I’ve hit a brick wall trying to detemine the maximum price to pay for a property. Eg A property is for auction and currently receives a rent of $300 per week.
It definitely will sell for more than $150K, so how do I calculate what to pay for it?
I’ve tried to work out a formula, but it just isn’t coming together for me. I can put up a substantial amount of capital, but don’t really want to- I’d rather use other people’s capital(bank).
Can someone help?You cannot use a formula based on rent alone. You must look at comparable sales – what similar properties have sold for in the same area, recently.
Terryw
Discover Home Loans
Parramatta
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Hi Carpenter…..Welcome to the forum. Sorry to cause dissapointment, but methinks you will be unlikely to find anything that even remotely meets the 11 second rule any more, unless it is in a remote location or done very creatively – which requires time and skill….and occassionally someone elses misfortune. (I am talking about residential property) Five years ago it was different, but that was then. To help in making purchasing decisions, many people now look at what the gross rate of return is on the property price to give them an idea, and also research as Terryw said. All the best.[strum]
V8ghia, Although hard to find, they are still out there.
Terryw
Discover Home Loans
Parramatta
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Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yeah, I’m trying to find them TerryW, honestly. The realestate agents I have made contact with recently in particular keep telling me I’m ‘dreaming like everyone else’ (recent quote) but it’s not for lack of effort. Thanks for the encouragement but.
V8ghia (Glyn)Hi Carpenter,
You can work out the gross yield as a starting point in deciding whether or not to pursue a property.
Rent x 52 / Cost of property x 100 = yield.
E.g. A house worth $280,000 with a rental income of $250 would be: $250 x 52 / $285,000 x 100 = 4.56
If your interest rate is more than the yield than chances are that it’s negatively gearned. Please note that this is gross, for nett you would have to take into consideration the body corp rates, management fees etc and deduct from rental figure. But as I said this is only a starting point, don’t go by this is alone.
Lena
Hi Carpenter
I don’t know where your buying, but at a guess if your buying in OZ, if they’re getting $300/week in rent, it will go for around $300,000 – a yield of around 5% at the moment would be good. The easy way I find to work it out is whatever its getting in rent/week, change it from dollars to thousands, ie 300/week, buy price of $300K. It will generally be close to that, if not a bit more at Auction. If it goes for less than $300K there may be a reason why.
At the end of the day, the best way to work out the value of a property is to get out there & pound the pavement. Go to as many open houses in the same areas as you can that you think are similar standard to the one your looking to buy & that will give you a good indication.
Good luck.
KRJust one point, Carpenter. Try not to lead on you’re using any yardstick for your search.
RE agents are keen to “tailor” properties to you, and the reality usually does not stack up to their selling pitch.
Research rental demand stats in your area(s) maybe worth the trouble.
Cheers
CTHi carpenter, steve suggests that in his masterclass home study pack, that you go to all the agents in the area that you are interested in buying the house, get a list of all the propertys that are for sale and then ask how much the propertys would rent for.
Divide your rent on each property’s price to find out the rental yield for that area.
e.g. my house that Im renting at the moment is 10200pa / sale price 209000.00 = 0.048 x 100 = 4.8 % but the rental yields in the area is 5.6% therefore if the price on the house that I was renting was lower than below I know it what be worth it?
annual rent / rental yeild = purchase price
eg. 10200 / 5.6 % = 182,142.00PS. Steves Masterclass Home Study Pack is worth the money
good luck
Trish[blink]
P.Stickels
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