Private property issue #79 - What's a good gross yield?

Investors always ask: "What’s a good yield in today’s market?"

When you see it asked online, most people respond: "Well, it depends."

It depends on your strategy. It depends on where you buy. It depends on what you buy.

“It depends. It depends. It depends.”

I just want a straight answer!

So, I hired someone to get data from TradeMe and OneRoof. This shows us the gross yields investors are willing to accept.

What’s a good gross yield … in New Zealand?

We’ll dive into the regions in a moment. But let’s start with the country.

The median (average) property has a gross yield of 4.52%

But, some properties have a lower gross yield. 25% of properties have a gross yield below 3.71%.

Some properties have a higher gross yield. 25% of properties have a gross yield of 5.31% or above.

Let’s say you're an investor renting your property for a 4.5% gross yield. You are bang-on in the middle.

How did you get this data?

First, we looked at every property available for rent on TradeMe. For instance, here is a property available for rent right now:

It’s a 3-bed new build townhouse in Wellington. And it’s available to rent for $800 a week.

We then looked at OneRoof’s estimated valuation. This property is estimated to be worth $920,000.

This gives it a gross yield of 4.52%. Bang on average for the country.

We then use a computer to do this over 7,000 times. We clean up the data, giving you and me information no one else has.

Where are the highest yields in New Zealand?

The highest yields in New Zealand are in Southland and Otago.

Southland has a median gross yield of 5.76%. Otago comes in second with a median gross yield of 5.65%.

Wellington and Waikato follow behind with 4.86% and 4.54%, respectively.

But here is where the “it depends” people are right.

Let’s say you have a property in Southland with a gross yield of 5.35%.

Your property is in the country's top 25% highest-yielding properties. Makes sense. You chose a high-yielding area.

But for properties in Southland, you are below average.

So, a good gross yield does depend on where you buy.

Where are the lowest yields in New Zealand?

Auckland has the lowest average gross yield. Just 3.22%. Canterbury comes in second with 4.36%.

How does Auckland have such low gross yields?

Here’s what one of those average properties in Auckland looks like:

It’s a 4-bedroom house in Grey Lynn, advertised for $1,300 per week. But it’s worth $2.1 million, according to OneRoof.

That gives you that average 3.2% gross yield.

That is what this investor is willing to accept.

Should I only buy in areas with a high gross yield?

No, not necessarily. Yield isn’t the only thing to think about.

Many investors prefer to buy in main cities and are willing to accept a lower yield to invest there.

Properties in larger cities tend to be better maintained. Prices go up more steadily, and it’s easier to find a tenant.

And just because the median gross yield in Auckland is 3.2%, that doesn’t mean you can’t find something higher. It’s just harder to find.

But my main point is this: A good gross yield does depend on where you buy.

In Auckland, if you get above a 4% gross yield, you are in the top 25% of investors.

In Southland, that same 4% gross yield puts you in the bottom 25% of investors.

It all depends on the property and the deal in front of you.