Just How Important are Returns and Yields to Property Investors?

Are the latest figures on rents, yields, and growth/decline in Australia really that important for residential property investors? How are these considered?

The short answer is, yes, they are in fact, important. However, these figures need to be considered in combination with critical factors and must look behind all of this according to property experts. Why is this? Let’s find out.

New Domain data reveals that for the year until the end of March, Perth houses have been offering the best yields of 5.24 percent. This was a huge increase from 4.7 percent over the same period in 2021. Darwin also shows a good yield of 5.14 percent, Hobart with 4.48 percent, and Adelaide 4.3 percent. However, rents have increased in Canberra at a median of $700 a week. That’s a 16.7 percent increase, while in Darwin at $160 and Sydney at $600.

Yields are considered only one driver of performance according to experts. Yields help with cash income but they are not necessarily capital growth attractions. An investment needs other necessary conditions in place because, without these conditions, it would only end up falling behind an equivalent elsewhere.

What are some indicators that investors must understand? What should be done to ensure a good ROI? Here are some of those.

Vacancy Rate

There must be a need for strong demand for tenants and buyers, so when it comes time to sell, there’s an assurance of a good return on investment over time. For instance, a commercial property with an 8 percent yield would look excellent in theory. However, because it had been vacant for several years, it would most likely count very little. When it comes to arriving at good investments, it’s extremely important to research for future prospects such as areas with better access to employment, infrastructure, amenities, and lifestyle services including schools.

Preferred Investment Style or Strategy

Experts also point out that some investors would go for a different route. Some investors believe that it’s really not about people looking for a better yield rather it’s about long-term capital growth. When we say long-term capital growth, it talks about an investment strategy wherein it aims to increase the value of a portfolio over a multi-year time frame. The term “long-term” here depends on the investor's style or preference. This would generally generate above-market returns.

Talk to a Financial Advisor
After doing relevant research, it’s absolutely necessary to seek the help of an expert in order to avoid making any major mistakes. Financial advisors would be able to help investors make sure that the combination of factors would be the best for what could be achieved from a particular investment.

Financial advisors say that ultimately, it’s what will better suit their own investment strategy. For those seeking long-term investment, the tax system may be better but for those seeking income, it’s important to not forget that yields are not constant. An area may offer high yields now but it may not be the case in the future. Research on future locations and what they could possibly look like is crucial. Be on the lookout for the potential for better strategies to attract newcomers.