All Topics / Help Needed! / 7%+ yielding properties

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  • Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    Hi guys, ive still got some borrowing capacity.

    i have an option of buying another 2-4% yielding investment IP in melb/syd then being capped on borrowing capacity (income cap hit -got lots of equity)

     

    but have been looking at some regional areas where yields are 7%+ and properties are ~200k. Effectively, i could keep buying and not be capped this way as im building up an income stream. Aim is to keep mothballing and accumulating 50 of these with aim of being professional full time landlord.

    any issues with this strategy? Are these regional suburbs – eg Warren – which are  offering 8% yields hidden horror stories? Or is it possible to accumulate and become a full time landlord? Appreciate this is not passive work and will take lots of management but im up for it

    do these regional towns have very large gross to net income leakage? Large void periods? Please let me know if im missing anything? Or if its worth me making some day trips to see these towns?

    • This topic was modified 3 weeks, 3 days ago by Profile photo of propertyboy propertyboy.
    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi propertyboy,

     I have an option of buying another 2-4% yielding investment IP in melb/syd then being capped on borrowing capacity (income cap hit – got lots of equity)

    Back in my earlier days (maybe 20 years ago) a Mortgage Broker of the day told me “If you have enough Equity, income (or DSR) is not a problem.”   At that time I didn’t have Equity, so I didn’t get to follow up on WHY they said that, or if they did tell me I have since forgotten, but here’s my thought:-

    Was that statement ever correct?  Even better, if one has a heap of Equity today, is there some way that Equity can circumvent any DSR problems?  Or did I dream this?

    Perhaps others on here can advise – MB’s especially.   Any comments?

    Benny

    Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    In my experience in aus you are capped on personal income for conventional lending  as resi yields are low and banks stress at very high rates. In uk, you can be on a very low perdonal income as long as its £25k (thats from property distributions mind you also) and as long as property services 1.25x of the interest that is all they test. I Wonder if historic low rates have changed the game and wil make it easier for there to be more professional landlords

    • This reply was modified 3 weeks, 3 days ago by Profile photo of propertyboy propertyboy.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You have to consider whether such a property is a good investment. Just because it is high yield it doesn’t mean it is good.

    It will still tie up serviceability and equity and you could be investing in something else with higher returns – there is an opportunity cost.

    Regional areas do seem to be growing though so there may be some capital growth. But is this a short term thing or not?

    Also having say 10x $200,000 properties will have 10 times the issues of 1 x $2mil property. Think of all the broken hotwater systems, smoke alarm checks etc.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    Yes but stamp duty is much less, land tax is much lower – means much higher roe. Also 7% yield means I wont get cappeD on serviceability and can keep Buying. I want to turn this into a full time job. 2m properties will have 2-3% yields if u can find me a 7% yielding 2m property or suggest an area let me know – not looking for some holiday let or seasonaL property either.

     

    so what are the horror stories of moe, warrent arrarat etc? Squatters, ice houses, etc?

    • This reply was modified 2 weeks, 3 days ago by Profile photo of propertyboy propertyboy.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    That is true, there are many advantages with cheaper properties, others include being able to sell and minimise CGT as you can sell one property per year and spread the gain.

     

    I think the name of the game is to make as much money as you can rather than make a job. Expensive ones might have low yields bu they can result in more money. One of my clients purchased for $2mil and sold for $3mil less than a year later. No 50% CGT discount (they were silly there) but still would have made $500k+ plus in one year. Beats owning multiple cheapies in my book.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of propertyboypropertyboy
    Participant
    @propertyboy
    Join Date: 2008
    Post Count: 232

    Yeh but you see i buy my next one on a 3% yield. IM done borrowing capacity done. I enjoy always looking for the next one

    Profile photo of David HallDavid Hall
    Participant
    @wiggles2
    Join Date: 2014
    Post Count: 66

    There is a saying. Yield keeps you in the game, capital growth gets you out of it.

    Whilst the Initial yield on a 200k purchase may sound good, by the time you take into account land tax, council rates, typically higher vacancy rate, difficulty in getting quality property management and, the difficulty of finding reliable and affordable trades , that high yield can disappear.

    Start with the end in mind and work backwards.

    I

    David Hall | Momentum Wealth
    http://www.momentumwealth.com.au/
    Email Me | Phone Me

    Buyers Agent

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