Even though property prices have nearly doubled in Sydney rents have not increased at the same amount. Is it worth selling and reinvesting in order to improve your cash flow.
Ryan: Rents have not increased enough even though property value has doubled in Sydney. Looking at cash flow to increase over the next 12 months, is it worth selling and re-investing?
Ben: Sorry. Can you re-say that back I just missed it.
Ryan: Ozzie is pointing out that even though property prices have doubled in Sydney, the cash flow hasn’t doubled to go with it and so they want their cash flow to increase over the next 12 months. So do we think it’s worth selling and reinvesting to improve their cash flow?
Ben: I mean, I get where he’s coming from. If you’ve got $1 million invested in the market right now that’s giving you 2.5% cash flow, and you’ve got that million dollars and you could move that million dollars into a 7% rental yield, or $2 million in 7% yield then you’re producing a significant better outcome for yourself immediately.
So, I completely get where he’s come from. Like, I have just sold everything that I own in Sydney, in the central coast to put it into other market places. As you said, it’s so circumstantial based on where your long term goal is and how it’s going to alter your stars by making this decision now versus making it in five or ten years time.
Ryan: Yeah. And I think a lot of people when they come to these questions, they just think, “I’ll just sell it and I’ll just buy something and I’ll easily make more cash flow.” Don’t take that approach.
If you’re going to sell it, go through the whole process of researching an area, picking the exact right suburb so you can get capital growth, so you can buy into market values, so you can add value and get the cash flow as well. Go for everything. Don’t just sell it and reinvest in something that’s got decent cash flow without doing that research.
So if you’re going to sell it to reinvest, you want the money to be doing better if you reinvest than if you just left it in that Sydney property. So, if you’re going to go ahead and do that, then definitely do some serious research to find something that can perform even better.
Ben: Yeah. Because you got to remember that the cash flow position on the property might be bad but if the annual average growth rate in the last 10 years has been 8%, and you’re putting it into a market place that only gets you 5%, I can guarantee you that that extra $10000 or$15000 a year in cash flow that you’re achieving from moving the money out of one market to another isn’t going to be of benefit long term if Sydney continues to outperform everywhere else in Australia.
Ryan: Yeah. And I guess look at the suburb or look at your property in Sydney and try and project whether or not the rents for your property will go up in value over time because over the next five years, you might not be getting enough cash flow from that property now but then over the next five years the rents could go up on that property putting you in a good cash flow situation.
Again I am going to come back to what I said previously, which is when you’re asking these A or B questions, just replace the ‘or’ with ‘and’, and say it like, “If you want to increase your cash flow over the next 12 months, how can you keep that property in Sydney that’s performed well and buy something else?”, or if you have bough any in Sydney yet, then that’s a different question.
How can you keep it and improve your cash flow as well both on that property or maybe you could buy something else that has good cash flow to offset the bad cash flow of the other property?
Ben: You’ve also got to remember that yield and capital growth goes like this. Like after GFC rental yields increase and then property prices increase and then property prices increase and then yields increase. There’s absolutely zero chance that people in Sydney are going to be satisfied with the 2.5%-2.8% eventually.
But it’s just, people don’t think that there is a massive wave of probably 50% rental yield growth going to occur in Sydney over the next seven years, then they’re crazy and that rental yield growth is probably one of the reasons why we’re going to go into another GFC because it’s going to be unaffordable for everyone to live. Not just the ones that own property. So, you got to take that with a grain of salt.
If you look at the [inaudible 00:04:22] data update, rental yields in Sydney have increased by 1% in the last month. Yields in Melbourne have increased by 3% in the last month.
So, yields are [crosstalk 00:04:33] … Yeah, [inaudible 00:04:34] are leveling, people are getting pissed about shit cash flow and then the dollar is moving already.
Ryan: Yeah. And just so you guys heard that correctly, that’s 1% a month and 3% in a month. Not in a year. That’s not 3% in a year. So if you’re renting out for 500 bucks a week, that’s not 3% over year, which is an extra $15. That’s 3% in a month or 1% in a month-
Ben: In one month.
Ryan: … Yeah. Add that up over a year if you’re getting 500 bucks a week, 1%, that’s 12% increase, that’s like 60 bucks. The 3% continues, then that would be like a 30% increase, which is just crazy.
Ben: There’s no way that yields aren’t going to want to go back to at least 4%-5% in Sydney and Melbourne at some point in the next 5-7 years. That is where they naturally balance out at and people have to be ready for that.
Ryan: Yeah. So take a look at stuff in consideration when you make a decision and hopefully that’s been helpful.
Well, I hope you enjoyed the inside to this question with Ben Everingham from ‘Pumped On Property’. We’re really having a blast doing this Q & A questions with you guys so keep the questions coming. If you’re at the point now where you’re ready to purchase and invest in property but you think you might need some help, then Ben is offering free strategy sessions to ‘On property’ listers.
Simply go to onproperty.com.au for [inaudible 00:05:59] session and you can book your time with Ben and you can go through where you’re at, where you want to be and what your next steps are to get there. So again, at onproperty.com.au/session. Thanks so much for watching and until next time, stay positive.