Rental Yield

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<p>GUEST OBSERVER</p>
<p>I was recently reading the latest Residex Best Rent Report, which was released a couple of weeks ago.</p>
<p>There are some notable suburbs in the report showing amazing yields – in fact one suburb in South Australia has a rental yield of over 7% – but the predicted capital growth is not that hot.</p>
<p>That got me thinking… I am often asked what is more important – cash flow or capital growth?</p>
<p>Capital growth versus cash flow has been a hotly contested topic in property investing since the year dot and most people stand firmly in one camp or the other. On the other hand, I have always considered that both are important. After all, if I can achieve both then this allows me to build a portfolio without having large out of pocket expenses each month.</p>
<p>I also believe there is a third way of making even more money.</p>
<p>The Trid3nt Strategy® allows you to make money in three ways; it’s like having a Plan A, B and C.</p>
<ol>
<li>
<span><strong>Buy below market value.<br></strong></span><span>In a fast moving market this can be difficult, however the principle is that by doing your research you can identify opportunities and negotiate to create equity from the start.</span>
</li>
<li>
<span><strong>Buy a property with renovation potential.<br></strong></span><span>This allows you improve the property so you have the potential to increase the property’s value and rent.</span>
</li>
<li>
<span><strong>Buy in an area with good capital growth potential.<br></strong></span><span>As an area grows, you will get equity in your home and your property will be worth more when it comes time to sell.</span>
</li>
</ol>
<p><span> </span></p>
<p>As you can see, with this approach, rental yield alone is not everything. To be clear, you will not make money from a property based on a 5% to 6% rental yield unless you also have capital growth working for you. This is mainly because the cost of holding a property can quickly gobble up your income.</p>
<p>Costs include interest on your loan, council rates, strata fees, utilities, insurance and property management fees, just to name a few. A strong rental yield is important as it will minimise the amount of money you need to contribute out of your own pocket to cover these costs, hence why it is wise to target a high yielding area that also has good growth predictions.</p>
<p>Although there were many suburbs that interested me in the Residex Best Rent Report, there was one suburb that really stood out for me – Wallsend.</p>
<p>Wallsend is located in the western region of Newcastle (NSW), just 11 km from the city centre. The median house value is an affordable $413,500 with a rental yield of 5.04%. The suburb as a whole is also forecast to grow by an average of 6% per year over the next eight years, meaning it could be worth over $700,000 in eight years’ time. With fixed home loan rates below 4.8% at the moment, the median property in this suburb would not cost much to hold, particularly if you are able to make the most of negative gearing.</p>
<p>What really excited me about Wallsend was the Residex Renovators Report. There are over 95 streets in Wallsend that have renovation potential, where you could make over $50,000 by spending just 10% of the property’s value – generating a 20% profit. What’s more, of the 95 streets, 82 streets had the potential to make over $100,000 from a simple cosmetic renovation.</p>
<p>Before jumping into an investment purchase, it’s important to make sure you can easily rent out your property. There’s two parts to this – rental demand and vacancy rates. In the case of Wallsend, over 29% of the suburb’s population are renters and the vacancy rate is a low 2.6%, so both of these metrics check out.</p>
<p>This may not be the first time you’ve heard of Wallsend in recent weeks. If you have been following the news, you may have heard about the ‘big wet’ in NSW, and subsequently that Wallsend has been hit by floods. This brings me to an important point.</p>
<p>Numbers in isolation only tell part of the story. You need to use reports and predictions in combination with other data to conduct a thorough assessment. I believe as a final part of your research it is extremely valuable to actually hit the streets of the given area you are considering. Get a feel for the area, speak to local real estate agents, business owners, councils and residents to find out what is happening with the economy and if there are any plans for development in the area.</p>
<p>Natural disasters may be unavoidable, but knowing that they can happen and understanding the particular areas that are prone to natural disasters – in this instance flooding – should be part of your analysis.</p>
<p>The recent floods in Wallsend should not discourage you. After all, property is a long term investment. This current situation should remind us that there are always other risks to consider when conducting your research. When looking at a specific property it may pay to speak to insurers to make sure you can get appropriate insurance cover at a reasonable cost.</p>
<p>So, going back to the original question – What is more important yield or growth?</p>
<p>As you can see, rental yield is definitely something that should be considered but it is not everything. Capital growth is also important as it will allow you to sell at a profit. Combining this with renovation you also have the ability to push up the rent in the short term and hence reduce your out of pocket expenses, but the numbers alone are sometimes not enough (as recent events have shown).</p>
<p>The fundamentals, though, ring true. If you buy the right property in the right area and add value through renovation and capital growth, there is even the possibility of creating enough equity to buy another property and replicate your success.</p>
<p><em>Jane Slack-Smith is founder of Your Property Success and Director of Investors Choice Mortgages and can be contacted <a href="https://yourpropertysuccess.com.au/?Cid=Blog-JSS-Jan16" target="_blank">here</a>.</em></p>
<p><em>This article first appeared on <a href="https://www.onthehouse.com.au" target="_blank">Onthehouse.com.au</a>.</em></p>
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jchancellor-FAypfDUnLy

Renovation and capital growth: Jane Slack-Smith

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<p>2015 was a lacklustre year for rental growth in Australia with rents increasing by just 0.3% in 2015; not exactly the news investors are looking to read about but good news for those looking to rent.</p>
<p>We’ve never seen rental growth as sluggish as it is at the moment. Furthermore, we’re expecting to see more of the same over the coming months due to increases in the supply of new housing, rental stock and a further slowdown in migration rates. </p>
<p>The only cities to see an increase in weekly rental rates were Sydney with an increase of 1.9 percent, Melbourne (2.2 percent), Hobart (0.6 percent) and Canberra (1.9 percent) while rates fell in Brisbane by (-0.3 percent), Adelaide (-0.2 percent), Perth (-8.0 percent) and Darwin (-13.3 percent). <span style="line-height: 1.3em;"> </span></p>
<p>A comparison between December 2015 and December 2014 shows in 2014 annual rental growth was slowing but was tracking at a much higher 1.8% which highlights just how much the rental market eased throughout 2015. </p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.21.53%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.21.53%20AM.png" alt=""></p>
<p>The construction boom across the capital cities, coupled with slowing population growth, low mortgage rates and the recent heightened level of activity from investors are the major contributing factors to the slowing rental growth in 2015.</p>
<p>Although Sydney and Melbourne saw the largest ramp up in new housing supply, both cities still recorded rental increases over the year, although rental growth is slowing relative to 12 months earlier.</p>
<p>It is clear that the increase in investment stock continues to provide landlords with little scope to lift rental rates while the low mortgage rate environment provides little incentive to push yields higher.</p>
<p>We envisage that growth in rental rates is likely to remain weak or potentially slow even further over the coming months. The good news for those looking to rent is the possibility <span style="line-height: 1.3em;">that rental rates will fall even further over the coming year.</span></p>
<p><span style="line-height: 1.3em;">While the news for renters will be welcomed, investors may be facing weaker capital gains coupled with little in the way of rental growth or yield.</span></p>
<p>The large pipeline of residential construction activity and recent high levels of investment demand means that renters are likely to continue to have plenty of choice.</p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.15.47%20AM.png" target="_blank">Click to enlarge</a></p>
<p><em><strong><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.15.47%20AM.png" alt=""></strong></em></p>
<p><em><strong> </strong></em></p>
<p><em><em>Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.</em></em></p>
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Annual national rental growth lowest on record for landlords: Cameron Kusher

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<p>Outback and mining towns dominated Australia's cheapest median home prices.</p>
<p>The list was prepared by CoreLogic.</p>
<p>Queensland's Dysart was among the busiest locations with 44 house sales.</p>
<p>There was a $98,000 median house price in the mining town.</p>
<p>Sales included a highest home at <a href="https://www.realestate.com.au/sold/property-house-qld-dysart-126340350" target="_blank">107 Beardmont Crescent</a> at $67,000.</p>
<p><span>Dysart</span><span> is a service centre for the nearby Norwich Park coal mine, which closed in 2012, the Saraji coal mine, and the Lake Vermont Coal Mine, as well as grazing properties in the district. Most residents are employed by the coal mines.</span></p>
<p>Houses                Volume              Median                                                         </p>
<p>WA Mount Magnet Mount Magnet 12 $68,605     </p>
<p>WA Norseman Dundas 19 $80,314.                      </p>
<p>WA Kambalda East Coolgardie 15 $90,978            </p>
<p>Tas Rosebery West Coast 40 $91,907                   </p>
<p>Tas Queenstown West Coast 73 $93,707               </p>
<p>Tas Zeehan West Coast 18 $96,377                      </p>
<p>Qld Dysart Isaac 44 $98,187                               </p>
<p>Vic Rupanyup Yarriambiack 11 $99,299                </p>
<p>SA Pinnaroo Southern Mallee 12 $103,928           </p>
<p>Vic Sea Lake Buloke 11 $105,235                       </p>
<p> </p>
<p>Units</p>
<p>SA Elizabeth Vale Playford 12 $128,118</p>
<p>Qld Beachmere Moreton Bay 11 $135,981</p>
<p>WA South Hedland Port Hedland 44 $136,227</p>
<p>Qld Woree Cairns 54 $142,780</p>
<p>Vic Moe Latrobe 33 $143,014</p>
<p>SA Whyalla Stuart Whyalla 37 $146,462</p>
<p>Qld Kooralbyn Scenic Rim 14 $146,839</p>
<p>Qld Edmonton Cairns 10 $152,917</p>
<p>Qld Manunda Cairns 63 $153,919</p>
<p>NSW North Albury Albury 13 $154,580</p>
<p> </p>
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j.ballantyne1990-6AQqhLzZaK

Dysart, the Queensland mining town dominates the cheapest median housing locations in 2017

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<p class="Body">One of the side effects of Sydney’s boom is that prices have risen a lot but rents haven’t, so yields have become ugly – i.e. not attractive to investors.</p>
<p class="Body">Melbourne prices haven’t risen as much (generally speaking) but the city has developed a gap between prices and rents similar to Sydney’s. These days you’re lucky to find a rental yield as high as 3% - which, even in these days of low interest rates, is unappealing.</p>
<p class="Body">Other capital cities like Adelaide and Brisbane have much better yields on offer, but for investors seeking properties that can pay their own way the pickings are slim.</p>
<p class="Body">There was a time when investors could access double-digit rental yields in resources-related locations (if they were willing to disregard risk). But many of those markets have collapsed, either through developer over-supply or the impact of FIFO workforces or the mining downturn - or some combination of those three factors.</p>
<p class="Body">There’s nowhere left that provides 10%-plus rental yields. Some of the more careless research houses publish lists claiming you can get 15% or 20% yields in certain locations, but those are statistical aberrations that prove the adage about “garbage in, garbage out”, exacerbated by researchers with a garbage approach to business ethics (as long as it generates publicity, to hell with accuracy).</p>
<p class="Body">A recent list claimed you could get yields above 30% (!!) in Mission Beach in Queensland, when in reality typical yields on residential property in this location are below 5%. If 30% yields were truly achievable, every investor in Australia would be stampeding north and buying every property in sight.<span style="line-height: 1.3em;"> </span></p>
<p class="Body">The best yields you can find anywhere in Australia – I mean genuine rental yields based on real situations, not computer glitches, in locations of substance – are to be found in Cairns.</p>
<p class="Body">Cairns is one of a number of regional Queensland cities where you can readily buy property that pays its own way – i.e. cash flow positive or at least neutral.<span style="line-height: 1.3em;"> </span></p>
<p class="Body">In the North Queensland city, you can find plenty of houses with rental returns in the 5.5% to 6% range and apartments between 7% and 8%. I can’t find another market of substance with rental yields that strong.<span style="line-height: 1.3em;"> </span></p>
<p class="Body">Other regional cities in the state offer attractive returns as well. The Sunshine Coast, Townsville and Hervey Bay have this in common: houses where yields are typically in the 4.7% to 5.5% range and units that generally range from 5.7% to 6.5%. If you hunt around, you can find better.</p>
<p class="Body">The other common things they share are strong economies, growing populations, major spending on infrastructure, ambitious local councils and plenty of affordable dwellings. They’re all on growth paths, some of them after long periods of under achievement.</p>
<p class="Body">Some, like Cairns and the Sunshine Coast, are transition economies, where civic and business leaders have recognised that the historic reliance on tourism makes them vulnerable to downturns caused by forces beyond their control. So they’ve been proactively working to broaden the economic base and encourage new industries.</p>
<p class="Body">The Sunshine Coast now has a medical sector that didn’t previously exist, based on the $2 billion University Hospital which is generating all kinds of new medically-related development around it. It’s helping the Sunshine Coast become a regional city, rather than a coastal retreat for tourists and retirees. Similar things are happening in Cairns and, to a lesser extent, in Hervey Bay.</p>
<p class="Body">These property markets are starting to deliver good price growth and strong rents, with yields far in excess of what you can get in any of the capital cities.</p>
<p class="BodyA"> <em>Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a></em></p>
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terryryder-YECXbqmri2

Sydney rental yields becoming ugly: Terry Ryder

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<p><span>The days of double-digit rental yields in Australia are gone. And it’s hard to see those times returning any day soon.</span></p>
<p><span>Up until about three years ago, Australians who were comfortable with risk, or perhaps oblivious to it, were buying in mining towns and resources-related regional centres, and commonly achieving initial gross rental returns of 10%, sometimes more.</span></p>
<p><span>But the same places are now likely to offer little better than 5%. Even though prices have fallen a lot in devastated mining centres, rents have fallen even more. Median rental yields, according to Domain, are now 4.8% in Newman, 5.8% in Port Hedland, 4.3% in Emerald and 3.1% in Moranbah.</span><span style="line-height: 1.3em;"> </span></p>
<p><span>So where do you turn, now, for a better-than-average rental yield?</span></p>
<p><span>The best on offer that I can find are in Cairns in North Queensland. The median rental yields for apartments are generally 7% and above, more because prices tend to be low rather than because rents are high.</span></p>
<p><span>According to Domain figures, the median return for Cairns North, where over 200 apartments have sold in the past 12 months at a median price of $237,000, is 7.5%.</span></p>
<p><span>In downmarket Manoora, where 90 units have sold at a median price of $167,000, the median rental yield is 7.9%. And in Woree (median price $148,000), the median rental yield is 8.0%. That means a small unit selling for $150,000 and renting for $230 a week.</span></p>
<p><span>Houses around Cairns generally provide rental yields in the 5.5% to 6.0% range.</span><span style="line-height: 1.3em;"> </span></p>
<p><span>It’s worth considering because Cairns presents a solid market at the moment - boosted by an improving economy, strong tourism and major spending on infrastructure. Some suburbs have recorded double-digit growth in median prices in the past 12 months.</span></p>
<p><span>The bottom line is that those Cairns yields are as you good as you will realistically find across Australia. There is nowhere I know about that offers double-digit yields anymore. And I mean genuine rental returns, not computer-generated statistical glitches.</span></p>
<p><span>If you read enough newspapers, magazines and online news services, you’re going to see lots of lists claiming that returns well above 10%, sometimes above 20%, are available.</span></p>
<p><span>Don’t believe these stories. They are statistical aberrations and credible median organisations wouldn’t publish them.</span></p>
<p><span>One of these lists published recently claimed there’s a place in Queensland where you can get rental yields of - wait for it - 58%. That’s so obviously absurd that it's amazing anyone published it, but print it they did.</span></p>
<p><span>Just pause for a moment and consider what’s being suggested here. A rental yield of 58%, apart from being an obvious error, means a property selling for $300,000 would fetch rent of $174,000 a year or $3,346 per week.</span></p>
<p><span>When I first saw it in an online real estate magazine, I thought it might be a typographical error.</span><span style="line-height: 1.3em;"> </span></p>
<p><span>But no, I clicked on the town credited with this remarkable real estate achievement and there, sure enough, was a presentation of figures which showed how they arrived at this.</span></p>
<p><span>The town credited with a 58% median rental yield was Beaudesert, south of Brisbane and west of the Gold Coast.</span></p>
<p><span>Apparently, you can buy units in Beaudesert for $22,500. Yes, apartments for less than the price of a Jeep. And given that the median weekly rent for these remarkably cheap dwellings is $253 per week, rental yields are indeed 58.47% - according to the computer, at least, proving once again the validity of the old adage about “garbage in, garbage out”.</span><span style="line-height: 1.3em;"> </span></p>
<p><span>Obviously someone has made a mistake. You can’t buy units for $22,500 in Beaudesert - or anywhere else in Australia. And, equally obviously, typical yields in the town are not 58.47%.</span><span style="line-height: 1.3em;"> </span></p>
<p><span>But wouldn’t you think someone would take steps to correct these startling errors? Because they’re common. Mistakes of this kind are appearing weekly, if not daily, in real estate media.</span></p>
<p><span>In October I wrote about claims from the same source that you could commonly achieve 30% yields in Mission Beach – and other instances where it has been claimed that prices in tiny towns have risen 40-50% in 12 months.</span></p>
<p><span>The latest presentation of the top five locations in each state with the highest yields was a litany of these types of mistakes. It’s claimed there’s a location in NSW where typical yields are 28%, a tiny town in South Australia where you can commonly achieve 16% and a coastal hamlet in Tasmania where 15% returns are common.</span><span style="line-height: 1.3em;"> </span></p>
<p><span>Many of the locations listed as having outstanding rental yields are basket-case markets with vacancies above 20%.</span></p>
<p><span>Others are coastal towns where high rents are achieved in peak holiday times and the computer assumes those peak rents are achieved 52 weeks of the year (when, in reality, the properties are vacant for much of the year), hence the ridiculously high yield figure.</span></p>
<p><span>If you choose to believe these figures, you’ll welcome to head off to Beaudesert, Mission Beach or wherever and see if you can find a property where the rental yield is even as high as 6%.</span></p>
<p><span><em>Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a></em></span></p>
<p> </p>
<p><span>For your free </span><em>Property Observer</em><span> eBook from RAMS, <em>12 tips for first-time buyers</em>, </span><span>covering</span><span> </span><span>everything</span><span> you need to know when it comes to purchasing property, <a href="component/content/article?id=48727" target="_blank">click here</a>.</span></p>
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Days of double-digit rental yields in Australia are gone: Terry Ryder

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<p><span style="line-height: 1.3em;">Property investors have been pampered with an assortment of developments throughout Sydney over the last three years. Developments that have seen in the most part vacancy rates as low as 1.2%. </span></p>
<p>Adding to the investors fortune are almost no-vacancy periods. High capital growth and low vacancy is an investors dream but how long will and can the party last? </p>
<p>As I drive around Sydney in general and meet with clients in coffee shops, I have been noticing the emergence of the For Lease signboard. In some apartment buildings there are two, even three signboards adorning their front landscape. A sight not witnessed for some time.</p>
<p>As many investors have been feasting on the high property yields, many may drop their guard with respect to the upcoming oversupply and less demand for rental property. Current reports are now emerging with vacancy rate figures on the rise.</p>
<p>With the rise in vacancy periods comes the upsurge of the For Lease signboard - a symbol that should bring terror to the property investor. I am of the opinion that these signboards will grow in numbers, as they pop up like mushrooms in the front yards of older buildings. Tenants will migrate from the older apartment blocks to those newly built. </p>
<p>There are other reports floating around that we have 90,000 off-the-plan purchases yet to be completed over the following 12 months. Again, I’m of the opinion the numbers quoted by the mainstream are conservative figures. It will be no surprise to finally calculate 130,000 plus apartments being built in the capital cities along the east coast of Australia. </p>
<p><span style="line-height: 1.3em;">But wait! There is a hell of a lot more in planning and proposal stages. When I say a lot, I don’t just mean tens of thousands; let us just say that the Parramatta Rd corridor will see close to 100,000, if not more. </span></p>
<p><span style="line-height: 1.3em;">What will set the trend for 2016 will be how quickly the tens of thousands of apartments will be occupied as they are completed in the following </span>there<span style="line-height: 1.3em;"> to four months and what rental-incomes or returns are achieved. But not taking into account the rental guarantees promised by agents and developers.  </span></p>
<p>What I foresee will take place in the near future:</p>
<ul>
<li>We will witness a migration of tenants from older unit blocks, to newly completed unit blocks. </li>
<li>Rents will be reduced to those promised to investors. However, although tenants will pay much less, the agents and developers will make up the difference. Happy-days for the renters. </li>
<li>Rental expectations will be adjusted even lower in the older apartment blocks to counter-act the mass exodus of tenants vacating the older dwellings.</li>
<li>Unit blocks that are 3 years and older will begin to creep down in value in some parts of Sydney and in others it will be a sudden drop.  </li>
</ul>
<p>Why is this all important? </p>
<p>If you are an investor and you believe you may be in an area where there is a high level of construction, then it’s time you begin to lock your tenants into a long term tenancy period. Perhaps even drop the rent a little to gain long term peace of mind. </p>
<p>A vacancy-plan strategy will need to be put in place with your property management team - a plan that monitors both rental demand and vacancy periods in the area. </p>
<p>Furthermore, right now is not the time to be looking at increasing rents in most parts of Sydney. There are only a few areas in Sydney that are coping with rental increases. With a smorgasbord of rental property available and more to come, tenants will move to newer and cheaper accommodation. </p>
<p>What's the net result?</p>
<p>The net result for many that moved into the property investment game in the last 18 months will be very painful. Needless to say, a large number of investors that have borrowed equity against established dwellings to grow their property-portfolio will also find the near future somewhat turbulent. </p>
<p> </p>
<p><em><span>EDWIN ALMEIDA</span> is licensee in charge of <a href="https://www.just-think.com.au/" target="_blank">Just Think Real Estate</a>.<a href="https://www.just-thin.com.au/"><br></a></em></p>
<p><em>He is also the creator of <a href="https://www.youtube.com/user/JustThinkProperty" target="_blank">Oz Real Estate.TV</a> and a presenter for <a href="https://propertyinvestingvault.com/" target="_blank">propertyinvestingvault.com</a>.</em></p>
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ealmedia-arK4DBYLjS

The rise of the For Lease signboard: Edwin Almeida

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<p>SPONSORED POST</p>
<p>As an investor, you’ll want to minimise the amount of tax you pay on your rental property and ensure the process of completing tax returns run as smoothly as possible. Here are some tips to help.</p>
<p>1. Keep paperwork in order from the start. Record all up-front expenditure when buying your investment as initial expenses form part of the property’s cost base and can help cut capital gains tax when you sell. Carefully file all investment-related receipts throughout each year to minimise headaches at tax time.</p>
<p>2. Pre-pay interest and other expenses if it makes sense for you.</p>
<p>3. When considering whether to repair or replace an appliance or fixture, remember repairs can be claimed in the tax year in which they were incurred while replacements often need to be depreciated over the item’s lifespan. This could make a difference to your investment’s costs and your annual tax bill.</p>
<p>4. Consider obtaining a depreciation schedule. These do cost but they may allow you to claim deductions for capital works and assets such as appliances that save thousands in tax over the time you own the investment. </p>
<p>5. Handle tax in the same way as the names on the property title: if the property is held equally in joint names, for example, you both need to declare half the income and claim half expenses in your tax returns.</p>
<p>6. Beware of redrawing on your investment property mortgage for personal use. This changes the amount of interest you can claim as a tax deduction and may affect whether your property is positively or negatively geared.</p>
<p>7. Try to time the sale of your investment property so it settles in a year when your taxable income will be lower. This might mean waiting until you retire, take a break from work or start a business, for example.</p>
<p>8. If you plan to dispose of a loss-making investment, try to sell in the same year as a profit-making investment property so you can use the loss to reduce your net capital gain, and therefore your tax bill. Remember to offset capital losses from previous years against current-year gains.</p>
<p>9. Seek advice before buying property through a self-managed superannuation fund. There can be tax advantages but there are fewer benefits to negative gearing through super. There are also restrictions on what you can do with your rental property that don’t apply to investments you directly own – such as renovating and renting to relatives or friends.</p>
<p>10. Seek professional tax advice to ensure you’re claiming all you’re entitled to. </p>
<p><span>To download a free ebook on new financial year taxation tips for property investors,</span><a href="http://propertyobserver.com.au/forward-planning/tools/ebooks-and-webinars/55208-new-financial-year-tax-planning-tips-for-property-investors" target="_blank"> click here</a><span>.</span></p>
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Minimise the amount of tax paid on rental property investment

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<div>There was an interesting media story this week where Saul Eslake noted that the recent hike in investor mortgage rates could result in a "hit" to the budget totalling hundreds of millions of dollars. </div>
<div> </div>
<div>It was a good yarn, albeit one which stopped somewhat short of telling the full story. </div>
<div> </div>
<div>In fact between the 2008 and 2014 tax years the average net rental loss has cratered by 64 per cent.<br><br>Given that mortgage rates have declined substantially since 2014, the budget impact today of negative gearing appears to be heading towards trifling.</div>
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<div><a href="https://www.propertyobserver.com.au/images/2017/03/27/A2.jpg" target="_blank">Click to enlarge</a></div>
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<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/27/A2.jpg" alt=""> </div>
<div>In any case - omitted in Eslake's calculations - higher mortgage rates will simply lead to higher bank profits, and in turn a higher corporation tax take. </div>
<div> </div>
<div>The banks like to argue that they have faced rising funding costs, but in reality funding costs fell in 2015 and fell even further in 2016.<br><br>Yeah, I know, the banks are doing it tough out there now. </div>
<div> </div>
<div>Evidence? Check out Commonwealth Bank's outrageous record profit of more than $4.9 billion for the first half, up yet again by another 6 per cent from the prior corresponding period. </div>
<div> </div>
<div>Meanwhile, rents have been rising, so over recent tax years net rental income has been steadily moving towards zero as more property investors record net rental profits on their tax return (remember these numbers need to be tax effected at the relevant marginal rate). </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/27/A1.jpg" target="_blank"> Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/27/A1.jpg" alt=""></div>
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<div>Indeed, the number of landlords declaring a net rental loss is all but unchanged since the 2008 tax year despite Australia's rising population.</div>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/27/A3.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/27/A3.jpg" alt=""></div>
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<div><strong><span style="text-decoration: underline;">Back to those rack rates...</span></strong></div>
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<div>According to the Reserve Bank of Australia's Statistical Tables the standard variable rate on investor loans was already up to 5.55 per cent by January.</div>
<div> </div>
<div>But here's the thing: who is really paying such a high rate of interest today, when investor loan products have been available from around 4 per cent?<br><br>Probably not that many people, I reckon.</div>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/27/A4.jpg" target="_blank"> Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/27/A4.jpg" alt=""></div>
<p><br><span>For evidence? Take a look at the national accounts.</span></p>
<div>With the population having increased by about 16 percent from 21 million in 2008 to 24.4 million today, you'd expect to see interest charges rising over time.</div>
<div> </div>
<div>Yet the amount of interest payable on dwellings today is lower than it was in 2008.<br><br>The total interest payable by households on outstanding mortgage debt implies a considerably lower average mortgage rate than the quoted 'rack rates' (record mortgage buffers and the use of offset accounts have likely played a role here too). </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/27/A5.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/27/A5.jpg" alt=""></div>
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<div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
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<div>With mortgage rates having declined since the last available full suite of tax data for financial year 2014, the impact of negative gearing on the Federal Budget would now be getting fairly close to zero.</div>
<div> </div>
<div>Meanwhile, state government figures show that revenue offices are cleaning up from investor activity, with New South Wales alone swallowing up <a href="https://petewargent.blogspot.com.au/2017/02/nsw-stamp-duty-boom-continues-in-2017" target="_blank">an outlandish $9.4 billion in stamp and transfer duties</a> over the year to January 2017.<br><br>Negative gearing doesn't really represent a 'loss' to the budget as such - rather it is a timing difference, with the 'loss' typically recouped as investment properties become cash flow positive over time, or in capital gains tax at the point of sale.<br><br>With relatively few new dwellings being bought or constructed by owner-occupiers, the government also saves further by constructing comparatively little social housing.</div>
<div> </div>
<div>The reality is that after accounting for the undoubted disruption to residential construction, the economy, and to housing markets, Federal Budget savings from changing negative gearing rules today would be approximately diddly squat.<br><br>Treasurer ScoMo won't be going there. </div>
<div> </div>
<div>
<p class="p1"><span class="s1">PETE WARGENT is the co-founder of <a href="https://allenwargent.com/"><span class="s2">AllenWargent</span></a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/"><span class="s2">blogger</span></a>.</span></p>
<p class="p2"><span class="s3"><em>His latest book is </em><a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx"><span class="s2"><em>Four Green Houses and a Red Hotel</em></span></a><em>.</em></span></p>
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Rental losses are falling: Pete Wargent

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<p>EXPERT OBSERVER</p>
<p>Mortgage rates in Australia have fallen sharply from around 8 to 10 per cent since 2008.</p>
<div>So it's reasonable to expect that housing rental yields would be considerably lower too.</div>
<div> </div>
<div>At the nadir, though, gross rental yields across the combined capital cities had sunk to below 3½ per cent, which is clearly far too low (and that's a gross figure). </div>
<div> </div>
<div>Here's an interesting chart from CoreLogic today, showing combined capital city yields tracking back quite quickly towards a rather more sustainable 4 per cent. </div>
<div> </div>
<div>Sydney has done some of that lifting, but with more pressure on its rental market the main driver has been Melbourne, with gross rental yields rising from near-record lows of 3.1 per cent in February 2018 to 3.6 per cent. </div>
<div> </div>
<div>Click <a href="https://2.bp.blogspot.com/-e8HYLNBoDoE/XHh_JygJXNI/AAAAAAAAuxY/aMPH6jBgzuQpI94mLAipxCfUG5l1kkXGACLcBGAs/s640/Yields.jpg" target="_blank">here</a> to enlarge</div>
<div> </div>
<div><img src="https://2.bp.blogspot.com/-e8HYLNBoDoE/XHh_JygJXNI/AAAAAAAAuxY/aMPH6jBgzuQpI94mLAipxCfUG5l1kkXGACLcBGAs/s640/Yields.jpg" width="640" height="414" data-original-height="538" data-original-width="829"></div>
<p> </p>
<div><em>(Source: CoreLogic)</em></div>
<div><em> </em></div>
<div>There has been a wide variation of results across markets, with demand largely coming from the bottom up thanks to first home buyer stimulus, but the upper quartile of the market seeing far fewer transactions on tight lending standards.<br><br>Negative equity hasn't featured too much in Australian housing in recent years, but with tighter credit holding down markets in Perth, Darwin, and some other regions, this is starting to become a factor of concern, especially as some borrowers are forced off interest-only mortgages.<br><br>Noted CoreLogic on the second wind for the Perth and Darwin downturn:<br><br>'This renewed downwards pressure on home values coincides with a softening in labour market conditions, with weaker housing market results likely compounded by credit scarcity.'</div>
<div>
<br>Perth's median price has fallen by about 20 per cent over a downturn now spanning more than 4½ years.<br><br><div><img src="https://1.bp.blogspot.com/-5wxI9592SwI/XHjwAsnWzuI/AAAAAAAAuyM/074mg4IqR4o3KHA-SG1XvyuEwjozIgyxQCLcBGAs/s640/Perth.jpg" width="640" height="408" data-original-height="842" data-original-width="1316"></div>
<br><div><em>(Source: CoreLogic)</em></div>
<div><em> </em></div>
<div><em><em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em></em></div>
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Rental property yields recovering: Pete Wargent

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<p>A 9.9 percent yield at Ouyen in Victoria tanked as the highest gross rental yield across Australia this year.</p>
<p>It was based on the Mildura district town's $124,315 median house price.</p>
<p>The three bedroom home at <a href="https://www.realestate.com.au/property-house-vic-ouyen-117697315" target="_blank">4 Cooper Street Ouyen</a> that is for sale at $195,000 to $210,000 is suggested to have a a $250 to $260 a week rental prospect.</p>
<p>Houses            Median Value Gross Yield</p>
<p>Vic Ouyen Mildura $124,315 9.9% </p>
<p>NSW Broken Hill Broken Hill $148,084 9.6% </p>
<p>WA Kambalda East Coolgardie $90,978 9.2% </p>
<p>Tas Gagebrook Brighton $156,712 9.1% </p>
<p>SA Coober Pedy Unincorporated SA $130,463 9.1% </p>
<p>WA South Hedland Port Hedland $203,452 8.9% </p>
<p>Tas Queenstown West Coast $93,707 8.8% </p>
<p>NSW South Kempsey Kempsey $228,435 8.7% </p>
<p>Tas Bridgewater Brighton $186,166 8.6% </p>
<p>NSW Condobolin Lachlan $207,067 8.6% </p>
<p> </p>
<p>Units</p>
<p>Qld Port Douglas Douglas $256,024 9.3%</p>
<p>Qld Manunda Cairns $153,919 9.0%</p>
<p>Qld Bungalow Cairns $160,812 8.9%</p>
<p>Qld Edmonton Cairns $152,917 8.9%</p>
<p>Qld Westcourt Cairns $211,390 8.7%</p>
<p>Qld Manoora Cairns $164,431 8.4%</p>
<p>Qld Edge Hill Cairns $185,089 8.2%</p>
<p>Qld Holloways Beach Cairns $186,552 8.0%</p>
<p>Qld Cairns North Cairns $240,453 7.6%</p>
<p>Qld Parramatta Park Cairns $235,248 7.5%</p>
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