Bedroom Count Median And Asking Price Approach
Using the suburb median sale price and median rental price is a standard approach to calculating a yield for a suburb. That can work fine if the suburb has enough sales and the price distribution is reliable. Median rents are generally much more robust than sale prices, but the risk compounds when you are using both median estimates.
This approach is mainly applicable for Excel based filters and sorting. However you should not rely on this to tell you how much yield will be achieved for a given property. If the property you are looking to purchase is spot on the median house (or unit) price and spot on the median bedroom count, then the odds improve. But if the property is larger or more expensive the chances are the median will be overstated. Likewise, if you are buying below the median price you will find yields can be significantly higher than the suburb median estimated yield.
Lets say we want to estimate the yield for a 1 bed and 1 bath unit in Kingscliffe (NSW) listed for $499k. The Rental Excel report has a median rental price for 1 bedroom units at $495 per week. This assumes the unit is medium quality. A higher quality unit might give us a higher rent. If the property is of a very high or very low standard, that requires a review of other advertised rentals to determine a more accurate rental estimate. Nothing beats a rental Comparative Market Analysis, however the median by bed works well as a quick tool.
Another approach is to find out what the property was last rented for or look at another nearby property. If it is an apartment or townhome, in most cases you will readily find another one that is rented in the block which as a last rented date and advertised price. All you need to do is index the price from that date.
Using the median rental price for a 1 bedroom gives us a yield of ~5.2%.
Kingscliffe NSW Unit Data Summary:
Sub Region (SA3): Tweed Valley
Region (SA4): Richmond – Tweed
Bedroom Count Median: 2
Bathroom Count Median: 2
Car Count Median: 1
For Sale Av Listings: 21
List Price Median: $811,800
Lease Day On Market: 17
Over 21 Day Listings: 10
Vacancy Rate: 1.6%
Lease Av Listings: 12
Lease Median: $680
Lease Median 1bd: $495
Lease Median 2bd: $650
Lease Median 3bd: $850
This ‘panel’ of data represents the most recent month average using a rolling 12-month sample for the suburb. This panel is then repeated for the last 15 months and another for 24 months ago.
The Suburb Indexation Approach
Domain offer a building profile and lists rental properties. For the same unit I found another 1 bedroom, 1 bathroom rental advertised for $500 per week as of 15 months ago (May 2021). The 1 bedroom median has increased at a suburb level by $85 since May 2021. All things equal, this could mean our rental price is closer to $585 rather than $495 per week. For this approach to hold, we need the rental price from May 2021 to be valid and the properties comparable. If the $585 per week price can be achieved, the yield is now 6.1%.
As a quick validation of the suburb index, you can check the Sa3 index as well. The region is Tweed Valley. The price difference for 1 bedroom units between August 2022 and May 2021 is only +$10. However the overall unit median has increased by $100 which supports the original suburb index.