Join our investing community

Rental Reality

Discussion in 'Real Estate' started by Simon Hampel, 17th Oct, 2005.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Last edited: 1st Jan, 2007
  2. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    Steve
    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?
     
  3. Dave

    Dave Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    57
    Steve,

    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 :eek:

    Thanks and great article ! :cool:
     
  4. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    Jacque,

    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.

    Cheers,
    Michael.
     
  5. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,394
    Location:
    NSW
    " I was wondering how we confirm that these meet Rental Reality as I am assured that they do."

    Michael,

    Do not worry about worry !!!!.
    Roger will give you an answer.
    Might be a good idea if you take camera with you ....
    Happy Hunting ....
    :cool:
     
  6. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    Tropo,

    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! :D

    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
    Demographic makeup
    Likely demographic changes
    Median income
    Rental vacancy rate
    Residex growth projections
    Age of building
    Land content % by value
    Replacement cost
    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.

    Thanks all,
    Michael.
     
  7. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,394
    Location:
    NSW
    Michael....
    " 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.... :D
    :cool:
     
  8. Dave

    Dave Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    57
    Hi,

    I dont believe it's a good idea to delegate it completely to someone else. IMHO, Independent figures should be sought and interpreted.

    Cheers,
     
  9. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,394
    Location:
    NSW
    Dave ,
    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 ??.
    :cool:
     
  10. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    Hi Michael
    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:

    Listing agent

    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!
     
  11. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    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.
     
  12. Steve Navra

    Steve Navra Well-Known Member

    Joined:
    7th Aug, 2005
    Posts:
    195
    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.

    Example:

    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.

    Therefore:
    $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.

    Regards,
    Steve
     
  13. Steve Navra

    Steve Navra Well-Known Member

    Joined:
    7th Aug, 2005
    Posts:
    195
    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!

    Regards,
    Steve
     
  14. Steve Navra

    Steve Navra Well-Known Member

    Joined:
    7th Aug, 2005
    Posts:
    195
    Hi Dave,

    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.)

    Regards,
    Steve
     
  15. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    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!

    Thanks again,
    Michael.

    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...
     
  16. Dave

    Dave Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    57
    Hi all,

    Thought I'd like to share an email I got from Residex.

    Firstly, my email:

    From: Dave Traeger
    To: retail@residex.com.au
    Sent: Tuesday, October 18, 2005 6:32 PM
    Subject: Customised data

    Hi there,

    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,
    Postcode 6030
    2000 6%
    2001 5.8%
    2002 5.3%
    2003 4.8%
    2004 4.2%

    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.

    Dave Traeger

    And then their response:

    Dave,

    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.


    Regards,


    Matthew Hodge
    Residex Pty Ltd
     
  17. MichaelWhyte

    MichaelWhyte Well-Known Member

    Joined:
    5th Oct, 2005
    Posts:
    798
    Location:
    Sydney, NSW
    Dave,

    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.

    Cheers,
    Michael.
     
  18. Dave

    Dave Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    57
    No Michael,

    I was just answering my own question from earlier in the thread, and sharing the answer (straight from the horses mouth :p ) with others who might have had the same or similar questions.

    Cheers,
     
  19. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    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?
     
  20. Dave

    Dave Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    57
    Jax:

    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.

    Steve:

    Can you shed any further light on data you use for your rental reality criteria, especially in relation to the email i received?

    Cheers,