The current low interest-rate environment appears to be helping many investors pocket an income from their rental properties.
The gap between rental yields and home-loan rates has narrowed substantially, resulting in many landlords being in a better cash-flow position than they were a year ago, said CoreLogic research director Tim Lawless.
"I can't remember a time when there's been virtually zero difference between the gross rental yields and what the cost of debt is," he told The Australian Financial Review.
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Eddie Dilleen, a Sydney-based investor, is one of those who were able to feel the improvement in cash flow.
Dilleen bought a $138,000-property in Tuggerawong in New South Wales Central Coast back in 2011. During that time, she had a mortgage rate of 6.53%. Earning $220 weekly from rents, she still had to pay $65 out of pocket to cover the expenses.
"Now that my mortgage rate had dropped to 3.5% and with my rent rising to $300 per week, I am making $60 per week after cost," she told AFR.
The lower cost of home loans has provided investors with an opportunity to look for cash flow-positive properties, said Jeremy Sheppard, Select Residential Property head of research. To achieve this, he said investors would have to hit a rental yield of 4.75% or higher.
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"This assumes an 80% loan-to-value mortgage with a 4% interest rate and another 1.5% of the property's value being lost to other expenses such as council rates, property management and repairs and maintenance," he told AFR.
Some of the suburbs that could meet this rental yield requirement are within Sydney — suburbs like Rosehill and Lakemba have rental yields of up to 5.2%.
Investors can also consider suburbs in Perth and Adelaide. However, Sheppard said Brisbane has the best suburbs for positive cash flow and capital growth.
"Almost every unit market in Brisbane is cash flow-positive. But you don't have to buy a unit to get a positive cash flow," Sheppard said.
