This post is the product of further thought since identifying and describing the 'beach-price gradient' here
http://www.somersoft.com/forums/showthread.php?t=19895
Much advice on investment property selection focuses on its location and ther area's future prospects for capital growth and attractiveness to tenants.
Subject to council rules, the investor can control the property (including renovating, extending, or knocking down) but has limited control over the location. Location can set a limit to the capital growth possible and the potential to add value without overcapitalising.
To avoid overpaying and to ensure maximum growth potential, careful location assessment must precede location selection.
So what are the ingredients of assessing a location?
Almost any book on property investment will have a list something like this:
1. Proximity to CBD
2. Proximity to (good) schools and other educational facilities
3. Proximity to transport
4. Proximity to shops etc
5. Proximity to beach or river
6. Proximity to recreational facilities (which may include 5 above)
7. Proxmity to hospitals/health facilities
All this is a bit vague, as 'proximity' could mean anything between 500 metres and 5 kilometres. Also in some cases, just because 'close' is good, 'even closer' is not necessarily better, and could be worse.
I suspect that in many cases the relationship is non-linear. In some cases 50 metres is worth three times as much as 500 metres away, but in other cases it could be worth the same or less. Also there may not always be much difference between 500 metres and 1000 metres, but a considerable difference between 1km and 2km.
Each point will be discussed in turn:
1. CBD
Generally property prices fall with increasing distance from the CBD. The rate of fall off can vary; it depends on how fashionable inner-city or suburban living is at the time. Other factors also play their part; a single house marooned in a firmly non-residental warehousing precinct with few local facilities may not be particularly desirable (unless the land was of value for some other purpose).
2. Schools and education
Schools are everywhere. What are regarded as 'good schools' (either private or state) are more scarce and may lift property prices in surrounding neighbourhoods (refer to 'The Millionaire Mind' for more discussion on this).
Government regulations (such as school catchment zoning for state schools) can also conspire to increase land prices in favoured zones if the school is highly regarded (the use of govt legislation to transfer wealth to selected landowners is another issue that is out of scope here).
A house across the road from the school gates is undesirable (think of things in letter boxes!). Around the corner and 5 minutes walk away is very good. 10 minutes walk away is also very good and in practice no worse than 3 or 5 minutes away. Subject to other transport, 40 minutes walk away is bad and the 'good school' effect is unlikely to be very strong at this distance.
3. Transport
Like schools, quality is important, as all suburbs have roads and most have some form of public transport.
Car transport is less fussy; will a suburb really be valued much less if it is 3km from the freeway exit than 1km? I would think not. Other attributes would be more important.
As with schools, extreme proximity to a noisy road or rail line is a minus, especially if it's just over the back fence, and the graffiti taggers are just a short fence-hop from the house.
Public transport is more selective. For public transport to be good it must be (i) frequent, (ii) operate througout the day, and (iii) fast. For inner suburbs, as distances are so short you can compromise on speed, but the first two are still vital.
In most suburbs of most cities this means trains. Trams are probably acceptable in inner-Melbourne and parts of Adelaide. Buses may be OK in inner parts of Sydney or Adelaide where services are good. But they have a low prestige in Melbourne and are generally ignored (except on a handful of routes).
'Good public transport', like 'good schools' are not in every suburb so have a scarcity value. In the case of Melbourne about 20% of residents are within walking distance of trains and maybe 20% near trams, so this criteria excludes well over 50% of houses and some entire suburbs.
500 metres is definitely better than 1000 metres, and far better than 3km. 250 metres could be better still! People will walk further for better service, so 800 metres to a train is likely to be superior than 400 metres to a bus.
4. Shops
These are pretty much everywhere, so I can't see that they are as scarce as 'good schools' or 'good public transport'. Walking to a reasonable selection is good if possible. But a 2-4km drive to a good supermarket is not unacceptable (especially if there is a closer convenience store) if other proximity factors like schools or beach apply.
5. Beach or river
Unlike schools 50 metres distance is much much more valuable than 300 metres which is more valuable than 3km. If views are involved, there aren't bogs or mosquitoes, and it's near other facilities then the scarcity value of the waterfront is extreme and prices will be high. As an example, for coastal regional cities, a 3km distance to the beach might have no value premium, whereas it would in a capital city as there are many suburbs 5, 10 or 20km inland.
6. Recreational facilities
7. Hospitals/health facilities
Both have a greater scarcity value than shops. Comments on proximity to shops similar, but walking or wheelchair access may be highly prized for seniors facilities.
Consideration of these points show that a linear relationship between distance and value does not apply in all cases. There is such a thing as 'too close' to some facilities, whereas for others like beaches, there is no such thing. The relative significance of each of these points also varies.
In case you're wondering where I'm leading, I intend to integrate the above into a possible formula to compare suburbs on a metro-wide basis in a future posting.
Rgds, Peter
http://www.somersoft.com/forums/showthread.php?t=19895
Much advice on investment property selection focuses on its location and ther area's future prospects for capital growth and attractiveness to tenants.
Subject to council rules, the investor can control the property (including renovating, extending, or knocking down) but has limited control over the location. Location can set a limit to the capital growth possible and the potential to add value without overcapitalising.
To avoid overpaying and to ensure maximum growth potential, careful location assessment must precede location selection.
So what are the ingredients of assessing a location?
Almost any book on property investment will have a list something like this:
1. Proximity to CBD
2. Proximity to (good) schools and other educational facilities
3. Proximity to transport
4. Proximity to shops etc
5. Proximity to beach or river
6. Proximity to recreational facilities (which may include 5 above)
7. Proxmity to hospitals/health facilities
All this is a bit vague, as 'proximity' could mean anything between 500 metres and 5 kilometres. Also in some cases, just because 'close' is good, 'even closer' is not necessarily better, and could be worse.
I suspect that in many cases the relationship is non-linear. In some cases 50 metres is worth three times as much as 500 metres away, but in other cases it could be worth the same or less. Also there may not always be much difference between 500 metres and 1000 metres, but a considerable difference between 1km and 2km.
Each point will be discussed in turn:
1. CBD
Generally property prices fall with increasing distance from the CBD. The rate of fall off can vary; it depends on how fashionable inner-city or suburban living is at the time. Other factors also play their part; a single house marooned in a firmly non-residental warehousing precinct with few local facilities may not be particularly desirable (unless the land was of value for some other purpose).
2. Schools and education
Schools are everywhere. What are regarded as 'good schools' (either private or state) are more scarce and may lift property prices in surrounding neighbourhoods (refer to 'The Millionaire Mind' for more discussion on this).
Government regulations (such as school catchment zoning for state schools) can also conspire to increase land prices in favoured zones if the school is highly regarded (the use of govt legislation to transfer wealth to selected landowners is another issue that is out of scope here).
A house across the road from the school gates is undesirable (think of things in letter boxes!). Around the corner and 5 minutes walk away is very good. 10 minutes walk away is also very good and in practice no worse than 3 or 5 minutes away. Subject to other transport, 40 minutes walk away is bad and the 'good school' effect is unlikely to be very strong at this distance.
3. Transport
Like schools, quality is important, as all suburbs have roads and most have some form of public transport.
Car transport is less fussy; will a suburb really be valued much less if it is 3km from the freeway exit than 1km? I would think not. Other attributes would be more important.
As with schools, extreme proximity to a noisy road or rail line is a minus, especially if it's just over the back fence, and the graffiti taggers are just a short fence-hop from the house.
Public transport is more selective. For public transport to be good it must be (i) frequent, (ii) operate througout the day, and (iii) fast. For inner suburbs, as distances are so short you can compromise on speed, but the first two are still vital.
In most suburbs of most cities this means trains. Trams are probably acceptable in inner-Melbourne and parts of Adelaide. Buses may be OK in inner parts of Sydney or Adelaide where services are good. But they have a low prestige in Melbourne and are generally ignored (except on a handful of routes).
'Good public transport', like 'good schools' are not in every suburb so have a scarcity value. In the case of Melbourne about 20% of residents are within walking distance of trains and maybe 20% near trams, so this criteria excludes well over 50% of houses and some entire suburbs.
500 metres is definitely better than 1000 metres, and far better than 3km. 250 metres could be better still! People will walk further for better service, so 800 metres to a train is likely to be superior than 400 metres to a bus.
4. Shops
These are pretty much everywhere, so I can't see that they are as scarce as 'good schools' or 'good public transport'. Walking to a reasonable selection is good if possible. But a 2-4km drive to a good supermarket is not unacceptable (especially if there is a closer convenience store) if other proximity factors like schools or beach apply.
5. Beach or river
Unlike schools 50 metres distance is much much more valuable than 300 metres which is more valuable than 3km. If views are involved, there aren't bogs or mosquitoes, and it's near other facilities then the scarcity value of the waterfront is extreme and prices will be high. As an example, for coastal regional cities, a 3km distance to the beach might have no value premium, whereas it would in a capital city as there are many suburbs 5, 10 or 20km inland.
6. Recreational facilities
7. Hospitals/health facilities
Both have a greater scarcity value than shops. Comments on proximity to shops similar, but walking or wheelchair access may be highly prized for seniors facilities.
Consideration of these points show that a linear relationship between distance and value does not apply in all cases. There is such a thing as 'too close' to some facilities, whereas for others like beaches, there is no such thing. The relative significance of each of these points also varies.
In case you're wondering where I'm leading, I intend to integrate the above into a possible formula to compare suburbs on a metro-wide basis in a future posting.
Rgds, Peter