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  1. #1

    Default analysis of return on investment property

    I have an investment property worth $360000. My net yield is 4.4% (rent - rates, insurance). However my equity in the property is 180000. This makes the yield on my equity 8.8%. I pay 5.6% interest on the other 180000. I see little capital gain. How would you rate this as an investment? The house is 3 years old and basically has no maintenance.

  2. #2
    Join Date
    Sep 2008
    Posts
    7,558

    Default

    what else would you do with the money

    have it in the bank at 4.5%?

    this is most difficult time

    hang on if it's still positive
    have you defeated them?
    your demons

  3. #3
    Join Date
    Sep 2007
    Location
    Christchurch
    Posts
    1,259

    Default

    So you're making $15840 after rates and insurance but before interest. And you're paying $10080 interest. That means your pre-tax income is $5760.

    5760/180000=3.2% pre-tax return on your equity. And that's assuming nil vacancies, repairs (it'll need some eventually), advertising, management fees etc. Chattels depreciation will make it look a bit better, but not much.

    Are you really expecting little capital gain in the long term?

  4. #4

    Default

    thanks for the comments, i do not think anyone can bank on much capital gain, unless you are in auckland.

  5. #5
    Join Date
    Jun 2011
    Posts
    158

    Default

    Unless you are in a declining area you should be able to expect a capital growth in line with inflation 2-3%pa.

    Where abouts is the property?

  6. #6
    Join Date
    Sep 2007
    Location
    Christchurch
    Posts
    1,259

    Default

    yeah, there's a difference between "not much" and "none". As long as your capital gain at least keeps up with inflation on long-term average, your IP looks better than a bank account.

    Have you considered selling it and buying a better-yielding place?

  7. #7

    Default

    In Rotorua, Lynmore. Top area. On small subdivided section. Rather have good area with good tenants.

  8. #8
    Join Date
    Feb 2004
    Location
    Wellington
    Posts
    2,776

    Default

    Quote Originally Posted by elliot View Post
    thanks for the comments, i do not think anyone can bank on much capital gain, unless you are in auckland.
    You have tax deductible debt and inflation is your friend .... I'd say it's an OK investment, you could do better/worse .... keep it long term and I'm sure you'll be glad you did.

    Cheers
    Spaceman
    Delightfully in need of some Tender Loving Care
    Blessed are those who can give without remembering and take without forgetting
    Some things are not as they seem, nor are they otherwise

  9. #9

    Default

    Its a good sounding investment. Remember the property market works on approx 7 yeat cycles so hold onto it as it will increase capital growth. If you want to invest in a property with a higher return on equity i would recommend an apartment however much lower capital growth. It's all about what you want in an investment

  10. #10
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,000

    Default

    Don't forget that the inflation percentage is on the whole value of the property, $360,000 at say 2.5% = $9000
    But you personally have only $180,000 invested.
    Therefore in the first year the appreciation on your investment is $9000 on $180,000 = 5%
    Not too dusty.

    I personally own a house that I bought five years ago for $188,000.
    Now it is worth about $225,000
    Not a particularly great return on those figures I agree.
    But
    I got 100% finance at time of purchase. The only cash I had to put in was the cost of the valuation report and legal fees.
    So the inflation return on my own money is .. um .. pretty good.
    Last edited by flyernzl; 21-09-2011 at 11:57 PM.


 

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