Want a home that pays for itself? Melbourne investor hotspots with highest rental yields revealed
Victorian landlords could be getting a property that practically pays for itself in a prominent property investor hotspot that has experts divided. Search your suburb to see how rents compare.
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Melbourne landlords could be getting a home that practically pays for itself in a property investor hotspot that has experts divided.
The CBD has gone from oversupplied to in demand as the rental crisis drives rents for sky homes sky high, and new analysis shows it could be enough for a property to pay for itself.
Revealed in analysis by the state’s largest real estate group, Ray White, the research showed those buying a house as an investment couldn’t quite manage the same feat, but would come closest in areas including Wollert, Donnybrook and Melton South.
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And in regional Victoria’s north west the tiny town of Warracknabeal could get investors with as little as $48,000 for a deposit close to getting a home that pays for itself.
But with one of the best rental returns compared to its purchase prise in the state, it’s a $412,375 median-priced CBD apartment that is the best bet for investors looking to miminise out-of-pocket expenses.
Bought with an $82,475 (20 per cent) deposit and about $20,000 in stamp duty, its $620 a week in rent amounts to an about 8 per cent yield.
However, BMT Tax Depreciation chief executive Bradley Beer warned while an 8 per cent yield was the magic number “for a property to pay for itself”, it was a risky strategy.
“While you can get that if you make an investment in a unit, in the long run you would get a more significant return on a house,” Mr Beer said.
“The same applies for purchasing in a regional location over a metro one, it’s all about the notion of supply and demand — you can easily build more units in the CBD.”
Ray White data analystJemima White said with rents rising 11 per cent and home prices falling 1 per cent across Victoria, the state had notched the biggest improvement for investors hoping to keep costs down.
“This is good news for landlords who are re-letting their investment properties, suggesting vacancy rates are low and there is scope for better yield in the short to medium term,” Ms White said.
But she added that it was important to understand while high yields could be attractive in generating income for investment properties and covering mortgage repayments, they were often found in areas with lower socio-economic conditions or volatile demand conditions.
Instead they might be better off in the long-term if they bought in a high-demand area with limited housing options, such as South Yarra as this could drive capital growth.
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Mr Beer noted that while some investors did prefer a strong rental return, he too would normally advise seeking out the prospect of a house where the sale price was more likely to increase — even if it meant being out of pocket.
But particularly in new housing estates where newly built homes come with significant tax benefits, it might still be possible to keep that cost to a minimum.
A scenario drawn from BMT Tax Depreciation’s PropCalc using the Ray White data showed a $680,000 typical house in Wollert bought with a $136,000 (20 per cent deposit) and an extra $36,870 set aside for stamp duty, would leave an investor just $63.32 out of pocket after their tax return.
Harcourts Rata and Co sales specialist Ron Singh added that tenants were happier to pay higher rent in suburbs like Mernda, South Morang, Donnybrook and Epping, with new estates as the home’s were in a better condition.
Mr Singh added there were places in the northern suburbs were rents were up to $700 a week where investors could get a higher return than if they were in the inner-city suburbs.
“If your income is between $120,000 to $140,000, mum-and-dad investors can buy another investment property to rent and secure for their kids while the market is in a good shape,” he said.
For Michael and Rebecca Grasso building an investment property in Donnybrook was a step towards a more secure financial future for them and their children Alessio and Alayna.
“I have a plan to get ahead and for the property to eventually pay for itself – but I’m suspecting it’ll take me probably about one to two years to get in front,” Mr Grasso said.
“Ideally, I would like to get a second investment property in addition to this one and my own home – I want to continue building my portfolio to secure a solid future for my kids.”
He added that he felt buying in the new area was a “strategic” move that would reap rewards as a plaza and other amenities were added longer term.
Dennis Family Corporation is developing the estate and sales development manager Marlon Fernandosaid while taxes and high interest rates were impacting some investors, population growth was enticing others to make a move.
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