difficult task. One way around this arduous task is to buy property 20% above the median price for the city. This will insure that the area has at least 75% owners to renters.
Roger will be able to provide most if not all the required info . . . after all the properties were pre-selected to conform to NFS principles
However, most clients do still come in to see me after the property inspection to double check their research.
And if the shoe fits . . . kick on!
This data is NOT provided in a report on their website. Residex do provide the 10 year yield for a postcode, but that is of NO use (Rental Reality is based on the 5 year yield AVERAGE)
You need to request from Residex the last 10 years yields. (All 10 individual years yields) and then average the last 5 years. They do provide 10 years of yield data at approx $62-00 per postcode. (Well worth the $$$$$)
Regarding WA: I think they do provide data for Perth. (But you will need to check this with them.)
Jacque and Steve,
Thanks so much for the excellent replies!
I fully expect that Roger will have 99% of the DD checklist covered for me, but as Steve said, its prudent to cross check it yourself as per his training.
Jacque, your additional items are excellent. Particularly time on market and reason for sale. If I can get offers made as well then that is a bonus. I'll definately be trying to discern the mix of owner occupiers versus investors as this is a critical criteria in my opinion based on Steve's course.
I'll post the results of my little shopping trip on the forum when I get back. Can't wait to meet Roger and get looking around Brisbane!
PS. On the point of agents commissions, Roger's commissions are fully disclosed as Steve suggests and I have absolutely NO issue with these at all if Roger is providing the level of service that has been described. I fully appreciate the value of this service and expect to pay my "team" well for their contribution to my wealth generation! If that comes by way of commission then all the better. In years to come I look forward to making Steve an even RICHER man if you get where I'm headed...
Thought I'd like to share an email I got from Residex.
Firstly, my email:
From: Dave Traeger
Sent: Tuesday, October 18, 2005 6:32 PM
Subject: Customised data
I’m looking to obtain some data that I don’t think matches any of the reports that you have available for purchase on your website. I’m looking for about 5 years worth of median rental yield data for a postcode. Using the same definitions as some of your other reports that I have read utilise – i.e. yield = rent x 52 / purchase price. I’m looking for some postcodes in both WA and Victoria.
Purely for example,
Are you able to produce this kind of data? If so, can you provide me with a price on a per postcode basis or say 10 postcodes basis? If not, are you able to offer any other suggestions?
Thank you for your help.
And then their response:
Thank you for your query. We are able to offer precisely that data. However, I should advise you up front that our rental data is based on information collected from newspapers and the internet and other sources. Because of that, it can fluctuate a bit from quarter to quarter. Over a long time period, it certainly indicates the movement of rental yields, but over the short term it can be a bit erratic.
However, if you are happy with that, we can provide it. For one postcode for the last 5 years, the information would cost $50 per postcode for each series. However, if you were ordering 10, we could do it for $450 and throw in one postcode free.
The yields would come in the form of a spreadsheet, with yields listed quarterly (which is the way we calculate them). If you want them to go back 10 years, we can do that for $100 a postcode.
If you would like to proceed with this order, please let me know and I will call you to arrange payment.
Residex Pty Ltd
I think this is the crux of the point you were making. I wonder what the "other sources" are and just how reliable the rental data from Residex is? Certainly food for thought if you're relying on that data to make an investment decision.
I was just answering my own question from earlier in the thread, and sharing the answer (straight from the horses mouth ) with others who might have had the same or similar questions.
I would like to see more specific information on where they source their figures from as well in regards to yields. Perhaps Residex directly contact a no. of PM's per postcode for up to date information?
Does it really matter where the data is sourced? Apart from the gov Valuer General's office, they're the only supplier of such data (that im aware of). It is also where Steve N says he gets his information from for part of the criteria process on his own properties.
Can you shed any further light on data you use for your rental reality criteria, especially in relation to the email i received?
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