Renters choose houses based on amenities, not suburb name

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New research from the University of Melbourne shows that investors looking for rental yield should not only rely on a suburb’s name to guarantee demand, but also look at places where amenities are beneficial for their renters, such as proximity to a university or train stop.

Traditionally, rental yields—the percentage of income return over the cost of a property—are calculated with the median rents and prices of a suburb, but this should not be the only basis for renter demand.

“Homes that sell are usually nicer than homes that rent, so we find if people are calculating yields based on median prices, they are actually underestimating the yields,” said Dr. Andy Krause, a property lecturer at the University of Melbourne. His research, done together with Dr. Gideon Aschwanden, showed that higher rental yields were found where amenities appealed more to a renter than the owner.

In fact, as property falls outside of 500 metres from a train station rental yield drops about 0.2 per cent. Melbourne’s highest yields were also found close to the RMIT University and the University of Melbourne. The lowest yields are found in expensive eastern suburbs like Toorak and Balwyn, where there is a high cost of amenities.

According to Hocking Stuart director Rob Elsom, renters are willing to pay premium for convenience of location.

“International students compare Melbourne’s rents to the rest of the world and find they are still relatively affordable,” he said.

Properties near the beach also command high rental yields.

“The minute you see a glimpse of water, prices go up significantly,” said Andrew Fawell, Beller Real Estate director. “From a price point of view, a few blocks from the beach is still high, but you’re not paying that significant premium.”

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