Location Location Location - Price Ranges

From: Jay Hunter


People talk about median house/unit prices for cities (syd/melb/bris etc... and even specific suburbs within each city... To me the median price mean jack sh.t!! Really it comes down to LOCATION but what is a location worth???. Here is an example, and really just a prompt for more detailed discussion/comments and experiences to be shared.

I know the Northern Beaches area's of sydney quite well (still learning a heap)... lets take an example:

A specific suburb/village in Sydney:
a 2 bed unit in Manly (with all things being close to equal - consideration building age/condition, Strata details - sinking funds, parking, unit size etc) seems to have a very broad price range!! It could range anywhere from about 450,000 to 950,000 (+ or - in the current market) depending on where in Manly it is located. I'm using manly as an example but it would be true in every suburb i imagine.

So this shows that Manly is not just manly, Dee why not just dee why, and suburb X not just suburb X... it comes down to where the prop is located in each of these suburbs and the outlook it has. So the question is:

How much do people value things like:

Views to -
+ Beach/Ocean
+ Park
+ Golf Course
+ Bushland
+ Mountains

Proximity to -
+ Train/ferry/bus link
+ Schools
+ shops

Having said that, i would be interested if people see it the same way and if people could contribute real life examples of price differences where they may see all things being equal except outlook/ specific location.

Hope we can generate some discussion.

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Reply: 1
From: Les .

G'day Jay,

And thanks for what I think is a very important discussion point.

The median has certainly been hugely abused, particularly by those that would gain by using a "rough guide" figure as a selling point.

I like Jan's use of median - where she suggests buying at or below median. In that way, the rent charged would naturally be lower, and able to be afforded by virtually any member of the population. As the price rises, your available "pool" of potential tenants diminishes accordingly.

I think median should simply be used as a "quick and dirty" guide to see whether a given property is worth spending time on. After that, due diligence and experience should throw "median" out the window.

e.g. If you came across a triple income property, but it was $250K above median for the area, forget median (and buying at/below it). Now the X factor comes into play.

And this X factor is what makes the difference between the properties that Jay was mentioning.

Median will only ever be a "rough guide" and should not be used as anything else, IMHO.

Great question, Jay - I'm also looking forward to others' views on this subject, too



- "Eschew Obfuscation" - ;^)
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Reply: 1.1
From: J Parker

Hi Jay!
I would agree with Les here, in that the median price is very useful as a guide, and to widen the range of tenants that your property would appeal to. Like Jan says, when you buy on a scale of 1-10, go in at about 5 and you have a better chance of renting it out 52 weeks of the year.

However, when it comes to special or unique features of a property, there are certain attractions that would not only cost more, but also enable you to get a better return and increase the rate of cap growth, due to their rarity. For eg, properties on the water or with a view, architectural style (art deco, federation etc) places, units with a double garage, high ceilings, extra large balconies etc etc.

Of course, what people would value more highly in one area (beach view in Manly, for eg) will be different in another (two car garage in the inner city). Using your due diligence, naturally, will allow you to determine which features are held as more valuable by tenants.

To give you a personal example, I just rented out a country house which was sought after, because it had a fully fenced yard (lots of young families in the town, with pets!). The agents tell me fully fenced properties will always rent first, so guess what I will be doing to any other houses I purchase there? Sometimes the simple things mean the most to potential tenants.

I still like to stick to the median (or thereabouts) when I first look in an area. However, as Les points out, if something else with a lower price tag is going to get me triple the income, then cashflow is king on that place! It also depends on what you are investing for in the first place, doesn't it?

Just my thoughts.
Cheers, Jacque :)
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Reply: 2
From: George M

something i would like to add to your discussion is that you are missing the most important commodity and the "intrinsic Value" of the investment once you can appreciate this you will always understand what goes up an that is LAND and only land.
and is really what underpins you investment potential, sure you can dress up your block by adding or renovating your income stream i.e the house but essentially its the land that is the underlying investment.
the median house price doesn't neccesarilly reflect the actual price growth.
lets say you purchased house and land in a particular suburb in 1971 and it was $25k and you might have got a 1000m2 block and now your median in Melbourne say is $300k
however your average land size is 300-450m2
do your own calculations but you will see that even though the median has roughly tripled in the 70's and doubled in the 80's and again in the 90s. the average land size has halved over successive periods.
does this mean you go for the largest block of land? no, but understand what actually is working and the flexibility it can give you on the exit, always buy the best you can AFFORD, and stay away from regional markets, take away the speculative thinking and you will always do well.
hope this helps in some way

George Mariotti
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