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What is a yield? – Charlotte Cossar

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Moreton Investor, Property Management, Investment properties, Real estate Moreton, Mortgage Broker Moreton, Moreton property market, Moreton property prices, rental properties, Yield, Average yield, total return net yield, gross yield

Anyone considering buying an investment property will be interested in what return the property will give them – in other words, its yield.

Moreton Investor, Property Management, Investment properties, Real estate Moreton, Mortgage Broker Moreton, Moreton property market, Moreton property prices, rental properties, Yield, Average yield, total return net yield, gross yield

Before starting to look seriously at a property, most investors work out the yield on the property to see if it makes their shortlist. Although some investors buy property for other reasons – landbanking, infrastructure potential or lifestyle reasons – most are only concerned with its current return and potential yield.

Before we get into the complexities around yields and how to work these out, it’s helpful to understand the different terms.

Investment terms explained

Yield – A yield is a measurement of future income on an investment. It is generally calculated annually as a percentage, based on the asset’s (or investment’s) cost or market value. It has nothing to do with a capital gain on a property.

Gross yield – If you think about your ‘gross earnings’, then you are on the right track. A gross yield is the income on an investment prior to expenses being deducted. For property, these expenses can be quite substantial so there can be a huge difference between gross and net yield.

Net yield – As you can expect from above, the net yield is the income on an investment after expenses have been deducted. The costs and expenses could include purchasing and transactions cost. For example stamp duty, legal fees, pest and building inspections, loan start-up fees and vacancy costs, including lost rent and advertising. There might also be repairs and maintenance costs, management fees, insurance, rates and charges. Most of time, these costs won’t be known so you will have to estimate these.

Return or total return – Also quoted as a percentage, a return includes capital gains. It is the gain or loss of the investment in a particular period (this isn’t necessarily annual as for yields). This is retrospective, so it is generally an accurate or concrete percentage.

Average yields – It is always good to know what the average yield is for the area that you are looking to invest in, but every property is different. Don’t take these as gospel as to how much yield you may get on your property. What is the difference between yield and return?

As explained in the definitions above, a yield is only based on income, whereas a return includes capital gains. Although both might be used in the sales patter, find out the time frames of both before making any decisions on whether the property you are looking at is a good investment.

Remember, though, one is retrospective (return) and the other looks at the future (yield).

A yield is only based on income, whereas a return includes capital gains

How do you work out a yield?

When looking for investment property, you will notice agents dropping in comments on yields. What you have to be aware of is that most of them will be referring to the ‘gross’ yield and not the ‘net’ yield. Make sure you ask which one they are quoting. It is also worth knowing how to work out the gross and net yield of a property so you can calculate them.

Gross yield = annual rental income (weekly rental x 52) / property value x 100

For example: Property purchase – $450,000 Weekly rent – $375 ($375 x 52) = $19,500 /$450,000 x 100 = 4.3%

Net yield = annual rental income (weekly rental x 52) – annual expenses and costs/ property value x 100

For example: Property purchase – $450,000 Weekly rent – $375 Annual expenses – lost rent and advertising $1,075, repairs budget $600, insurance $1200 = $2875 ($375 x 52) = $19,500 – $2875 / $450,000 x 100 = 3.69%

What does a ‘hard’ or ‘soft’ yield mean?

Demand for property drives property prices up and this can affect the yield of your investment property. The more prices go up, the less the percentage between rents (income) to property value. When you hear people referring to yields hardening, this means the yield falls or reduces, whereas when they refer to yields softening, this means they are increasing or rising.

 

Original article published at www.realestate.com.au/blog  by Charlotte Cossar  7/10/2013

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Investment Advice

SEQ Population Growth needs 12 Springfield-style mega cities to cope: Planner

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Southeast Queensland needs a dozen mega-developments like Springfield if it is to cope with the extra 2.2 million people over the next three decades, a respected urban geographer has told Fairfax Media.

Springfield is expected to be home to 80,000 people by 2030. Photo: Glenn Hunt

Springfield is expected to be home to 80,000 people by 2030. Photo: Glenn Hunt

Professor Bob Stimson, Emeritus Professor in Geographical Sciences and Planning at the University of Queensland, told Fairfax Media there would be 5.5 million living between Noosa and Tweed Heads within three decades.

Professor Stimson – an analytical human geographer and regional scientist for 49 years – said Southeast Queensland could no longer rely on increasing densification with the existing area.

Population growth will require up to a dozen mega-planned communities to cope with an extra 2.2 million people. Photo: Glenn Hunt  Read more: http://www.brisbanetimes.com.au/queensland/seq-population-growth-needs-12-springfieldstyle-mega-cities-to-cope-planner-20150626-ghyxzb.html#ixzz3fdZRqltR

Population growth will require up to a dozen mega-planned communities to cope with an extra 2.2 million people.Photo: Glenn Hunt

Professor Stimson said between “10 and 12” large master-planned communities like Springfield or North Lakes – on Brisbane’s northern-edge – would be needed for the extra 2.2 million people.

“There is no way that all of the growth that is going to occur can be accommodated through urban infill,” Professor Stimson said.

“You are still going to need greenfield growth, fringe growth,” he said.

“So the big issue for Southeast Queensland over the coming decades is that you are probably going to need 10 or 12 of those types of developments to be occurring.”

Greater Springfield is a privately-owned 2680 hectare master-planned community south of Ipswich that has around 20,000 residents in two suburbs; Springfield and Springfield Lakes.

It started around 1995 and is planned to have 80,000 residents by 2030.

Professor Stimson said “green belts” between the Gold Coast, Brisbane and the Sunshine Coast were under pressure, but he believed would be protected because of the state government’s Southeast Queensland Regional Plan.

He said there was land near Beaudesert and Ipswich and between Brisbane and the Gold Coast for residential development.

“There is plenty of land that is not prime agricultural land, that is not ecologically important land, national park or high conservation-value land that could be taken up for that sort of growth.”

On Friday Australand launched a $400 million master-planned community for 25,000 people over 25 years called The Rise at Park Ridge in the Logan City Council area.

Australand’s Queensland general manger of  residential growth Cameron Leggatt said the development targeted low-cost home and land packages ($280,000) and provide 13,000 local jobs over 25 years as part of 2450-hectare project.

“With housing affordability throughout Brisbane and South East Queensland out of reach for many Australians, The Rise is keeping the dream of home ownership alive,” Mr Leggatt said.

Professor Stimson warned that jobs growth needed to accompany residential growth if it pushed further west than Ipswich.

He said jobs growth remained concentrated in the Sunshine Coast to Brisbane to Gold Coast line.

“Over the years I have been quite a critic of the Southeast Queensland planning process, which has tried to force growth into that western corridor because all the economic data demonstrates all the jobs growth is along the linear corridor that stretch to the north and south of Brisbane.”

Unemployment figures show Ipswich’s unemployment rate marginally higher in May 2015 than Brisbane’s western suburbs.

Unemployment – May 2015

Brisbane’s southside – 5 per cent

Brisbane’s inner-city – 5.5 per cent

Brisbane northside – 5.6 per cent

Gold Coast – 6.1 per cent

Brisbane West – 6.3 per cent

Moreton Bay – 6.3 per cent

Sunshine Coast – 6.8 per cent

Ipswich – 7 per cent.

However Ipswich Mayor Paul Pisasale said Professor Stimson appeared to be unaware of new job developments in Ipswich.

Ipswich’s labour market statistics show unemployment beginning to fall from 9 per cent to 7.4 per cent, with 2600 jobs created since March.

“We have a massive amount of industrial, commercial and retail development including the largest concentration of transport and logistics companies in Australia with DB Schenker, Northline and TNT at Redbank,” he said.

Cr Pisasale said jobs were being created at the new HOLCIM project underway at Swanbank, the new GE Electrical building at Springfield Central and with the Orion Shopping Centre doubling in size.

“RAAF Base Amberley is also continuing to expand with a workforce of more than 5000,” he said.

“Ipswich and the western corridor has a major role to play in satisfying growth in Southeast Queensland.

“We can’t continue to simply concentrate growth within Brisbane and the coastal fringe if we think we will maintain the same quality of life.”

In May 2010 former premier Anna Bligh announced plans for three mega-cities in Southeast Queensland to provide homes for 250,000 people.

Those three cities – at Ripley (near Ipswich), Yarrabilba (south of Logan) and Bromelton – about six kilometres south of Beaudesert – are all underway

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Investment Advice

Low interest rates cuts negative gearing ATO investor claims in 2012-13

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Low interest rates cuts negative gearing ATO investor claims in 2012-13

Low interest rates cuts negative gearing ATO investor claims in 2012-13

 

Record low interest rates have shown up in new statistics from the Australian Taxation Office, in a sizable drop in negative gearing tax claims by property investors.

Claim for rental properties fell from around $13.8 billion to $12 billion between the 2011-12 and 2012-13 financial years.

The latest statistics for 2012-13 show that 1.26 million people deducted losses made on investments (including mortgage interest) from their overall income, from the 12.7 million lodged individual tax returns.

The overall cost of negatively-geared rental properties has fallen by $2.4 billion, or 31 per cent, in 2012-13, due to record low interest rates and higher rents.

The Tax Office’s latest statistics shows 1.9 million landlords.

The value of rent returned was up 8.6 per cent to $36 billion but the value of interest claimed was down 6.7 per cent to $22 billion.

While the number of landlords with negatively-geared properties increased by almost 60,000, their tax deductions fell 13 per cent.

​The highest number of property investors claiming tax deductions had a taxable income – after tax deductions – of between $37,000 to $80,000 a year.

By JONATHAN CHANCELLOR

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Nearly two milllion negative gearing investors across Australia: ATO

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Nearly two milllion negative gearing investors across Australia: ATO

Nearly two milllion negative gearing investors across Australia: ATO

Negative gearing property investors now total 1,967,260 across Australia, according to the ATO latest data.

That’s up from the 1,895,775 in the previous tax year, 2011-12.

There were 1,811,175 investors claiming rental income in the 2010-11 year.

The ATO has a investor rental video series on working out your tax correctly.

The statistics for the 2012–13 income year were sourced from 2013 individual income tax returns processed by 31 October 2014. The statistics are not necessarily complete.

This data is not representative of the total number of properties.

By JONATHAN CHANCELLOR

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