More Quality over Quantity

[MarkB]

One of my fave hobby-horses is that investors are far better off buying a good locations - which often means more expensive properties, which, it follows, often means less properties.

It's an idea explored in this thread here - Quality over Quantity.

Well here's a sequel

A PIECE of Lennox Head land bought for 50 pounds in 1949 is likely to earn the Uniting Church more than $750,000.

The church is selling its old United Sunday School site in Rutherford Street as it is surplus to requirements.

The hall was built in 1951 after the Rutherford family sold the land to a community trust for only 50 pounds.

Source - Lennox Land Sale a Heaven Sent Opportunity

As it turns out, the spreadsheet I posted here only goes back to 1950 (not 1949), but using the 1950 CPI index (but putting 1949 in as the purchase year) and then using an index of 156 for 2007 (currently 155.6 for y/e 30 March) we get the following answers for annual growth (for a sales price of $750k) -

- 16.63% cumulative nominal annual growth (over 58 years), or if you prefer

- 11.26% cumulative real annual growth (over those 58 years).

The same spreadsheet tells me that 50 pounds in 1949 is worth the same as $2,080 in 2007.

M

 

[Glebe]

That's amazing growth, thanks Mark.

 

[Don and Liz]

A similar piece of land in the same street went for $750,000 three years ago.

Safe bet it might sell for over 750k then or has that market been flat?

 

[MarkB]

If anything the market for land in that location (a spit from the beach) has gone up a bit.

M

 

[Dazz]

One of my fave hobby-horses is that investors are far better off buying a good locations - which often means more expensive properties, which, it follows, often means less properties.

We agree. Although, when people start mouthing off about how many properties they own, instead of their value, you normally just have to take a back seat.

It's quite satisfying...in the kindest possible way....to read in API profiles sometimes when people have 25 or 30 properties in their portfolio, busily scurrying around looking after this enormous great portfolio and yet they don't add up (in either value or rental income) to what one big nice property is able to achieve.

 

[Andrew_A]

Yep, good point Mark. It's $$ and % in real estate and not the number of roofs you own.

When I add up my NW end of ever month I adjust it to CPI units (Total $/CPI figure) and also to gold coins (Total $/Krugerands). If you have a look at that 50 pounds it will represent a much higher multiple of weekly wages than the $2080 does today, so I think 'real growth' as measured by CPI is a shaky figure.

I can prove Jim Rogers belief that 'If you know how much you are worth you don't have enough!' idea though

The church are uber property investors no? They always get the nicest slices of land for some strange reason.. Can you imagine how long they would have kept their wealth if it wasn't parked in land? Imagine the bright sparks trying to manage a share portfolio or investing in derivatives today. As it is they always seem to be selling choice parcels to developers at random times.. Wonder if they have thought of vertically integrating some development companies into their structure?

 

[Glebe]

Off topic:

I much prefer Suffolk Park over Lennox Head.

Lennox Head is slummin' it!

 

[WinstonWolfe]

The church is selling its old United Sunday School site in Rutherford Street as it is surplus to requirements.

M

give me a break... based on fall in church attendance in the last 30 years, 80% of their property would be surplus to requirements.

 

[Watermelon Man]

The same spreadsheet tells me that 50 pounds in 1949 is worth the same as $2,080 in 2007.

M

I totally disagree with the above statement or suggestion. There's no way in the world that the block of land worth 50 pounds in 1949 would be the same as $2,000 today - I mean where in all of Australia can you buy a block within say 100kms of a major city/town for just $2,000.

As the article says the land could fetch as much as $750,000. In 1949, wages were probably 13 pounds or so a year.

 

[Andrew_A]

I totally disagree with the above statement or suggestion. There's no way in the world that the block of land worth 50 pounds in 1949 would be the same as $2,000 today - I mean where in all of Australia can you buy a block within say 100kms of a major city/town for just $2,000.

As the article says the land could fetch as much as $750,000. In 1949, wages were probably 13 pounds or so a year.

Read the first post again.

The 50 quid ($100) to $2080 conversion is simply a purchasing power of currency change based on CPI figures, nothing to do with land at all.

In 1949 weekly wages were $17.70 (half that in pounds). Source for that data: Jan Somers. Building Wealth (earlier editions).

 

[Andrew_A]

Interesting

Just having another look at the 1992 edition of 'Building Wealth' Somers, where Jan Somers provided weekly wages going back to the 40's (from ABS data series) and projected a weekly wage of $3000 in 2010 'based on the 50 year trend'.

I added AWOTE earnings from the ABS onto the data from Jan's book from 1991 to 2006 and got a CAGR from 1991-2006 of only 3.71%!

Has something fundamentally changed with earnings growth in Australia or is there a problem with these figures?

1942: $11.2 (Somers/ABS)

1991: $578.20 (ABS website)
2006: $1035.90 (ABS website. AWOTE)
CAGR 91-06: 3.71%

It's an interesting problem for me as I like thinking about comparitive purchasing power and better ways to measure the performance of property over time.

 

[Harris]

I agree.

especially holding some nice, large development blocks within the portfolio that add massive value once developed down the track and result in an exponential increase in the portfolio size and cash flow.

Harris

One of my fave hobby-horses is that investors are far better off buying a good locations - which often means more expensive properties, which, it follows, often means less properties.

It's an idea explored in this thread here - Quality over Quantity.

Well here's a sequel

A PIECE of Lennox Head land bought for 50 pounds in 1949 is likely to earn the Uniting Church more than $750,000.

The church is selling its old United Sunday School site in Rutherford Street as it is surplus to requirements.

The hall was built in 1951 after the Rutherford family sold the land to a community trust for only 50 pounds.

Source - Lennox Land Sale a Heaven Sent Opportunity

As it turns out, the spreadsheet I posted here only goes back to 1950 (not 1949), but using the 1950 CPI index (but putting 1949 in as the purchase year) and then using an index of 156 for 2007 (currently 155.6 for y/e 30 March) we get the following answers for annual growth (for a sales price of $750k) -

- 16.63% cumulative nominal annual growth (over 58 years), or if you prefer

- 11.26% cumulative real annual growth (over those 58 years).

The same spreadsheet tells me that 50 pounds in 1949 is worth the same as $2,080 in 2007.

M

 

[Don and Liz]

yet they don't add up (in either value or rental income) to what one big nice property is able to achieve.

True as - some higher end properties can be a bit niche.