Typical ROI on Rental Properties??

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  1. #21

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    No Sir, at least I hope not. If he does, then I get to get a part of Bill Gates's and Larry Ellison's pie, hehehheh. That would not be such a bad idea after all.


    Quote Originally Posted by PDLM:
    And you think that Obama plans to do that?

  2. #22

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    Quote Originally Posted by shadows:
    Well I was looking at it in this perspective, if subject a is a renter and subject b is the landlord, then subject A is technically paying subject B's mortgage. So why would I want to finance a home I don't own when there are other options?

    I dont personally think Obama is a communist, but I do disagree with the redistribution of wealth from the haves to the have nots.

    Socialism on paper as its written is great, on paper its the ultimate plan for a happy society/world. Insects like bees/ants have a very Socialist community and there is no strife within the hive.

    What one thing Socialism did not account for was human nature.
    there are many reasons why you would want to pay another person's mortgage rather than your own. Most of these deal with the fact that you can make more money renting than buying (and yes, this does happen in many cases).

    what you are truly asking is "is buying this property a good investment relative to other investments i could be making"?

    the definition of ROI and gross yield are just two indicators in a very large basket of indicators to determine whether an investment is "good" or "bad", profitable/unprofitable, risky/not risky etc. lion's reasoning is correct according to the definition, even though it is simplified and doesnt answer your ultimate question.

    when investing in property, you must consider price appreciation in the overall equation, just as you would consider the face value of a bond in addition to the coupon in any ROI calculation. As lion pointed out, the leverage component of real estate has a multiplier effect on the profit or loss. In hong kong, if you discounted the appreciation, then with repairs, fees, taxes etc, real estate would be far less attractive an invesment.

  3. #23

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    Quote Originally Posted by Liebling:
    In hong kong, if you discounted the appreciation, then with repairs, fees, taxes etc, real estate would be far less attractive an invesment.
    Not sure about that comment.

    I know a number of people, who renovated investment properties to a very high standard of feature, fit and finish, which included replacing plumbing and electrical, they managed to achieve 30% higher rental returns than other run down ( just repainted ) properties in the same location.

    If you are smart about your property investment, target your property at high end tenants that will pay more for a quality dwelling, you should always make the best possible return, compared to what else is out there.

    One of our friends ( British ) renovated a low rise apartment in Soho, timber framed all the windows, installed timber venetian blinds, installed an attractive/functional kitchen with under bench oven, a very attractive bathroom, furnished the the lounge with quality contemporary furniture ( not IKEA! ) and included wifi/cable TV in the rent. They managed to get $5,000 more a month than all the other flats in the same building.

    Like anything, if you do things well, you will stand out from the mundane, and benefit as a result.

    I can think of heaps of people in Sai Kung that started off with property worth 2 million, who have been buying/renovating/selling/profiting from their private homes, updating to a bigger/better property during each transaction, that they have now collectively amassed $12 million HKD worth of value in their existing ( much larger ) home over 10 years.


    People are benefiting from property, but you need to see their homes to understand why they are, as you cant really compare a home that has had money spent on it, renovated properly, to a quick paint HK spec property.

    Too many people seem to think you can make money out of property by not researching or lifting a finger.. Nothing in life is that easy
    Last edited by Skyhook; 26-10-2009 at 11:11 AM.

  4. #24

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    Quote Originally Posted by Skyhook:
    Not sure about that comment.

    I know a number of people, who renovated investment properties to a very high standard of feature, fit and finish, which included replacing plumbing and electrical, they managed to achieve 30% higher rental returns than other run down ( just repainted ) properties in the same location.

    If you are smart about your property investment, target your property at high end tenants that will pay more for a quality dwelling, you should always make the best possible return, compared to what else is out there.
    Not sure about your comment either. Demand can be weak or strong at different price points and an nicely renovated apartment for $25k might lie void while a similar, less fancy apartment in the same block would be snapped up for $18k.

    Tarting up a lot of properties is like putting lipstick on a pig - location and communal areas are important considerations and there is little point shelling out serious money to kit out properties in less desirable areas.

    I have not seen any evidence that rental yields on high end properties is greater than the lower end of the market.

  5. #25

    You can compare rental yields of high vs. lowend property fairly fast just comparing prices on hongkonghomes.com to get a rough guide.

    Look fairly high-end:
    HK Parkview 1300 sq ft rents at 32k, price to buy $15.5m. Yield ( in reality significantly lower that this as not including any expenses of refurb/renting etc.) = 2.47%

    Look lower-end:
    650 sq ft flat Chelsea Court tsuen Wan rents at 12k, price to buy $3.2m. Yield = 4.3%. (again, in reality will be lower)

    Whilst both are overpriced in terms of historical yields - which should really be at least 5% as an indicator that property is not overpriced, yields do seem to be higher for cheaper property than luxury property at the moment.


  6. #26

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    Thelliand - thanks for the examples.

    My own research as to whether to buy or rent in Hong Kong also led me to believe the majority of "better" property leads to lower rental yields than the cheaper end of the market.

    Direct contradiction of what Skyhook was saying, and someone red-blobbed me for refuting.


  7. #27

  8. #28

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    Great examples.

    But another question: the examples indeed show that lower end units have a higher rental yield than high end units. However, what about the appreciation? Would you not say that the appreciation probability is higher for higher end units?
    If so, do you basically have to make a choice between steady rental income over next 1-3 years (from lower end units) versus higher resale income 3+ years from now (from high end units)?


  9. #29

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    I'd say higher end is more volatile - bigger rises, but bigger falls.

    The appreciation question does tend to swamp others though. I bought my place for $5M just over 2 years ago. The (70%) mortgage costs me about $8K in interest, plus say another $2K in management, rates, etc. I could have rented it out when I bought it for about $25-26K, probably $22K now.

    But the thing that swamps all others is that I could sell it now for about $6.4M. So in the time I have owned it the capital value has increased at $50K/month.

    Last edited by PDLM; 26-10-2009 at 02:26 PM.

  10. #30

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    Quote Originally Posted by samnyc:
    Great examples.

    But another question: the examples indeed show that lower end units have a higher rental yield than high end units. However, what about the appreciation? Would you not say that the appreciation probability is higher for higher end units?
    If so, do you basically have to make a choice between steady rental income over next 1-3 years (from lower end units) versus higher resale income 3+ years from now (from high end units)?
    I wouldn't see any reason for the price appreciation to be higher for higher end units. It is all about supply and demand in the various segments.

    I suspect PDLM is correct and - at the higher end - volatility is higher as it is a much smaller market.

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