Nix and Mike

I have a general query.

I do not know the property market in Perth, so I am asking a general question using the knowledge that I have gained in other markets:

My thinking:
Generally, if a property can get 10% return on it's investment per annum, it is a good deal. 7% is fine.

For example:
That means for a $500K property, a $50K per annum return is a good deal. $35K (7%) and it is still worth doing.
This means that a rental return for a $500K property in Perth would have to be between $670 and $960 per week in order to achieve these figures.
I have looked at the rental rates on real estate websites, and it is clear that this is NOT realistic.

So, my question is:
Is my logic above correct?
Does this then mean that investing in property in Perth is not such a good idea. If you have the spare cash, rather invest in an alternate business opportunity?

Any thoughts / comments would be interesting and welcome.....

Nix

G586

This is a UK perspective but it should work the same in Perth....

Investing in property used to attact a "hassle" premium and that's why 10% gross income is a yield worth the grief.

However, investors have been attracted by the capital increases available - the total return and are prepared to lose on the income, in order to gain on the increase in values. Same principle as investing in shares without dividends, you hope their capital value increases.

This means there has been a dislocation between income and capital values and rents have not gone up to reflect the increased cost of the property, due to more supply and the willingness of investors to keep rents down to attract tenants.

So, the question is would an alternate business be better? Well, that's an individual choice....you can run all sorts of calculations......but as you can get 6% gross in a UK savings account, whilst 5% is now a good gross property yield and the UK market looks weak, it doesn't really stack up. However, you might have a different view and that's what makes the market work.

Amazulu

I would not be investing in Perth right now. Market is stagnant, if not falling in some parts.
Most investors in Perth, including me, are now investing in Qld and Melbourne as these areas are still experiencing property price increases.