Do You Know The Real Value Of Your Investment Property?
When you’ve owned an investment property for years, or even months, its value can change quite a bit.
That’s especially true in a property market like Brisbane’s property market today, where values are rapidly rising.
We look at the key rental market indicators that help you work out what your property is really worth right now.
1. The median property price for your property type and suburb
The median property price is the value of the median property that’s sold in either a suburb, city, state or country. A median is different from an average – and probably a better gauge – because it gives you the value of the middle property that’s sold in a suburb. That means one or two big sales can’t distort the data.
As an example, say three properties are sold in one suburb: two standard homes for $400,000 and $450,000 and one mansion by the beachside for $5,000,000. In this instance, the median property price would be $450,000 but the average would be $1,950,000.
Why you should pay attention: The median price is a good guide for whether the value of a suburb or city is rising and falling. For instance, CoreLogic data shows Brisbane’s median dwelling price has lifted 19.9% over the past 12 months and an incredible 17.4% in the year-to-date. That means if you had a Brisbane property worth $500,000 at the start of the year, it would now be worth $587,000 if it simply tracked the median price rise.
The shortcomings: Most data agencies calculate the median price on the last 12 months of sales. That means in a rising market it can actually be behind the price that properties will actually achieve. It’s also worth noting that every property is unique, and holds its own appeal. So while a median can be a good guide about what to expect, it won’t give you a precise value. So it’s worth talking to a trusted, local real estate agent for a market appraisal.
2. Median weekly rent for your property type and suburb
The median weekly rent measures the median amount that tenants are paying to rent properties in a suburb. You can usually find this data broken down into different property types, such as one-, two- and three-bedroom apartments, and three-, four- and five-bedroom houses. For instance, the median price to rent a house in Bulimba right now is $850 a week, according to realestate.com.au. However, the median three-bedroom house is well below this at $685, while the median rent for a four-bedroom house in Bulimba is $1,000.
Why you should pay attention: It pays to always understand exactly what income you’ll receive from your investment property. After all, when there is high (or low) demand for rental properties in an area, the market rent can change quite quickly. When you’re armed with this information you can also know whether it might be the right time (or not) to put up the rent on your investment property.
The shortcomings: Like the median property value, the median rent can sometimes track behind the current market. There are also often big differences between properties which are reflected in rents – for example, there’s a big difference between a well kept, immaculate executive style family home, and a student share house. It always pays to speak to your property manager to work out exactly what the market is doing right now, and where your property sits. If you’d like to find out the real value of your property, get in touch now for a free rental appraisal.
3. Yield
Yield measures how much income you make on an investment property as compared to its total value. Gross yield measures your return on investment before taking out running costs and expenses such as any strata levies, rates, repairs and maintenance and property manager’s fees. Net yield measures your return on investment once these are accounted for. Right now in Brisbane yields are good – SQM Research has houses sitting at 3.7%, and units at 5.2%, and these figures have been relatively steady for some time. For comparison, Sydney and Melbourne have much lower yields.
Why you should pay attention: One of the most important reasons for owning an investment property is often to generate income. Yield gives you a snapshot of whether your investment is likely to be profitable.
The shortcomings: Property investing often comes with significant tax advantages and you need to take these into account – often even beyond your basic yield. For example, if your property is negatively geared, you can often access good tax savings. You can also often claim depreciation, which can offer you big tax savings on many properties. However, you’ll need to engage a quantity surveyor to draw up a depreciation schedule and there are stringent rules you’ll need to comply with.
4. The vacancy rate
The vacancy rate reveals the percentage of all investment properties in an area that are un-leased, or vacant. Right now, the vacancy rate across Brisbane is an impressively low 1.4% according to SQM data. This is half of what it was in April 2020 (2.8%), when the pandemic first struck.
Why you should pay attention: A low vacancy rate generally suggests there is high demand for rental properties in an area and this could put pressure on rents to rise, as tenants compete for a rental property. Similarly, a high vacancy rate could mean low demand for rental properties in an area, which could cause rents to fall, or properties to remain vacant for longer meaning landlords could be out of pocket.
The shortcomings: While the vacancy rate is a good general guide, it doesn’t show you the different levels of demand for different property types. For instance, there may be strong demand for family homes in one suburb but less demand for one-bedroom apartments. Again, for a more accurate picture of demand for your particular investment property, you should speak to your property manager.
The best way to make the most of your investment property is to speak to your tax professional, as well as to your property manager.
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