05 December 2016 Investment yields - Reaping what you sow

There are multiple reasons for purchasing an investment property but ultimately people are looking for the value of that property to increase over time. The assumption being that the longer you hold onto a property the more it will be worth.

In 1959 you could buy a block of land in McMahons Point Sydney for £2,250 (A$4,564.54), and after 55 years, in 2014 it sold for $3.725 million. Now that’s some yield.[i] At the end of June quarter 2016, the Australian residential property market was valued at $6,045,081 million dollars, increasing $138,303 million over the quarter, which puts property as the nation’s largest asset class.[ii]

What history has taught us

Over the course of our lifetimes, we will inevitably experience a number of economic booms and busts. How we ride these fluctuations depends greatly on what stage of life we are at, and how well we have structured our financial security at any given time. Nonetheless, we all lived through the 2008-09 Global Financial Crisis (GFC) and witnessed how many individuals were negatively affected by massive value drops in SMSF funds affecting many people’s retirement nest eggs. 

In 2009, superannuation funds posted a double‐digit fall in what would be their worst performance on record and almost double the size of the 2008 decline (Australian Financial Review, 10 June 2009). Those of us lucky to be not so close to retirement were able to weather out the storm and the markets have slowly regained strength over time.

Why Australians love property - Safe as houses

Since the GFC, Australian property values have grown four times faster than wages.[iii] Despite constant talk of a bubble and a slowdown, Sydney and Melbourne still saw 7% increases in property values year on year.[iv]

Australian’s feel more secure investing in property and feel it is lower risk, even though over a 10 year period, shares and equities return on investment is nearly the same value as properties.[v] But not all locations are booming and changing economic growth and infrastructure development have seen Perth experience drops in property values which have declined 7.2% in the past 18 months to July 2016.[vi]

Ways to maximise your yield

Research

It’s been said many times before, but looking before you leap is crucial when it comes to buying the right property investment. Look at what you can afford, understand the market, get advice and research an area over time. Always think of the long-term outlook.

Location

It’s obvious that massive value growth has predominantly been in major cities – but that means many investors might be priced out of these markets. There are many opportunities in different cities, towns and regions that should not be discounted. Take Townsville, QLD for example, their gross rental yield is 5.57% with median unit prices of $355,000 offering many affordable opportunities for investors.[vii]

Rental return

Ultimately as an investor you are after a constant rental return combined with low maintenance and management fees to obtain a strong cash flow. Fundamentally, what you want is guaranteed rent or a good tenant that will provide an ongoing income stream into the long term. It’s also important to be aware of the market to decide when to respectively raise the rent to capitalise on cash flow. A strong cash flow is the key ingredient to making a sound investment.

Property type – layout and design

It is important to select a property that has good layout and design to suit the target market of an area. Smaller properties may be suited to students, while properties that have separate living areas and bathroom configurations may suit families. Think of the “rentability” of your property. Who would want to live there? How can you ensure that it will be suitable and attractive to the residents of that community?

Property maintenance

Similar to selecting the right property for a location, it is important to keep the property well maintained. Ensure problems are fixed, the garden is maintained and that leaks or repairs are attended to before they cause more damage. Ensure you maintain your property so that it is attractive to tenants and attracts a high quality tenant with lower vacancy periods.

It’s the numbers that count

Between rental yields, vacancy rates, interest rates, maintenance costs or operating expenses, it’s all about the numbers when you are buying an investment property. So, an investment property that has a positive cash-flow, where all of the costs are covered by the rental payments, is a major advantage to an investor in balancing the rest of their portfolio.

Defence Housing Australia and investment yields

Defence Housing Australia (DHA) properties are just like any other property. They are located in the communities of potential growth areas in most capital cities and regional areas, not on Defence bases, and are within close proximity to schools, shops, transport and other amenities.

The properties are suitable for families with three or four bedrooms, lounge and dining areas, ensuites, garages, entertaining areas and landscaping, all standard features of most Australian homes. An investor in Defence housing is subject to capital gains that are equal to independent investors who are selling a similar property in the same location in the same market.

Importantly, DHA is backed by the Australian Government and offers a guaranteed rental income for up-to 12 years.[viii] Investors have peace of mind knowing they will always be paid the commencing rent or higher for the term of the lease (rental floor). DHA will also look after the day-to-day aspects of your investment—paying your rent, managing your tenants and taking care of repairs and maintenance.

Enquire online to find out more about investing with DHA.



Investment is subject to DHA's lease terms and conditions of sale. Investors retain some responsibilities and risks, including property market fluctuations. Prospective investors should seek independent advice. 1. Rental floor applies to DHA properties leased under DHA’s Lease Edition 6C, which will not cover all DHA properties. 2. Rent may be subject to abatement in limited circumstances
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