Calculate What a Property Will Sell For Using its Rental Potential

The concept is called a “percentage yield” or a “return” – and though it sounds a little complicated to calculate, it may take a lot of guesswork out of the market.

When you’ve found a place you like, try to ascertain what weekly rent it would achieve on the open market. Multiply this by 52 to get an annual rent.

For example, a recently sold home in Ballantyne Street Thornbury could fetch about $330 per week, or $17,160 per annum, according to the selling agent.

When you divide that annual rent, by a percentage yield – which most valuers say averages between 3 and 3.5 per cent for inner city properties at the moment – you may find the price is much higher than the price that is quoted.

Using our Ballantyne Street example, a valuer would estimate the property is worth around $528,000, based on dividing $17,160 by 0.0325 (3.25 per cent).

This is far higher than the “$420,000 plus” the property was advertised for.

Coincidentally, the property sold at auction last week for $551,000 (which reflects a low yield of 3.1 per cent).

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Marc Pallisco

A former property analyst and journalist, Marc is the publisher of realestatesource.com.au.

Marc Pallisco

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