Can you get 7% rental return on Apartments in Sydney?

7% Rental Return on Sydney Apartments

I would like to share a recent property sale for a client of mine. He has been looking to sell his apartment and had spoken to a real estate agent. The agent had quoted him a sale price range between $480,000 to $525,000. The owner felt the price was below his expectations and he came in contact with me. The details of the property being offered for sale are:

1 br Apartment approx 1 yr old. Nice city and distant views from high balcony
Located walking distance to train station, university and colleges, shopping center, entertainment precints, short walk to heart of city, close to pubs and clubs
Currently rented for $650 per week, previously rented at $700 per week

As an investor if you work out the current rental yield on the price quoted by the real estate agent it is above 7%. We all know agents only quote higher prices to get exclusive selling agreement and then drop the sale price as the vendor gets anxious.

Rental Apartment

Rental Apartment

So an astute property investor would jump at the opportunity to get a 7% rental return on an almost brand new apartment for sale in Sydney. Remember this is rented out as a normal rental property on a 6 month lease and not as a serviced apartment. With interest rates around 6.5% and on a 90% loan (LVR) this property will be Cash Flow Positive for most investors. Being almost brand new remember huge depreciation benefits can be claimed legally from the tax office.

If you are an investor and looking for investments which are cash flow positive or cash flow neutral, you need to look harder and smarter…. as the above real scenario proves they do exist and can even be found in prime locations in Sydney. You will not have to go to regional mining towns to find higher rental yields but with much higher risks.

Or you can speak with the consultants at RBA Property on 02 91444470 and we will not only find such properties for you but also prepare a personalized investment property plan for you.

I am not the only one citing smart property investors can get above 5% rental returns on quality properties in prime metropolitan areas but famous property guru John McGrath had this to say:

A few years ago, most property investors were happy to average a healthy three to four per cent yield on their investment assets. Today, five to six per cent yields are becoming the norm in popular markets particularly in the inner rings of major cities and along Australia’s coastline.

While I will always advocate capital growth over yield when making property investment decisions, yields are still very important for your cash flow. An across the board rise of one to two per cent is therefore very significant.

This change in average yields makes property investment even more compelling, along with the likelihood of steadily increasing prices over the next three to five years and the ‘sleep at night’ factor of bricks and mortar that many investors burned by the GFC are now seeking.

Yields have increased in recent years due to a very low supply of rental properties in a climate of very high demand. This has enabled landlords to maximise their rental returns.

When the First Home Owners’ Boost was around, rents were at historical peaks and it was one of the very few times in the 28 years I’ve been in real estate that buying became more financially viable for young Australians than renting. This is now changing as property prices and interest rates continue rising following a strong economic rebound last year.

Rental supply is slowly starting to build, with RP Data reporting a five per cent jump in supply in March. With more investors buying property in 2010, it was always anticipated that rental supply would increase slightly, but I believe it will be matched by ongoing strong demand due to population growth and lesser activity among first home buyers this year.

In short, we’re not about to see any major declines in rental prices in good markets.

If you’re in the market for an investment property this year, I can give you two very general rules of thumb to consider, no matter where you live or where you intend to buy your investment asset – get close to the cities or go to the beach.

It’s hard to go wrong with an inner city location within eight to 10km of the CBD, as long as it has good public transport and local community infrastructure such as a suburban shops, cafes and recreational facilities. As with all major capitals, there will be suburbs within this eight to 10km radius that you’d be better off avoiding due to things like industrial activity or excessive aircraft noise for example. As always, do your research and don’t buy into a suburb unless you have some real knowledge of that particular area.

Alternatively, head to the coastline – I’m talking anywhere within walking distance of the beach and surrounding cafes and CBD transport. In Sydney, this includes Cronulla in the south through to Palm Beach in the north, incorporating Maroubra, Bondi, Manly, Dee Why, Collaroy and Avalon. As you go further away from the city, what you lose in close CBD access you gain in proximity to beaches. This universal desire among Australians to be close to the water will keep your capital growth strong!

Some markets have it all and Bondi in Sydney is a great example. It’s an iconic beach suburb located 15 minutes from the CBD. Put these two factors together and it’s no wonder top end apartments there can command prices of $30,000 to $45,000 per sqm!

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