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The Art of Investing in Real Estate: Assesing Rental Yield Historical Data

As we enter a period of relative stability in the Australian housing market, investors are increasingly looking to find that gem of a property investment in the embers of a recent red-hot property market. While increased interest rates have upped borrowing costs, inflation means many investors are looking to bricks and mortar assets – as they are a traditionally safe place to park your money. At the same time, rental properties in the Gold Coast and Brisbane are at record highs, providing the opportunity for positive returns. 

Of course, coming off an unprecedented 24 months of record increases in housing values, it is vital to ensure that you find the right investment property for your budget and property investment goals. Let’s take a focused look at some basic (but vital!) terms and metrics concerning all things rent that are important to be across when considering investing in property. 

 

Past rental history

A well-maintained property is more likely to enjoy a high occupancy rate adn rental yield

 

When considering an investment property, the primary goal is to achieve a strong return through a combination of high rental income and capital growth. By thoroughly evaluating the property’s potential for both, investors can make informed decisions that maximise their return on investment. Although past performance is not a guarantee of future performance, it’s crucial to consider past rental history, including the rate of increase over time.

The past rental history should also reveal the past occupancy rate. Naturally, you want to have the property inhabited as much as possible to ensure consistent income. Not only that, but high occupancy rate indicates the property is in high demand, making it a more attractive investment option.

The past rental history can also indicate how much maintenance and upkeep are required for the property, affecting the investment’s overall profitability and rental yield.

 

Assessing rental income

Picture of door welcome sign
What does your agent recommend is the best rental rate for your property?

 

To determine the rental income potential of a property, it’s important to research its past rental history and compare it to the current market rate. Utilising resources such as realestate.com.au, domain.com.au, and corelogic.com.au, you can gather information on rental rates for similar properties in the area to better understand what you can expect. If you are using a local real estate agent and or property manager, they can also give you update rental  appraisals on the property. 

 

Rental yield

 

‘Rental yield’ is the income you receive as rent, expressed as a percentage of the property’s purchase value. It’s important to consider rental yield when evaluating potential investment properties, as it can be a key indicator of the financial viability of the investment. Not only that, but a high rental yield means that the property generates enough rental income to cover the costs of owning and maintaining it, making it a more attractive investment opportunity.

Let’s use the example of an apartment in the Gold Coast with a market price of $895,000 and a monthly rent of $2,400. To calculate the annual rental income, we multiply the monthly rent by 12 months: $2,400 x 12 months = $28,800

To calculate the rental yield, we divide the annual rental income by the market value of the property: $28,800 / $895,000 = 0.0322

To convert this decimal to a percentage, we multiply by 100:

0.0322 x 100 = 3.22%

So, as demonstrated in this example, the rental yield for this Gold Coast property is only 3.22%. This does not take into account maintenance costs and other expenses that will impact the overall return on investment.

Given that current interest rates are above 4%, it may be worth exploring alternative investment options before committing to this property.

 

Bringing it all together

 

Investing in property is a serious endeavour! It’s not just about finding the perfect location but also about making smart investments based on a thorough understanding of the property’s rental history and potential rental yield. By doing your due diligence, you can ensure that the property you choose is worth every penny and will bring you great returns for years to come.

 

Are you looking to invest in Gold Coast property?

 

Take the next step in securing your investment future and call Mercer & Cooper today. With over 30 years of real estate investment experience, our team of experts are ready to help you make informed decisions and find the property that meets all your needs and more. 

 

All information contained on this website is for your reference only. You should always make your own enquiries and seek independent legal advice in respect of any information about real estate law and the purchasing of real estate and related subjects. This website may contain hyperlinks to websites operated by parties other than Mercer & Cooper. Such hyperlinks are provided for reference only and Mercer & Cooper does not control such websites and is not responsible for their contents.

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