Planning for the future: Investment property rental yields

Everybody wants to make the most of their investment home loan, but what some people forget is the key is planning for the future of your property. The real estate that you purchase right now might be doing very well, but do you know what might be happening to the rental landscape in your area over the next few years?

Property investment is a game of patience and proper planning, so to get you started here are a couple of tips and tricks on making sure you keep your yields high and your growth strong.

High values don’t mean high yields

Places like Sydney and Melbourne have seen some incredible value gains over the last year according to CoreLogic RP Data, but rents on the other hand have stagnated. Just because you are seeing strong growth in a property, even over a long period of time, doesn’t necessarily mean you’ll get a good yield for it.

CoreLogic, for example, tells us that the best place in Australia for this is in fact Darwin, at 5.2 per cent median rental yield. Meanwhile, this city also has one of the lowest median property values in Australia. Places like Sydney have lower yields because renters simply cannot afford to pay more rent than they already are – there is a ceiling to yields in high value areas. You may find it more beneficial to splash your capital in a range of cheaper areas rather than a single expensive spot: you might find that your yields are more on the money.

Keep an eye the population:construction ratio

It’s all about supply and demand. Supply is available houses, demand is the current population. If the supply doesn’t keep up with demand, prices and rents go up as people are willing to pay more to get their hands on the few houses that are left. What this means for an investor is that you need to know both how much a city is growing by but also how much residential construction is likely to take place.

For example, Melbourne has recently been revealed by the Australian Bureau of Statistics (ABS) as the fastest growing city in the country, gaining an additional 2.1 per cent to its 4.5 million person population from 2014-2015. Meanwhile, ABS data also shows us that new dwelling approvals for Victoria have been remaining flat or falling over the last 12 months.

That could well result in an undersupply and thus a rental yield increases in the future for this area unless construction picks up and population continues to grow – perfect if you want to see your rental yields grow.

The ultimate lesson for planning ahead is adequate research and good advice. If you want to make the most of your home loan and the best ways to pay it off sooner, make sure you get into contact with a mortgage broker from Mortgage Choice today!