By Herron Todd White
October 2019

This month’s review is looking at property yields. We’ve decided to take a walk and discuss how property yields can be compared to the story of Goldilocks and the three bears. Stick with us – we explain all.

When discussing yields and property investments, you can break it into bite-size chunks and compare the yield aspect of property versus the end capital growth. Each has their benefits in the property realm and it all depends on what type of investment you require. Like all good investments, you must find what works best for you in each situation.

Generally, in the Newcastle/Hunter area, we have a range of yields with the general figures sitting between 3.5% and around 6%.

At the lower end, you find the yields averaging around the 3.5% mark. These are the investments that are good quality properties in desirable locations which are steady and safe and in demand tenancy wise. Here these types of investments usually have strong capital growth and appreciation on the property. Basically, not huge amounts of income (or cash flow) but good solid capital growth figures generally. Suburbs we think follow this rule are your typical Hamilton and surrounds, Georgetown and New Lambton.

At the upper end, you find 6% and above yields. The higher the yield, the riskier the investment becomes, mainly because you take on more risk with the reward of higher cash flow. The capital growth is also usually more stunted as the yield stream is the main driver in these types of investments. As with any greater risk and greater reward style scenario, there is much less stability and potential for a negative effect resulting from outside forces.

We are also finding more dual occupancy and ad-hoc boarding or student style housing that does have higher yield potential. But on the back of this greater reward comes the potential for problems which can include planning, zoning and ongoing maintenance issues. At any stage, the property could become non-compliant with costly remediation works on the cards to rectify the issues. Any unplanned costs associated with investment properties is never ideal and something that needs to be factored into any planning for would-be investors.

We’ve seen plenty of new construction in the area to include the main house at the front of the site with a newly constructed granny flat at the rear. These are becoming common sights during our valuation runs.

Speak with a Newcastle Mortgage Broker today.

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