If you’re looking for a quick way to size up a deal before embarking on a lengthy and time-consuming due diligence, read on as Your Investment Property and Jeremy Sheppard, creator of DSRscore.com.au, deliver the ultimate cheat sheet on how to assess a deal fast.
- Employment: Must be an area that attracts good working people with local employment opportunities or jobs within a reasonable commuting distance.
- Schools: Having primary and high schools in the area will attract more families. Families will typically stay put longer when there are children going to the local schools.
- Amenities: The property should be close to shopping and restaurants as well as easy accessibility to the main thoroughfares.
- Crime: Obviously you want your property in a low-crime area. You can check with the local police station as well as ask people in the area about the crime rate.
- Future building: This can be good or bad. If the area is growing and there is new housing development happening, stores and schools being built, that’s great. If there is a nuclear plant, jail, low-income housing projects, that’s probably not-so great.
- Vacancy rate: You can check the latest vacancy rates at the back of Your Investment Property magazine or online at yourinvestmentpropertymag.com.au as well as local agents regarding vacancy rate. The lower the number, the better, as it indicates strong demand from renters and may be a sign of low supply.
Divide the asking price by 1000. Or just knock off the last three digits. So for example, a $400,000 property should receive $400 per week in rent to roughly achieve a 5% yield. Any rent higher than $400 per week in this case would be a better than 5% yield.
- stamp duty
- legal fees
- loan establishment cost
- LMI if applicable
- building and pest inspection fees
- your time
So the total loss would be $4,700 - $3,000 = $1,700.
But this is not realised until you sell. Even so, it’s a lot better than a term deposit, All Ords, and what most investment funds or superannuation funds provide.