What are ways i can tell if I am paying too much for a property?

Pretty much all properties are overvalued in Sydney at the moment due to unprecedentedly low interest rates (both domestic and overseas), market mania, widespread irresponsible lending practices, and the fact that much of the value in housing is currently derived from further unsustainable capital growth rather than the inherent value of the asset itself (e.g. you buy a house at $1m expecting it to be $1.2m next year, rather than buying it solely for the purpose of living in it or reasonable price growth/rent rates).

One way to measure the intrinsic value of a property is to find out at what price you can rent the place. Then use discounted cash flow analysis to calculate net present value. For the discount rate, use your next best investment opportunity. Let's say it's the ASX market return.

If you can rent out your property for $700 a week, the intrinsic value of the property should be $606,607 (700*52/0.06), assuming a 6% discount rate, that is, the ASX market index is giving you a 6% return.

/r/AusFinance Thread