LETTERS TO THE EDITOR: Rental yields, off-the-plan vals

Reader Letter 1: 

I read your article about the Off-the-plan values coming back at 15% below purchase price. 

I have purchased an apartment in Melbourne with one bedroom one bath at $347,500 and after the valuation they said  it will be around $320,000. 

I feel I’ve been ripped off in many different ways.

This apartment meant to be completed early this year and has extended till [dates withheld for anonymity]. 

Is there anything I can fight with developer? or claim the difference of $27,000?

- Response: We're currently investigating.

Reader Letter 2

Why do people refer to gross rental yields and not nett rental yields ? 

Wouldn't it be easier to compare properties after costs rather than before ? 

Can you explain what the reason is behind this use in the real estate market for me because it doesn't appear to make sense ? 

- Response: The reason that gross rental yields are used rather than net is that costs vary for every individual property and every investor, and aren't always clear unless you've undertaken a thorough analysis of that particular investor's costs.

For instance, a unit may have higher outgoing costs e.g. it has elevators and pools, and therefore strata fees are higher, it's older and therefore needs more maintenance (refer to depreciation schedule) and the investor may have put down a 30% deposit meaning that the mortgage monthly interest costs are lower than an investor who put down 20%.

There's no way to calculate this for every property from a media perspective, and so gross rental yields are generally used as it helps compare properties/suburbs solely on this return, rather than investor-specific. Also, it gives a gauge on what is happening in that area in terms of overall trends (e.g. market forces affecting yield) rather than the specific finances of individual investors that might not be as useful. 

For individual investors, gross yields can help find an area trending the right way/with good overall numbers. Net yield should then be further used to knuckle down between individual properties that have been selected and to get an understanding of how properties are truly performing individually within a portfolio.

If you have something you want discussed, email: jduke@propertyobserver.com.au