25th August 2017
HOW to decide which Investment property to invest in
We all know that values are subjective, don’t we?
When something is of important to us, that thing will have more value than to someone who does not value that thing.
The same goes to property investment as well, values of property is subjective.
How would you, as an investor goes about assessing how much you are willing to invest in your property? How much will you bid for the property?
The norm is to see how much the other properties around is going for in terms of selling price or renting out for base on the elements of the house being compared.
There is another way to figure out the price you will invest for a property, that is by Return on Investment to Property Price range.
Depending on how much the property can rent out for, we can derived as a property price to bid for, the basic formula is:
Price of Property = (rent per week x 52) / .03
We are using a general rule of thumb because every property is priced differently base on location, how high the property is, how big the property is, what is the view, the frontage, the demand to determine if the house is rentable or not (pointless if the property is not rentable at the rent you are told it can fetch as I was silly enough to listen to the developer, etc. etc. But current rule of thumb is 3% gross rental yield for property to get the price of the property.
Example of computing PROPERTY PRICE:
How much will my house in carlingford that I am prepared to sell for?
The rental per week is $850.00
The price of the house will be (850 x 52) / .03 = $1,473,333.33
Remember this is a rule of thumb for this period where the property prices are high compare to rental. If the property price drops and rental remains, the gross rental yield will go up higher.
If you find property that gives you GREAT rental yield, INVEST in it.
How to find out what is the gross rental yield?
There is a difference between GROSS and NET rental yield, the formula is:
((Rent p.w. x 52) / property investment price) x 100
Example of computing GROSS RENTAL YIELD:
How much is the gross rental yield for my house in carlingford?
The investment price was $400,000
The rental pw is $850.00
The gross rental yield is will be ((850 x 52) / 400,000) x 100 = 11.05%
Would you INVEST in this property?
This is how you would figure out WHICH PROPERTY TO INVEST in, base on their gross rental yield or how much you are prepared to sell your house for, IF you do not have access to the Comparison Market Analysis (“CMA”) to figure out what are the other properties around you are going for.
Remember, your future depends on it, you will never make more money working in a job than what a property can bring you. Unless you are the .01% of the population who are being paid millions per year in salary.
For now, stick to finding GOOD rental yield properties for your future, your retirement life style.
Licence Real Estate Agent (LREA)
Oracodes Realty Pty Ltd
Licence Real Estate Agent in NSW.