The importance of land value
I've been thinking about how a properties land value relates to it's in investment potential.
As we've always been told, land appreciates, buildings depreciate, so best to look for properties with the highest % land value as you can.
With this in mind I evaluated some properties.
Property 1
I attended the mortgagee auction of 3 near new apartments in Tyrone St North Melbourne recently. Great floorplans, split level, nice fittings, walking distance to the hospital and an eat street. These things were worth around $500k and sold for around $450k mark. A bargain. Rental potential around $440pw. I was considering buying one of these but what turned me off was the SRO / Council land valuations of only $53k (i.e. 10-12% of the purchase price).
Property 2
I was then looking at another property in Kipling St North Melbourne. It was a 70's 1 bedroom unit and was very run down. There were only 4 located on a large block near commission flats. It sold for $350k at auction and the council valued the land component at $163k in Jul 08 (i.e. 46% of the purchase price). Note they also listed the 'Capital Improved Value' at $245k. Currently rented at $280pw. Even though North Melbourne has seen good gains since Jul 08 this is still very conservative.
Property 3
Haines Street North Melbourne. A north facing 50's - 60's top floor unit in a large block of around 20. Lots of green space on the block though, driveways, gardens etc. 2 bedroom, 1 bath, 1 carspace. Sold for $405k. Council lists land value at $93k (i.e. 23% of purchase price) and a CIV of $285k in Jul 08.
Property 4
This then made me wonder what one of my outer suburban properties were. I have one in Carrum Downs, about 35km South East of Melbourne. Property value is around $280k, land value is listed at $113k or ~40%. It's a 600m2 block in an area around 20 years old now. Growth has been great so far, averaging over 10% for the last 8 years. Funny how my pokey little house out in the sticks has more land value than most of those inner city properties.
My questions are
1. How important is the land component? Have people seen their investments with a higher land value figure perform better significantly than those with a lower amount?
2. Do you think the Property 1 will perform significantly worse than the Property 2, 3 and 4?
3. Are the council / SRO valuations 'accurate enough' (or all inconsistently inaccurate enough) to determine this?
4. Has anyone had a property with low land value perform well? (like a massive multistory unit, i.e. Docklands / Southbank type thing)?
I've been thinking about how a properties land value relates to it's in investment potential.
As we've always been told, land appreciates, buildings depreciate, so best to look for properties with the highest % land value as you can.
With this in mind I evaluated some properties.
Property 1
I attended the mortgagee auction of 3 near new apartments in Tyrone St North Melbourne recently. Great floorplans, split level, nice fittings, walking distance to the hospital and an eat street. These things were worth around $500k and sold for around $450k mark. A bargain. Rental potential around $440pw. I was considering buying one of these but what turned me off was the SRO / Council land valuations of only $53k (i.e. 10-12% of the purchase price).
Property 2
I was then looking at another property in Kipling St North Melbourne. It was a 70's 1 bedroom unit and was very run down. There were only 4 located on a large block near commission flats. It sold for $350k at auction and the council valued the land component at $163k in Jul 08 (i.e. 46% of the purchase price). Note they also listed the 'Capital Improved Value' at $245k. Currently rented at $280pw. Even though North Melbourne has seen good gains since Jul 08 this is still very conservative.
Property 3
Haines Street North Melbourne. A north facing 50's - 60's top floor unit in a large block of around 20. Lots of green space on the block though, driveways, gardens etc. 2 bedroom, 1 bath, 1 carspace. Sold for $405k. Council lists land value at $93k (i.e. 23% of purchase price) and a CIV of $285k in Jul 08.
Property 4
This then made me wonder what one of my outer suburban properties were. I have one in Carrum Downs, about 35km South East of Melbourne. Property value is around $280k, land value is listed at $113k or ~40%. It's a 600m2 block in an area around 20 years old now. Growth has been great so far, averaging over 10% for the last 8 years. Funny how my pokey little house out in the sticks has more land value than most of those inner city properties.
My questions are
1. How important is the land component? Have people seen their investments with a higher land value figure perform better significantly than those with a lower amount?
2. Do you think the Property 1 will perform significantly worse than the Property 2, 3 and 4?
3. Are the council / SRO valuations 'accurate enough' (or all inconsistently inaccurate enough) to determine this?
4. Has anyone had a property with low land value perform well? (like a massive multistory unit, i.e. Docklands / Southbank type thing)?
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