When investing in residential property one of the key factors to consider is your net return on monies invested. This will be a primary indicator on whether or not to proceed.
To assess the net return you will have to compare it with the average returns for similar properties. Too low a return may mean that alternative investments should be reviewed, while a very high relative yield may mean there is an accompanying risk factor that is higher than normal.
Please remember areas that produce lower yields predominately have a higher capital gain and at the end of the day that is what its all about when investing your money in property.
The yield is calculated by starting with the purchase price. This is the denominator. The numerator is your net yearly income.
To figure out the net income you take your yearly gross rent and subtract your outgoings. Outgoings for residential properties include your managerial fees paid to the letting agent, council and water rates for the year, estimated repairs and maintanence and land tax if applicable.
You should set aside a yearly amount for repairs and maintenance, since big expenses occur periodically and not necessarily yearly.
When investing in property plan to hold the property a minimum of five to seven years. This accounts for economic cycles and changing conditions.
Rental returns are still on the increase due to short supply of investors, particularly within 20km to the Sydney CBD. Several leading commentators of the real estate market have spoken out recently regarding this issue.
Steve Martin, President of the Real Estate Institute of New South Wales has spoken recently in the media about the rental crisis and has called for changes to taxation for property investors.
With winter here buyers are probably thinking let's hibernate until spring time, well don't. I have always found that in winter it is usually the vendors that have to sell putting their properties up for sale.
With a downturn in the market, and in most cases less competition through this period, you could be looking at a three to five percent difference in your purchase price, maybe even more.
There is no doubt that during winter you have a little less variety to choose from than you would during spring, but it is still worth getting out there.
Please remember buyers by the time you search, negotiate and settle your property you are looking at a minimum of around four to six months. If you need to sell a property you could even be looking at longer. So make sure you plan way ahead when you are buying and selling.
By Peter Kelaher
Peter Kelaher is the Managing Director of PK Property, a firm of Sydney Buyers Advocates catering for Sydney home buyers.
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