Investors can get higher rental returns in parts of Western Sydney.
Aspiring property investors discouraged by the excessive costs of owning a rental home in the Harbour City have been thrown a lifeline.
New data has revealed it has become possible to score properties that come close to paying for themselves in a range of suburbs that often fly under the radar.
These are pockets where market rents nearly equalled the likely repayments for properties at current prices – meaning the costs of keeping them were much lower than in the rest of the city.
The analysis of PropTrack rental yields data comes as Greater Sydney as a whole continues to be one of the toughest major markets for landlords due to the rock bottom rental yields.
The typical annual return on a Sydney house is currently just 2.57 per cent per year – the lowest among major cities in the country by some measure.
An investor who bought a house at Sydney’s current median house price of $1.62m and charged the median rent of $800 a week would carry at least $60,000 in annual holding costs, data showed.
MORE: ‘Both way views’: Sydney to Hobart winner’s $15m home for sale
A house in Cambewarra listed for $850 per week
And that’s before costs like strata fees and repairs even came into the picture.
The $60,000-plus cost assumed the investor purchased with a 10 per cent deposit and paid the average loan rate now offered by lenders: 5.75 per cent.
Average rental returns for units were higher at 4.45 per cent and the average Sydney apartment incurred at least $16,000 in annual holding costs.
Analysis of PropTrack yields data showed there were key city areas that offered a pressure valve for investors struggling to make the numbers work in a city increasingly hostile to landlords.
There were a dozen suburbs where the typical annual holding costs of properties (excluding strata, council rates and insurance) averaged less than $2000, or less than $38 a week.
They included suburbs in the Greater Parramatta area such as Granville, Harris Park, Guildford, Merrylands and Merrylands West.
Other suburbs in this category were in the inner south, including Haymarket, Mascot and Chippendale.
Liverpool and nearby Warwick Farm also offered higher rental returns than average, with the typical holding costs at current rents and prices about $2300 a year. This equated to a cost of about $44 a week.
In western suburb Pendle Hill, the average annual holding cost of a rental unit was $1000 a year, or about $19 a week.
Source: PropTrack
Real Estate Buyers Agents Association of Australia president Melinda Jennison said properties attracting a higher rental return were typically newer homes.
“Rental returns are always going to be higher for properties that are newer and they come with larger floorplans, more bedrooms, more bathrooms, more lock up garages,” she said.
Ms Jennison said investors should weigh up all of the costs associated with holding an asset and not just look at the total return.
“Apartments can have a better gross return, that’s definitely the case when we look at gross yields across most capital cities when we compare unit’s versus houses,” she said.
MORE: Sydney suburbs with the most singles revealed
3105/81 Harbour Street, Haymarket listed for $1,400 per week
“However, sometimes depending on the additional costs for an investor associated with holding those apartments – things like body corporate fees, sometimes the net return doesn’t end up being as high as it might be for a house.”
Residential property buyer’s agency Cohen Handler CEO Simon Cohen said the best rental return property comes down to “what it is and where it is”.
“I would say it really comes down to the property, how much work it needs, what’s the land tax versus what the strata fees are and where it is,” he said.
“I don’t think it’s either an apartment nor do I think it’s a house, I think it’s finding and uncovering the right opportunity that’s going to get you the best deal.”
MORE: Common household habit causing fires
Melinda Jennison
Simon Cohen
Mr Cohen said it was important to factor in recent and possible rate rises when navigating the market this year.
“We’ve just seen one interest rate rise and we might see one more this year, so it’s important to factor that in when you’re looking at yields,” he said.
“I think people look at yields on a high level, but you want to look at what your net outcome is at the end of the month, so make sure you take into account management fees and all of the other fees that come with buying and running an investment property.”
InvestorKit CEO Arjun Paliwal said rent vs repayments was never the full picture.
Arjun Paliwal
3/19-21 Meehan Street, Granville listed for $590 per week
“There are often expenses that come back to bite investors things like body corporate, strata,” he said.
“Many investors go into units chasing these yields but don’t realise the budgets for these units in Sydney could be great budgets for houses in other markets.”
English (US) · 