Am I being short sighted? Houses vs Units and Equity vs Cashflow

I hope this provides further food for thought.

Rick, what you said gave me A LOT of food for thought. I figured if the outlay for a house is 40k (inclusive of 5% deposit, stamp duty and other costs, close to 20k reno) with a PP of $215k (market value of $250k after reno) and the rent after reno is $350 pw, it has a big opportunity cost as opposed to buying say $230k x 2 villas (3 BR each) in a nicer area having an out lay of $22k x 2 (44k) with a rental return from $330-$350 EACH (i.e. $660 - $700 pw). I know which one I will choose :). These are just hypothetical figures....but you get the drift.

Thanks again!
 
remember you can revalue the house and get your 20k reno money out and do it again.

You probably can't do that for the villa unless you buy it well and do a reno etc...
 
Hi Rixter,

When you say 30% land component, do you mean the land you own makes up 30% of the total land the units are on OR you have a patch of dirt 30% the size of your unit?

I preferr to purchase Townhouses & Villas (with a 30% or greater land component thereby eliminating multi story units or high rise apartment), for several reasons.
 
Hi Rixter,

When you say 30% land component, do you mean the land you own makes up 30% of the total land the units are on OR you have a patch of dirt 30% the size of your unit?

Neither,
The saying refers to the overall value. If a block of 10 units is worth $1 Mil., then each is worth roughly $100k. If the block of units sits on 1000sqm of land, then each is roughly 100sqm of land. If 100sqm in that suburb is worth 30k, then this comprises 30% of the value of the unit.

On the flipside, in a highrise building... this probably sits on 1000sqm also, but since there is 1000 units you'd base your calcs on them having 1sqm each. Therefore, theres no chance that 1sqm would be worth 30% the value of the units. At the other end of the spectrum would be an empty block of land, of which land comprises 100% of it's value.

The moral of the story is that higher land value generally appreciates in value best. Empty land would be great if ants paid rent :)
 
Hi Rixter,

When you say 30% land component, do you mean the land you own makes up 30% of the total land the units are on OR you have a patch of dirt 30% the size of your unit?

So its the Ratio of your unit back courtyard size to total unit lot size (Unit building footprint plus courtyard).

I hope this helps
 
So its the Ratio of your unit back courtyard size to total unit lot size (Unit building footprint plus courtyard).

I hope this helps

Hey Rixter

After all these years you've surprised me! I always thought the criteria (and your criteria) was that the notional land value of the townhouse was 30% of the purchase price.

I.e. if you buy a townhouse for $300k, the unimproved land value (as per rates notice for example) was around the $100k mark.

I suppose in a sense one is the proxy for the other...

There you go - you learn something every day.

Cheers
N
 
I suppose in a sense one is the proxy for the other...

Yeah you're correct, one's proxy for the other.. in reality the rates notice values usually reflect slightly greater.

I chose the min 30%> criteria as it cull's out high rise units/apartments.
 
Thanks for your explanation Rixter.

So if the unit is say 60m, you'd want a little courtyard/yard at least 30m

I can see the value of that rule

So its the Ratio of your unit back courtyard size to total unit lot size (Unit building footprint plus courtyard).

I hope this helps
 
Hey Rixter

After all these years you've surprised me! I always thought the criteria (and your criteria) was that the notional land value of the townhouse was 30% of the purchase price.

I.e. if you buy a townhouse for $300k, the unimproved land value (as per rates notice for example) was around the $100k mark.

I suppose in a sense one is the proxy for the other...

There you go - you learn something every day.

Cheers
N

So

IP Value $300k
Land Value $100k
100/300%
= 33%

:confused:
 
Thanks for your explanation Rixter.

So if the unit is say 60m, you'd want a little courtyard/yard at least 30m

I can see the value of that rule

Yep. Using your numbers as an example -

Total Lot Size = 90m2 of which 60m2 is the building footprint & 30m2 is the courtyard. Giving a 33.3% land component.

Hope this helps.
 
Yep. Using your numbers as an example -

Total Lot Size = 90m2 of which 60m2 is the building footprint & 30m2 is the courtyard. Giving a 33.3% land component.

Hope this helps.

I'd always thought of it in those terms Rixter, though had seen it done as the land value rather than land component method on SS also

Working on the proviso that land appreciates and buildings depreciate the land/house value method would diverge from the land/house component over time wouldn't (i.e. they are not both similar?)
 
Working on the proviso that land appreciates and buildings depreciate the land/house value method would diverge from the land/house component over time wouldn't (i.e. they are not both similar?)

Is it really the land component appreciating in value or is it the demand for commodity (ie Townhouse/Villa) being marketed that's increasing the value?
 
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