Recent Buying Selling Lifestyle
Recent Buying Selling Lifestyle
Buying

Why are investors back with a vengeance?

06-Jan-2014
Written by Ashley Blake
One of the most important measures of a property’s value is the amount of rental income that it can generate.

A good way to determine if a particular property is generating strong rental income is by looking at the rental yield.

Here is an example of a rental yield calculation

a) If the median rent for a unit is $409 per week, this equates to $21,268 over a year
b) The value of this property is $386,690
c) $21,268 in annual rent is 5.50% of the $386,690 property value. 5.50% p.a. is the Rental Yield

What makes this current market so enticing for investors is that rental income is often higher than the interest cost of the mortgage.

From the above example, we can see:

a) A person takes out a home loan for $367,355 to purchase a unit for $386,690 (the home loan is 95% of the unit’s purchase price)
b) The annual interest only payment on this loan with a 3 year fixed rate of 4.89% p.a. is $17,963
c) The current annual rental income for this property would be $21,268. You do the math
There are of course other risks, costs and benefits associated with owning an investment property, however, this situation where mortgage interest expense is less than rental income is quite rare.

Now you can see why people are so keen to invest. If an investment property has little impact on your weekly budget then it can be an attractive proposition.

If you would like to conduct a more thorough review of your investment options please give our Property Management team a call today on 9524 0777.

SOURCE: Smart Line

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