House For Sale on P/E Ratio of 100

A 10 year old 4 bedroom free-standing brick house, sitting on land of 620 square metres, in my little town of Dunsborough, Western Australia has sold for $820,000 and it’ll be soon offered for rent at $650 per week.

Gross rental income will be $34,000
and I figure annual costs will be;

$2,300 in municipal rates/taxes
$1,500 in maintenance
$1,000 for house insurance
$1,900 in rental agent fees
$19,000 in interest payments

Total Costs will be $25,700
So Net Income is $8,300 or an Earnings Yield of 1%

This property is on a Price/Earnings Ratio of 100.

Just so my calculations figures didn’t go negative…..
I didn’t include any tax owed in the rental income earned.

Perhaps the ’negative gearing’ of the interest costs will offset that?

Also, let’s not count the $33,500 government stamp duty the purchaser will pay.

October 19, 2020
by Rob Zdravevski
rob@karriasset.com.au

Why your house has a P/E Ratio of 34

My friend is selling his house for A$1.4 million.
The property is tenanted (in a tight vacancy market) in Perth, Australia for $1,000 per week.

He receives $52,000 per annum,
but at the very least he pays away;

$4,000 in municipal rates/taxes
$2,000 in maintenance
$2,000 in house insurance
$3,000 in rental agent fees

To embellish this figure, we won’t deduct interest paid on the mortgage payments nor taxation owed on the rental income……let’s say ’tax offsets and deductions’ make it neutral.

This leaves his him with net income of $41,000, which is a net earnings yield of 2.92%.

So the buyer of this property, at the very best, can be seen paying a Price/Earnings Ratio of 34 for this piece of real estate.

October 16, 2020
by Rob Zdravevski
rob@karriasset.com.au

Why your house has a P/E Ratio of 34

My friend is selling his house for A$1.4 million.
The property is tenanted (in a tight vacancy market) in Perth, Australia for $1,000 per week.

He receives $52,000 per annum,
but at the very least he pays away;

$4,000 in municipal rates/taxes
$2,000 in maintenance
$2,000 in house insurance
$3,000 in rental agent fees

To embellish this figure, we won’t deduct interest paid on the mortgage payments nor taxation owed on the rental income……let’s say ’tax offsets and deductions’ make it neutral.

This leaves his him with net income of $41,000, which is a net earnings yield of 2.92%.

So the buyer of this property, at the very best, can be seen paying a Price/Earnings Ratio of 34 for this piece of real estate.

October 16, 2020
by Rob Zdravevski
rob@karriasset.com.au

Activity Increasing On The Home Front

In our little coastal hamlet town of Dunsborough in Western Australia’s south-western corner, I am noticing increased activity in homebuilding and real estate sales. As AUD borrowing rates are under 6% and cash deposits are closer to 3.5%, I started thinking that the sector may find some support.

Anecdotally, at least, electricians, plumbers and concreters are telling me that they have been steadily busy over the past couple months and quoting on a growing amount of jobs. Builders are saying that their orders books are growing and some are cautiously close to calling it a “back-log”.

Real Estate Agents have seen mere inquiries turning into written offers. Their representatives are back selling homes and I have seen many “SOLD” stickers on boards outside houses as I drive around.

This prompted me to make some calls to friends in the Eastern cities of Melbourne & Sydney to ask about their property observations, which have also turned out to be positive.

When questioned about the prices some of the houses were selling for, the answer has been similar. The vendors have tempered their expectations by meeting the market, buyers have stopped placing bids at ridiculous “fire-sale” levels and the prices achieved seem to be closer towards the 60%-70% level of the sellers original wish, which seemed to be “anchored” to prices seen 5 years ago.

I can’t say if property is cheap or if the prices are fair, but it does tell me that confidence is returning. Often that is a recipe, in order to “make a market” in the first place!

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