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Buy a run-down property in a desirable location. Invest money into fixing it up. Then, profit from the investment, through higher rents and capital growth.
This will work wherever you have pricing disparity.
Look at the average price of a renovated house versus the average price of an unrenovated house in the location, this is pricing disparity.
The key is that these houses share the same attributes beyond the renovation. You’re looking for a big gap between the prices.
When pricing disparity doesn’t exist, there’s a risk of renovating and not adding any value, at least in the short term. For instance a $30,000 renovation just adds $30,000 in value. Your aim is to make $2 for every $1 you spend and for that you need pricing disparity.
Researching price disparity is so important if you aim to renovate it. This is the ‘Supersize it’ segment of our First Home Financial Freedom Framework.
Investors Choice Mortgages can help you decipher the data and help you with finance and tools and resources to suit your strategy. Feel free to book a time to talk with one of our mortgage broker experts https://investorschoice.com.au/bookatime
Astute investors will almost always sacrifice some of their rental yield if they anticipate high capital growth in the location.
The problem is that lower yield means more money out of their pockets.
These investors utilise a negative gearing strategy. They sacrifice passive income from the rent so they can later benefit from the sale of the property. Plus, there are a bunch of tax benefits from this strategy.
There’s still that issue of paying the costs of the property while you hold it week in week out. But there is also a way to minimise this cost! Speak to your accountant about a ‘tax variation’.
The alternative is to go for a higher rental yield to cover the expenses. But this often comes at the cost of lower capital growth.
But then… there are the magic properties.
These offer high rental yields while growing in value.
They’re difficult to find… but you can create them!
And that’s where our optional part of the FHB Framework comes in – ‘#Supersize It’.
Our and #See it, #Set it, #Source it, #Slam it, #Supersize it, and #Stash it is the First Home Financial Freedom Framework helps you find your first investment property in the right location.
Join our First House Buyer community to learn more about each of the steps to get you to 𝐘𝐨𝐮𝐫 𝐏𝐫𝐨𝐩𝐞𝐫𝐭𝐲 𝐒𝐮𝐜𝐜𝐞𝐬𝐬.
Rental yield is key when sourcing a property in a quality area for the long game.
A location must offer a great capital growth potential. But be mindful of your out of pocket expenses. Plan for this up front so you don’t struggle with the interest repayment and running costs.
If the demand for rental property in the area goes up, so does demand and you can push up your rent and your yield goes up too.
You have an opportunity! So if you buy a property in an in demand area when you move out you want renters to trip over themselves to rent from you.
Interestingly if the value of the property increases, your rental yield decreases.
A rise in value means your property is in a growth location. That means increased demand.But is it just part of the cycle.
If demand goes up, that’s great news for your rental yield. However, other investors will notice this increase in demand too. They start buying in the area, which pushes the property prices up.
And this is where the opportunity lies for you…
But keep an eye on the numbers.
Factors That Affect Rental Yield
And keep on top of rental reviews and opportunities to increase your rent. But there is something that is even more important than rental yield!
Feel free to book a time to talk with one of our mortgage broker experts https://investorschoice.com.au/bookatime
First Home Loan Deposit Scheme (FHLDS) is available to the first 10,000 eligible applicants. A single person needs to earn less than $125,000 and a couple less than $200,000. There are also caps on each State and city as to the purchase price.
Check out our ‘Guide to Australian First Home Buyers Grants and Concessions” to see if you are eligible http://firsthousebuyer.com.au/
Rental yield is a percentage figure from dividing your yearly yield by the value of the property.
For example, let’s say you’re picking up $15,000 per year in rent from a $300,000 property.
15,000 / 300,000 = 0.05
That’s 5% , which is actually an excellent yield. Most capital cities range from 2.8 – 4.5%pa yield.
But then you have to look at interest rates. Over the last 10 years, the average interest rate for a loan in Australia has been 7.3%.
Now, imagine you have that 5% yield. That means you’re going to have to find another 2.3% out of your own pocket to pay the interest.
Suddenly, this starts to sound difficult…
And that’s not all…
You also have to cover the ongoing costs of running the property. Between insurance, maintenance, and property management fees, you’re paying out a lot of money each year.
You’re going to have to dedicate between 20% and 30% of your rental income to those fees. Otherwise, you’re paying them out of your own pocket again.
These are all things that you’ve got to look out for when you #Source It. PS Currently interest rates are less than 4%pa and although rates aren’t assumed to rise for years it is a good tactic to take into account the higher rate when doing your calculations so you can plan for future years.
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