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In this week’s episode, Dave, Cate and Pete take you through:

  • A – Area (location is key). Picking a great location is critical! You can change the size of the block and the dwelling on top of it, but you cannot change the location. The trio discuss the features to target if capital growth is your aim. Although the pandemic has changed the way we do business, the CBD will offer the much-desired amenity and being close to a source of water and having a nice view can also increase capital growth prospects. We can’t under-estimate people’s love affair with their city reigniting as things open back up either.
  • B – Bungalows (and other period styles). The trio discuss the pre-war properties that Australian’s love and can’t get enough of. They are in limited supply and have highly desirable features such as high ceilings, big rooms, timber floors and are solidly built. The scarcity factor drives competition and growth for these properties, and also makes them very difficult to place a ceiling value on. It is for this reason that many of these period stunners fetch record high prices under competition.
  • C – Capital growth is King (or Queen). When it comes to residential property, most people make more money from capital growth than from yield. The power of compound growth means that a difference in 2% capital growth could equate to a $3M differential over the course of a full working lifetime for your retirement kitty. If you are looking for rental return, commercial property could be an attractive option. However commercial property is not as resilient to economic shocks as residential property, this is because people always need somewhere to live. We may see a shift, particularly in the CBD and other centres where commercial will convert to residential.
  • D – Dirt (the value is in the land). The appreciating component of the property is in the land and as the trio discussed in episode 125, it’s not about the size of the land but the value of the land. If you’re looking at a development, you need to consider features other than size, like frontage and heritage overlays, (among many other facets).
  • E – Equity (use it!). The power of capital growth is that the equity built up in your asset can then be used to leverage into further investments, whether that be purchasing another property or shares. Unlike rental return, which could be squandered with bad spending habits, capital growth cannot be spent!

Resources

Show notes

  • A – Area (location is key) 
  • Location is really important, because you can’t change it.  
  • You can change the size of the house, condition of the house, block of land could be made bigger or smaller. But you cannot change location.  
  • If you are looking for capital growth: 
  • Proximity to the CBD – that’s where the highest concentration of jobs are. With covid 19 and move towards working from home, it won’t be as important for work, but the CBD will still be an important amenity to be near.  
  • Proximity to the water – beach, some are more important than others, in Perth being close to the river and Sydney being close to the Harbour. Sea, river, natural lake, artificial lake. 
  • Having views of open spaces – for example the hills or having views of open space like a park or reserve. Same goes for apartments. 
  • Proximity to amenities/facilities 
  • Proximity to a prime suburb/area 
  • Other redeeming features: 
  • School zone – not always Australian born residents that chase them, they can be culturally driven as well. But school reputations do change over time.  
  • Public transport 
  • B – Bungalows & other character/period styles 
  • All properties that were built before world war 2 
  • In Adelaide – you’d be looking for Bungalows, Villas and cottages. The older the better! 
  • Limited supply and great features – high ceilings, big rooms, timber floors and solidly built. 
  • In Victoria – Victorian, federation, Edwardian, Bungalows, Post-war and then mid-century. 
  • Queensland – Queenslanders, with wrap around verandas.  
  • Scarcity – these properties could be 120 years old. A rung of terraces in the street with different colours, but when you go inside there is 120 years worth of work with renovations and changes. 
  • C – Capital growth is King (or Queen) 
  • So far as residential property is concerned, most people make more money from capital growth. If people are looking for rental return, commercial property is a more attractive option. However commercial property is not as resilient to economic shocks as residential property is. This is because people always need somewhere to live.  
  • Whereas covid has changed the way companies do business going forward. 
  • We may find that commercial retail will convert to residential – particularly in the CBD and smaller villages. This has happened previously, where warehouses were converted to residential and city buildings converted to apartments.  
  • Bring it back to the numbers – dig into the detail to make great property decisions. The power of compound growth is hard to fathom. 2% difference can be over $3M in your retirement  
  • D – Dirt (the value is in the land) 
  • There is no point getting in a great location, in a gentrifying suburb, if you’re living in a high rise apartment with no land component. 
  • Land located close to the city or close to the water 
  • Older style house 
  • Not just about the size of the land, it is about the value of the land.  
  • If you’re looking at development, it isn’t about the size – it is also the frontage and heritage overlays, flight path. 
  • E – Equity (use it!) 
  • One of the powerful things that is talked about with capital growth, is that you can’t spend it. With rental return, you can spend it and lose it. But with capital growth, you can’t 
  • But you can access it to do more investing.  
  • Rental income is shaved away, so it may not help your borrowing capacity as much as you think. 
  • Whereas equity is the key thing that you can leverage against to get into another property or invest in shares.  

Gold Nuggets

David Johnston – The Property Planner’s Golden nugget: when you’re looking to buy property, forget about the dwelling and think about the land that it’s sitting on. Where is it located in the street, suburb, city. The dirt cannot be changed, the dwelling can be changed. But as we talk about land to asset ratio, you want 70% in the land, but often people spend more time thinking about the dwelling and not enough thinking about the quality of the land.

Peter Koulizos – The Property Professor’s Golden nugget: also remember the 3 ‘L’s, location, land and looks. If you remember that, you will set yourself up very nicely for retirement or retiring before most people do.

Market update

  • Handicaps for ‘subject’ to clauses. The Property Buyer shares how agents are getting creative when dealing with a pool of buyers who don’t want to submit unconditional offers. One particular agent is sharing a ‘handicap list’ for ‘subject to’ clauses. For example, his agency could factor in an additional $5,000 on top of the purchase price for a building and pest inspection, $10,000 for an extra 60 days before settlement, etc. The trio discuss the merits of this approach.
  • House prices have fallen in 7% of Australian suburbs. During the March peak rate of growth, only 1.4% of suburbs posted a decline in values. This has sharply risen to 7%. Mining towns and some regional markets have reflected some of the largest drops. However, markets at the higher end have also weakened. During the three months ending in October, house prices in some unexpected prestigious Melbourne suburbs of Armadale, Mont Albert and Blackburn posted declines of 0.5%, 0.4% and 0.1% respectively. The trio discuss whether this may be due to high rise building releases or lack of attention from foreign buyers while overseas travel and international migration is on hold.

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