Rapidly rising prices over the recent property boom pushed rental yields to historic lows in many of Australia’s capital cities. As a result, it’s become more challenging for investors to find quality properties that reliably generate positive cashflow.
While rental yields are improving as property price growth eases and rents surge, they still remain low in Australia’s biggest capital cities, according to CoreLogic’s June Home Value Index.
Take Sydney, estimated to offer only a 2.59% gross rental yield, or Melbourne with 2.86%.
Why’s rental yield important?
A property’s gross rental yield tells you how much money you are likely to earn on your investment each year, expressed as a percentage of the property’s purchase price. As such, it’s one of the key metrics property investors should look at during their research.
To calculate a property’s gross rental yield:
- Work out the property’s expected annual rent
- Divide the annual rent by the property’s value
- Multiply the answer by 100 to get the gross rental yield
All things being equal, the higher the rental yield the better, as you’ll get more of a return on your investment. It’s also more likely you’ll generate a passive income as high-yielding properties are more likely to be positively geared (i.e. the rental income they generate exceed the costs of holding the property).
● Divide the annual rent by the property’s value
● Multiply the answer by 100 to get the gross rental yield
All things being equal, the higher the rental yield the better, as you’ll get more of a return on your investment. It’s also more likely you’ll generate a passive income as high-yielding properties are more likely to be positively geared (i.e. the rental income they generate exceed the costs of holding the property).
Double the dwelling, double the income
One way to maximise your investment return is to build or buy a ‘dual income’ property. That way you get additional rental yield as you generate two separate streams of income from a single plot.
Dual income properties come in different shapes and sizes, with the two most common configurations being:
- Duplex – two separate homes under one roof, sharing a common wall that can be strata-titled into two separate titles
- Dual occupancy –a residential property where two homes occupy one lot of land under one title
Read more about the key differences between dual occupancy investment property and duplex investment propertyhere.
To see the benefits of making one investment that brings in two incomes, let’s look at the following scenarios.
Duplex
You invest $680,000 in a duplex. Each of the homes rents for $330 per week, for a combined $660, giving you a yield of 5.05%.
But if the property was one large house (rather than two smaller homes), the yield would be lower (4.28%). That’s because while the purchase price would be lower ($620,000), so would the rent ($510).
Dual occupancy
You invest $560,000 in a large block of land that includes both a house and a granny flat. The house rents for $400 per week and the granny flat $150, for a combined $550, giving you a yield of 5.11%.
But if the property had not included the granny flat (but just a patch of grass), the yield would be lower (4.16%). That’s because while the purchase price would be lower ($500,000), so would the rent ($400).
Want to make one investment that brings in two incomes?
Property consultant – High Income Property can help you find a quality duplex or dual occupancy investment property in High Growth Areas of NSW,QLD, VIC & WA. Schedule an online meeting here or call (02) 8007 4001.