By Herron Todd White
When looking at a glossary of property terms, yield can be found at the bottom of the list alphabetically but should be front of mind for any property investor.
The yield provides an indication of the annual return you will receive from your investment. Yields will fluctuate with the purchase price of a property, the achievable annual rental and the running costs (outgoings). The terms gross and net get thrown around when discussing yields. Simply, the gross yield is income prior to outgoings being removed and the net yield is income after outgoings are removed. Given that outgoings vary amongst location and property type, all yields provided in this discussion are gross.
The importance of yields for investors fluctuates with location. Historically, the inner ring has provided purchasers with returns in the form of capital growth. Coupled with a stable rental market, dwellings are providing yields of between 2% and 4% whilst units have achieved yields between 3% and 5%. Mid-1900s strata units are popular with first time investors. These properties provide an entry point at the lowest end of the market and are easily tenable. Sold tenanted at $275 per week, 4/32 Hereford Street, Trinity Gardens achieved a sale price of $270,000 which reflects a yield of 5.29%. This is a circa 1960s strata unit of brick construction disposed as two bedrooms and one bathroom.
The middle ring has been popular with investors, providing capital gains and a rental market with more depth than the inner ring. Both dwelling and unit yields hover around 3% and 5%. Most popular with investors are mid-century dwellings on larger allotments. These properties provide investors with not only a rental return but upside with future development potential. Selling for $410,000, 29 Thorne Street, Mitchell Park is now advertised at $360 per week indicating a potential yield of 4.56%. This property comprises a circa 1962 single level brick dwelling disposed as three bedrooms and one bathroom on an allotment of 663 square metres.
With price points considerably below the metropolitan median house price and a strong rental market, the outer ring has historically provided the greatest yields. Yields typically range in the 5% to 7% range with certain pockets and property types providing yields of 7% plus. With a variable price point of $100,000 to $150,000 and achievable weekly rentals in the low $200s, maisonettes surrounding Elizabeth Centre fall into this category. Sold tenanted at $220 per week, 48 Loftis Road, Elizabeth Downs achieved a sale price of $140,000 which reflects a yield of 8.17%. This is a circa 1960s maisonette of brick construction disposed as two bedrooms and one bathroom.
Alternative options to the traditional dwelling and strata units come in the form of unit blocks, CBD serviced apartments and secure long-term rentals such as Defence Housing. Unit blocks can be complex investments as dealing with multiple tenancies can be problematic. The buyer profile for unit blocks would typically be investment funds and experienced individual investors diversifying a portfolio. Yields for unit blocks within metropolitan Adelaide can fluctuate within a range of 4% to 8%.
Achieving a sale price of $830,000 in early 2019 was 1-4/50 Marden Road, Marden. This property comprised three two-bedroom units and a fourth three-bedroom unit. The property was partially let at the time of sale and provided an analysed yield of 7%.
Single occupancy long-term rentals such as Defence Housing and serviced apartments appeal more to the mum and dad investors looking for a set and forget investment. These properties provide secure long-term rentals with rent being guaranteed through the life of the tenancy. Defence Housing offers leases of up to 12 years whilst serviced apartments provide a mixture of lease options. Outgoings should be a major consideration when purchasing CBD serviced apartments. Outgoings can vary considerably from building to building depending on common areas and building services. Two apartments may appear comparable on a gross yield basis however once outgoings are accounted for, the net yields may be vastly different. Both of these investment options are passive in nature and typically offer yields of 3% to 6%. A Defence Housing example is the sale of 9 Farrell Street, Evanston Gardens. This property sold in August 2019 with the lease expiring in September 2023. The property achieved a sale price of $319,500 and a yield of 5.53%.
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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.