Most of Georgina's problems stemmed from her decision to buy a unit rather than a house.
For the same money she could have bought a bigger house on its own block a bit further out and probably been a lot happier.
I only buy freestanding houses. The value is in the land not the building, and you don't get much land with a unit.
Can't say I agree with this. It seems to me to be 6 of one and half a dozen of the other. If you take it as an aggregate, units get slightly lower capital appreciation and slightly higher nett yield. If you do the NPV of the dividend stream you come to a very similar result overall, as you would expect in an efficient market. Certainly the variation within the populations is much higher than the difference between the means of the populations.
You can actually get quite a lot of land value with a unit if you pay attention and look. The amount you get varies quite widely though, because people don't, in general, look. The best purchase I made (in this particular respect), the unimproved land value was over 60% of the market value of the unit. 1/2 is always eminently achievable. The other somewhat surprising thing I have noticed is that in most cases the market value of my units has outpaced the unimproved value of the land - i.e. the buildings are appreciating in value quite fast. I suspect this reflects to some extent the huge surge in construction costs since 2000, and probably won't go on forever.
Of course, Georgina was buying for her own consumption so house or unit comes down to individual preference and all of the above is moot. Personally I would much rather live in an apartment close to the city than in a house with a garden further out but understand that I am in the minority here.
Buying a 1 bedroom unit with $900/q body corporate fees is a bad mistake. I have a 3-bedroom 2-story townhouse with lower fees than that and a 1-bedroom unit with fees much less than half that.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Most of Georgina's problems stemmed from her decision to buy a unit rather than a house.
For the same money she could have bought a bigger house on its own block a bit further out and probably been a lot happier.
I only buy freestanding houses. The value is in the land not the building, and you don't get much land with a unit.
Can't say I agree with this. It seems to me to be 6 of one and half a dozen of the other. If you take it as an aggregate, units get slightly lower capital appreciation and slightly higher nett yield. If you do the NPV of the dividend stream you come to a very similar result overall, as you would expect in an efficient market. Certainly the variation within the populations is much higher than the difference between the means of the populations.
You can actually get quite a lot of land value with a unit if you pay attention and look. The amount you get varies quite widely though, because people don't, in general, look. The best purchase I made (in this particular respect), the unimproved land value was over 60% of the market value of the unit. 1/2 is always eminently achievable. The other somewhat surprising thing I have noticed is that in most cases the market value of my units has outpaced the unimproved value of the land - i.e. the buildings are appreciating in value quite fast. I suspect this reflects to some extent the huge surge in construction costs since 2000, and probably won't go on forever.
Of course, Georgina was buying for her own consumption so house or unit comes down to individual preference and all of the above is moot. Personally I would much rather live in an apartment close to the city than in a house with a garden further out but understand that I am in the minority here.
Buying a 1 bedroom unit with $900/q body corporate fees is a bad mistake. I have a 3-bedroom 2-story townhouse with lower fees than that and a 1-bedroom unit with fees much less than half that.
I broadly agree with this.
At a theoretical level, the fair yield differential between a 25/75 (land / build) and 75/25 property is 1% per annum to account for the higher depreciation. Assuming: - 40 years useful life (before complete demolition) - average age of bought property 10-15 years - non-linear economic depreciation (inverse sum of years) But the big benefit of a house versus an apartment is control - which is an intangible benefit, but a benefit non-the-less.
EDIT: I lived in an apartment, and now live in a house. More than happy to pay a higher premium for the house....
Can't say I agree with this. It seems to me to be 6 of one and half a dozen of the other. If you take it as an aggregate, units get slightly lower capital appreciation and slightly higher nett yield. If you do the NPV of the dividend stream you come to a very similar result overall, as you would expect in an efficient market. Certainly the variation within the populations is much higher than the difference between the means of the populations.
You can actually get quite a lot of land value with a unit if you pay attention and look.
You can't actually do anything with that land though - as long as other people own the other units you can't subdivide or build anything else on the land. Whereas with a freestanding house on its own block of land... looking forward a few years or decades you will be able to increase the density of dwellings on the land through subdivision or building your own block of units, or adding a granny flat, greatly increasing the yield. The value is in the land, and ability to develop that land greatly increases the value over the long term. Plus you don't have to deal with annoying and potentially expensive strata issues.
One of my properties is on a road where most of the surrounding roads (but not this one yet) are zoned for units. It's only a matter of time before I'm able to develop the block. I'm in no rush, as it provides a decent yield as it is, but I know in around decade or so there is a very good chance of being able to greatly increase the yield.
You can't actually do anything with that land though - as long as other people own the other units you can't subdivide or build anything else on the land. Whereas with a freestanding house on its own block of land... looking forward a few years or decades you will be able to increase the density of dwellings on the land through subdivision or building your own block of units, or adding a granny flat, greatly increasing the yield. The value is in the land, and ability to develop that land greatly increases the value over the long term. Plus you don't have to deal with annoying and potentially expensive strata issues.
One of my properties is on a road where most of the surrounding roads (but not this one yet) are zoned for units. It's only a matter of time before I'm able to develop the block. I'm in no rush, as it provides a decent yield as it is, but I know in around decade or so there is a very good chance of being able to greatly increase the yield.
Catweasel say actually it silly old mouzealot.
Land the value increase.
And all the apartment owning mouse win the big.
It now the happen in Auckland, especially around Lake the Pupuke.
Off a golden mile.
Some of most expensive real estate.
And land price off a Richter,
that property the developer want.
Because its bricks and mortar.
Only the value that a developer can afford to destroy.
At a theoretical level, the fair yield differential between a 25/75 (land / build) and 75/25 property is 1% per annum to account for the higher depreciation. Assuming: - 40 years useful life (before complete demolition) - average age of bought property 10-15 years - non-linear economic depreciation (inverse sum of years)
But the big benefit of a house versus an apartment is control - which is an intangible benefit, but a benefit non-the-less.
And the funny thing is that the gross yield difference is about 1%. I guess that is no coincidence.
I hear what you are saying about control. Not everyone wants control of course. Some people just want to pay their money and not have to worry about details. Despite all the horror stories I have heard, I have had remarkably few blood pressure-raising issues with body corporates over the years. Maybe I am just lucky.
The potential for redevelopment is a definite plus for houses, although I did look at some units with high redevelopment potential a while back as well. It doesn't have to be you who does something with the land for you to be able to make money out of it. At some stage the business case to knock down and rebuild will become compelling and the values of the units will start to spike as people jockey for position. I have one unit where this started to happen in the Brisbane boom of 2005/6 but backed right off in the ensuing cooldown. I have 2 units in another block where I expect this to happen in the next 20 years or so. In the meantime they collect excellent rent because of the highly desirable location so there is no hurry.
With a house and title to the block you certainly have more control over timing, which may or may not be a big factor depending on your investment horizon.
And if I had a time machine I would definitely go back and sell both of my grandmothers to secure one of the few freestanding houses in that street that still existed in the 1990s.
Shadow
19 Aug 2013, 06:41 PM
A person who owns one individual apartment on the land wouldn't win as big as a person who owns the whole block of land plus all the apartments on it.
Cat needs to expand its thinking.
Indeed. That would be the goal if you were really looking to clean up. Of course with the reward comes a significantly higher risk and capital requirement.
My local council is definitely pro medium density (more rates) as far as knock downs and sub divides go and this has had a measurable impact on rental prices. (static to reductions generally) for the area as more and more "multi" dwelling sites come up. They seem in general to be developed and then sold off to investors. The developers seem more keen on getting a profit on the build and not worrying about keeping them for rental properties in their own portfolios.
House a few doors up on a 1500M2 block was bulldozed and 6 units are up in its place. 4 of the 6 are sold according to the sign. What percentage are PPoR or investment properties is unknown at this stage, no for lease signs up but the units are still a bit away from completion.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
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