Property devalue question

[aitsmoi]

I am a first home buyer. I've had a look at a property that's about 40 years old. Just wondering how would the property devalues after 20 or 30 years. If I am to resell the property in the next 10 years, it will be 50 years old. Will it make it hard to resell?

What will happen to the property that is 70 years old? Will the entire building be restructured or do buildings generally last more than that?

 

[Propertunity]

Just wondering how would the property devalues after 20 or 30 years. If I am to resell the property in the next 10 years, it will be 50 years old. Will it make it hard to resell?

That's the good thing about property. The older it gets, the more it is worth. Unlike a car for example.

I recently purchased a property in Newcastle for a client that was originally built in 1880. Now it is worth nearly $0.5M on a tiny 176m2 of land.

If it is maintained it is worth significantly MORE not less. The building may be depreciating but the land underneath it is appreciating.

What will happen to the property that is 70 years old? Will the entire building be restructured or do buildings generally last more than that?

It depends on the building. If you look at some of the real estate on programs such as relocation, relocation on Pay TV, in the UK you will see properties that are 200+ years old.

A lot of the project homes built here in AU are only designed to last 40+ years. At that time the value of the land has gone up so much that the building only has a very small value by comparison, which is why it is still economical to do the KDR (knock down rebuild).

 

[aitsmoi]

Thanks for your answer.

I am actually trying to buy a unit not home. So that will probably be different in my case?

 

[landlubber]

Same principal pretty much applies to "old" units as for "old" houses. Older units tend to be more solidly built (double brick etc) and hence are quieter. Older units also tend to have more space and more open space around them. They also have features like timber floors and nice windows and plaster work etc that makes them very desirable. In Melbourne, the old "art deco" units are highly sort after for these reasons. I tend to buy ONLY older properties for all the above reasons. New properties are built cheaper and noisier. Try before you buy. If you are worried about the structural "age", get it inspected.
LL

 

[Dazz]

We bought a vacant block of land made in the 1980s. It has appreciated much more than the other vacant block we hold which was made in 2007. That one has excellent depreciation benefits, so it's swings and roundabouts really.

 

[Peter Parker]

What will happen to the property that is 70 years old? Will the entire building be restructured or do buildings generally last more than that?

A really really good question.

Houses are on their own block are safe as you've got the land, and there may be the possibility of subdivisions. You can easily monitor the house's condition, are in control of repairs and onsell as a development proposition if you don't feel like demolishing/rebuilding yourself.

Single storey units in small groups are solid, cheap to maintain, have good land component and only have a small number of owners in the body corp, so are fairly robust. Less flexibility with what you can do, but again you can tell if it's going to fall down and have time to sell up before it becomes uninhabitable.

But you have to wonder about the longevity of some of our high-rises in say 100 - 200 years time. And even sooner for cheaply built residential towers - some of which have been knocked down only 40 years after construction due to high heating costs and social problems. And what about concrete cancer and/or water damage?

You're really betting that the land will be worth so much more that it doesn't matter even if the building has to be knocked over. And a layperson can't really check the building health of a high-rise as readily as they could a single storey house.

Most would have an investing timeframe of 30- 60 years max, rather than 100 years plus, but still I do think that high rise = high risk if major building works are involved and it's much more than just plonking on a project home or townhouses. The cashflow (after costs) had better be good to compensate, and you don't really have control unless you own the whole block.

 

[marg4000]

Our PPOR is 31 years old.

We bought (spec home) in 1979 for $49.5K. The block of land next door was up for sale for $16K, so safe to say the house was worth around $34K.

Brick/tile, 4 bed, 2 bath, double garage.

Over the years we have spent around $25K in renovation and improvements. Reckon you could build it for $59K today?
Marg

 

[rosehill]

Single storey units in small groups

Single storey units in small groups are solid, cheap to maintain, have good land component and only have a small number of owners in the body corp, so are fairly robust. Less flexibility with what you can do, but again you can tell if it's going to fall down and have time to sell up before it becomes uninhabitable.

Have recently seen a single storey unit in a big complex (total 30 units, half of which is double storey and the other half single storey). The annual body corporate fee is around $1,100. Do you think it is less desirable compared to only 2 or 3 units in a small block?

 

[landlubber]

Do you think it is less desirable compared to only 2 or 3 units in a small block?

Simple answer is "yes" ... but if everything else about the acquisition was very favourable, that wouldn't necessarily stop me from making an offer.
LL

 

[Dazz]

Our PPOR is 31 years old.

We bought (spec home) in 1979 for $49.5K. The block of land next door was up for sale for $16K, so....

....so, did you buy both marg ??

 

[marg4000]

No, Dazz, the way finance worked in 1979 we were flat out buying our present home after we sold our first home. Had to grovel seriously to the bank manager as it was.
Marg

 

[Dazz]

Fair enough marg.


My parents also bought a house in 1979 for 63K. They foolishly sold 3 of their investment properties to pay for it. Big mistake in hindsight.


It was a different world back then though...

 

[WinstonWolfe]

Reckon you could build it for $59K today?
Marg

You could build it for 125k, which is less than the original 34k in cpi adjusted terms.

Would be interesting to value land only, and subtract from total value, and see if the house itself has under or outperformed cpi.

 

[brendio]

Our PPOR is 31 years old.

We bought (spec home) in 1979 for $49.5K. The block of land next door was up for sale for $16K, so safe to say the house was worth around $34K.

Brick/tile, 4 bed, 2 bath, double garage.

Over the years we have spent around $25K in renovation and improvements. Reckon you could build it for $59K today?
Marg

According to the RBA Inflation calculator:

A basket of goods and services valued at $34,000 in year 1979 , would in year 2009
cost $ 306,365.10.

That would be using the general CPI figures. I think from memory (too tired to look it up now) that there is a CPI figure for building materials for each capital city.

Anyway, I reckon you could build the same home for a LOT less than $300k (unless it uses some out dated building techniques). So is a better rule of thumb that the building increases at CPI less depreciation (actual rather than ATO figures), and the land appreciates at enough more than CPI to outweigh depreciation, in general.

 

[WinstonWolfe]

According to the RBA Inflation calculator:

A basket of goods and services valued at $34,000 in year 1979 , would in year 2009
cost $ 306,365.10.

That would be using the general CPI figures. I think from memory (too tired to look it up now) that there is a CPI figure for building materials for each capital city.

Brendio, it's erroneous to include the 25k in renos, which Marg did not specify when were spent. WHen left out, the RBA calculator gives:

- annual tab to 2009 gives 132,853.
- qtrly tab to mar2010 gives 140,774.

That seems more realistic for a 4/2/2 speccie and affirms the same house built today for 125,000 is slightly cheaper in cpi adjusted terms.

 

[brendio]

Brendio, it's erroneous to include the 25k in renos, which Marg did not specify when were spent. WHen left out, the RBA calculator gives:

- annual tab to 2009 gives 132,853.
- qtrly tab to mar2010 gives 140,774.

That seems more realistic for a 4/2/2 speccie and affirms the same house built today for 125,000 is slightly cheaper in cpi adjusted terms.

Okay, my bad. Must be time for sleep.

By the way, do you think the 4/2/2 for 125k would be slightly better build quality than 31 years ago? I certainly think the standards of houses have gone up, and a lot of things that used to be luxury, such as A/C are now standard and have come down a lot in price.

 

[WinstonWolfe]

Hard to tell whether today's budget speccies are a better design and finish. They possibly include more aesthetic fittings.

Maybe Marg could have a look at some of the designs like this 186m2 one and give her view.

 

[The Y-man]

What will happen to the property that is 70 years old? Will the entire building be restructured or do buildings generally last more than that?

There are some older 1940's apartment buildings (now sold as "character apartments") so in that respect it might be ok.

HOWEVER, the early 70's architecture wasn't exactly mind blowing.... and we are starting to see some structural issues coming up in our older 60's apartments. One does have concrete cancer, and is needing some serious works to repair it - we are looking at some serious sinking funds for this.

On the other hand, if it all comes tumbling down (er.... WITHOUT people in there I hope!!!) I take it the OC building insurance is supposed to assist?

The Y-man