An old rule of thumb when buying residential rental property was:-
"A property is worth no more in 1,000s than what it fetches in 100s in rent per week."
This gives a gross return of 5.2% and when interest rates were low and before the local councils started gouging us with their huge rate increases (mine have doubled in 4 years), an acceptable nett return of 4-4.5% was achieved.
Moderate yield, moderate growth and low risk.
Commercial and industrial property generally returned 10-13% with the tenant paying outgoings but with the risk factor of lengthy vacancies which knocks the returns about badly. Returns of 8% seem to be the norm today.
Then over the last 10 or more years we have had "the property boom that would not die" fuelled by the "Renovation Rescue, The Block, Hot Property etc TV shows".
Factor in the effects of the resources boom with it's attendant high wages and the GFC and we find that the historical ratios seem to have got a bit out of whack.
In the longer to long term I think things eventually normalise as it seems to indicate on this combined graph.
http://www.ibbotson.com.au/Assets/Files/IBB-4-002%20SBBI%20Chart_v7.pdfThe chart DOES refer to listed property though, not privately owned residential property.
It might be good to keep in mind the property investor who said to a property agent, "I am looking for a property investment."
Agent asks, "Would that be a long term investment?"
Investor asks, "Is there any other kind?"
A few well heeled people I know, among them a guy who bought a hotel for $5Mil and sold it to Coles for $17.5Mil two years later, have gotten out of property all together, except for their residences, and have invested in bank shares and cash.
For people with that kind of wealth it is probably the best strategy because these are the type of people who buy ailing businesses, fix them up and then sell them for large gains. That is all good if you have the knowlege, energy and balls for it.
For the less well heeled or financially savvy among us, I don't think it is a good time to be dropping your "property bundle".
Rents are at some all time highs and in most places there appears to be housing shortages, so I suggest it is a good time to maximise returns and weather the storm.
If one is overcommitted, selling one property might be a good idea. If you have only one property it might not be a good idea. Once you are out of the property market for a length of time it can be very hard to get back in.
Another rule of property investment is:- "Never sell unless you can replace with equivalent or better."
That is just my take on it but I am however "Dyed in the Wool, Real Estate".
Maybe this is of help in analysing where we are, some are saying we are at 7.15.
theinvestmentclock.com/
). An average price for a 3-bed home in town here is only about $240k, and from memory we also have the highest income per capita in the state.
