Rental Reality

In my opinion, it matters, as I believe that any stats quoted should be as accurate as possible. If a statistics company told you they collected the data from three PM's per suburb and then averaged the figures out, is this entirely accurate? I would say not.
For us to make an informed decision, the numbers need to be "all in", so to speak. Residex themselves admit that their collation of rental data is taken from the retrieval of such information from newspapers and the internet. As a result, they state that "the rental figures are not necessarily as accurate as the sale figures. However, they should provide reasonable trends."
(Quarterly Property Report NSW Sep 2000)
I wonder, then, how the Valuer General's office sources THEIR rental information. Hoping Steve can help us out on this one?

 

Hi Jacque.

Every time a Rental Bond is lodged they ask for a basic description of the type of property and the rent paid etc.

I wonder if this finds it's way back into the system somehow? Surely Residex could purchase this info. to make certain figures more reliable.

 

Actually, Alan, now that you mention this, I recall hearing somewhere along the line that this indeed the way rental info is collated.
However, how are Residex doing it? Still curious as to the other sources and their accuracy!!

 

I know that in Qld at least on the Bond lodgment form you must indicate the type of property, i.e. unit or house and number of bedrooms.

N

 

After doing a bit of research, I've found out that the Dept of Housing (NSW) put out rental and sales information (free) in the form of what is called the RENT AND SALES REPORT and they claim that this report is the sole authoritative source of data on NSW rent movements.
The rental information is indeed collected from bond lodgements and they do not report any information from any geographical area that has less than 10 bond lodgements, for confidentiality reasons.
However, their tables are quite broad, as they only cover LGA's as a whole, and do not break the data down into suburbs or postcodes. Not very useful for investors seeking to ascertain specific yields.
One would assume, then, that the companies who then collate the data from the Dept of Lands and sell it (and on their website, they are listed as APM- which is otherwise known as the Home Price Guide, EAC Multilist, Baycorp- which is PropertyValue, Residex and RP Data) are able to break the rents and sales data down to suburbs, and work out the information this way.
The link to the Lands site is www.lands.nsw.gov.au

 

Dear All,

1. Thank you for sharing your inputs posted in this forum to date.

2. However, I ( and proabbly many other members too) will still prefer to hear directly from Steve Narva which data sources he is presently using and why and how he will consider a partcular data source as his preferred one.

3. This will be more frutiful than trying to "guess-imate" Steve.

4. So, Steve, we are still awaiting to hear and learn from you directly please.

5. Thank you.

regards,
Kenneth KOH

 

So do share your adventures with us now Michael- I notice you put down the deposit
How did it all go?

 

Jacque,

Will do. I think a new thread might be in order...

Cheers,
Michael.

 

Thanks Steve for the reno example. I understand that (and apply it myself) but am still in the dark about these "adjustments", and how to accurately make them. Can you expand on this for me?

 

Re Steve's example, I have a property with almost identical figures,i.e.
Rental $380 p.w.
RR for area based on local agents/newspaper appraisal is 4.5% - 5%.
Therefore selling price for the renovated property should be approx. $420K-$430K which is where I was pitching the asking price.

However I was told it did not meet rental reality. Is there something I am missing in the figures?

 

Redrover,

I'd suggest that the 4.5% - 5% is not in fact the Rental Reality yield, but is in fact the current market yield if its based on local agents/newspaper appraisal. Rental Reality yield is the average yield for the postcode over the past 5 years. It is quite common to meet current rental yield requirements but still fail the Rental Reality yield test.

Cheers,
Michael.

 

Hi Steve N,

If you're not too busy, do you care to comment on the email I received (and pasted in this thread) from residex?

Thanks,

 

I realise this thread is a little old but thought I'd resurrect it after some recent interesting discussions with fellow investors about the usage of RR as part of your due diligence when selecting a sound investment property.

It's important to remember that, as part of your research, RR should form but PART of your decision making process in astute property selection. I wouldn't buy a property based solely on whether or not it passed the RR test. It's not that it's not a good idea, it's just that I feel it provides a good starting point for ascertaining where the purchase price "fits" in with the current market. Other fundamentals also come into play, which I'm sure most of us on here already are aware of. For those of you who've read my 'Due Diligence' article, I won't go repeating them here. Suffice to say that there's a lot more to judging a property simply than relying on RR.

I also have concerns with the changes to Residex data and the way the cg rates and rental yields (as well as total returns) have "altered" the picture for suburbs. In the past, as most of you are no doubt aware, Residex provided statistics by postcode. This required more groundwork by investors, as some postcodes contain as many as five suburbs (think of Sydney's 2065 for example, which has some five suburbs: St Leonards, Crows Nest, Wollstonecraft, Greenwich and Naremburn). However, now that they provide even more specific data by suburb (thus providing better accuracy) it's easier to work out and less labour intensive. After all, some suburbs within the same postcode can radically differ in their makeup of properties and populations. I am in the process of finding out, like Dave did last year, what exactly Residex can now provide in the way of individual data for SUBURBS, as I don't believe you can rely on the postcode rental yields for previous years for the complete picture. I will keep you posted on how I go here. No doubt their prices have gone up since Steve's last post of around $62!!


The point I'm making is not to rely only on statistics to make up your mind when selecting your next property investment. Put all fundamentals into play and remember that you need to be comfortable in all aspects of your decision making

Feel free to shoot me down in flames, all you statisticians and economists

 

Update

For those of you interested in obtaining data on suburbs for RR assessability, Residex informs me that the last 5 yrs worth of rental yields for individual suburbs costs $50 per suburb, with discounts for "buying in bulk". Upon enquiring on the cost of 8 suburbs, I was quoted $300.

I am still comfortable in relying on the 10 yr average, however, when using RR as part of my DD to assess properties.

 

Using Rental Reality for Property Development

This explains the problem I have when using Rental Reality to purchase houses on larger blocks for redevelopment.

Eg- Rental reality for the postcode = 4.62%
House A on a small 300sq.m block rents for $300 p.w.
House B on a large 900 sq.m block also rents for $300 p.w.

Based on RR the 'Real Value' for both properties would be $337,662 but House B (on the larger block) is usually worth more.

So if I planned to purchase House B and subdivide it into 3 x 300 sq.m lots (acheiving 3 x $300 p.w rents), I should calculate the Rental Reality value based on $900 p.w and not the current acheivable rent of $300 p.w?

This means the purchase price plus the develoment costs and construction must be less than $1,012,987 ($900 x 52 / 4.62%).

There's a lot of info out there on the importance of conducting feasibility studies prior to property development so I'd be interested to know if there are any developers using Rental Reality in their calculations. Since it is generally harder in todays market to make a 20% developers margin (or find a development site where the figures come close) I'd imagine it would be even less feasible using Rental Reality. This could make all the difference between one developer going ahead with the project and another passing it up.

Comments anyone?

 

In UAE you can make more than 20%. Much more.

 

Oli,

I did calculate that I'd make the 20% developer's margin I'm looking for and I didn't use rental reality at all. I just did my pre-purchase due diligence around margin I'd make and also on servicability through the build process as well as upon completion. I calculated that upon completion my yield would be around 5.7% (550pw times three townhouses over a $1.5M total cost). That yield improves as I factor in selling one or two of them and reducing my LVR.

Numbers are still rubbery until I finish the design with my architect and then stress test my prices and costs around the completed design. Still a few months off that stage yet.

Cheers,
Michael.

 

Greetings property investors,

what source is the widely used for property values and rental price histories? still residex?

- off to read jacque's due dilligence report

 

Hi Judge

Yes Residex is still the best.

Hope you enjoy my article. All feedback welcome