Article by David Easterbrook
The answer to this question is easy to answer by applying a number of industry benchmarks widely accepted. An investor in Melbourne will expect a rental yield of 3.5% – 4%…this is the rent a tenant will pay to the landlord.
For example
An investor buys an investment property for $550,000. At a rental yield of say 3.75%, the rent per week would be roughly $400 per week. However, if the tenant decides to buy a property instead of rent, they would need to have a minimum of $55,000 in savings… Based on this, their loan would be $522,000 plus lenders mortgage insurance would bring their total loan to $540,000.
Now we have established the numbers, all we need to do is work out the repayments on $540,000 at the interest rate of the day to see if renting is cheaper or more expensive than buying.
$540,000 @ 5% interest = $27,000 per annum (PA) or $519 per week (PW), interest only, or $669 PW principle and interest. Whilst renting, you are only paying $400 per week……a saving of approximately $150 to $300 per week! IN THE
SHORT TERM IT IS CHEAPER TO RENT THAN BUY
The above is the detailed way of saying this …5% interest versus 3.75% yield (rental payments) means it is cheaper to rent than buy….BUT, if you have purchased in a suburb with approximately 8% capital growth per annum ….in 10 years’ time the difference in the equation is substantially different.
Assuming that the property was purchased at $550,000 the should the value of the property grow at 8% per annum, the property will worth $1.2M. That is an increase in value of $650,000 at an interest only cost of $120 per week, assuming interest rate stays the same.
IN THE LONG TERM, IF YOU BUY A PROPERTY WHICH WE WOULD DEEM TO BE AN EXCELLENT INVESTMENT PROPERTY AT THE SAME TIME, YOU MAY LOSE OUT ON HUNDREDS OF THOUSANDS OF DOLLARS BY RENTING AND NOT BUYING.
Article by Fiona Evans
Available at open for inspections and online, the questions raised on the new Consumer Affairs Victoria Due diligence check list will be a starting point for many buyers to take more control of their purchasing and steer them to seek professional advice for some of the answers
Knowing what to further investigate will help property buyers make a better-informed purchasing decision particularly those who are inexperienced as this gives them a step-by-step guide to some of the issues.
The list highlights the need for an understanding of Owner’s Corporations and model rules, fire and flood implications for insurance and management, checking of titles, planning schemes and what to ask the local council, current zoning and building regulations, the need for building inspections and what to look for in the contract and section 32.
While most buyers will already have a common sense approach to some of these issues by undertaking thorough due diligence or engaging the services of a professional, the due diligence checklist may help the buyer avoid the many pitfalls and costly mistakes involved in purchasing real estate so they can enjoy their property for many years to come.
Kim Easterbrook talks about the increasingly competitive Melbourne auction scene.
Kim Easterbrook talks about what makes or breaks a suburb.
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Kim Easterbrook comments on an increase in single female buyers.
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Kim Easterbrook comments on holiday properties.
ANZs decision to raise the interest rate on variable mortgage customers dampened the mood at some auctions. The moves by banks to independently lift their rates worried buyers, particularly investors. But owner-occupiers who were less interested in seeking instant capital gain continued to target good properties.
Six bidders competed at an executor’s auction, conducted by Bennison Mackinnon, of an art deco apartment in its original condition at 3/24-36 Clowes Street, South Yarra. Kim Easterbrook, of Elite Buyer Advocates, said the unit was on the market at $621,000 and sold for $690,000.
Kim Easterbrook speaks to the Herald Sun about opportunities in the market
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Kim Easterbrook comments on first home buyers increasing bidder numbers across Melbourne.
Kim Easterbrook talks about increased buyer confidence this Spring.
