I noticed that there was a recent topic of new house with little land vs old house with more land. My question is slightly different. I am looking at purchasing a PPOR (and selling my current one) and noticed a newish house with everything I wanted (4br. 3 bath) priced $50K lower than the average for that suburb, which is a suburb 7.5km from the city (Adelaide). I went to have a look to see what was wrong with it. It was fairly new with the space I need for my kids, but on a very small block of land (under 400m2) – no lawn at the back. It also has a power pole right near the driveway. But the location is terrific, not just for the school the kids are in, but it is a very in demand suburb.
On the other hand, the house that I was set on before seeing this one is a 1960s cream brick, solid brick home with 3/4 bedrooms but on a large block (over 700 m2). It hasn’t been able to sell because of its traditional layout, nothing special, but the average for this suburb (about 10km from the city) is lower as it is not in such high demand. It is priced about 130K more than the median price for this suburb.
So my question is, if a house is in a very in-demand and upcoming suburb that is close to the city and schools, will it realise the same capital growth if it doesn’t have much land? Personally, I don’t mind a low maintenance block but this is getting pretty small. But the location is very appealing. And of course, the kids like the cosy and comfortable fittings of the interior.
What’s more important to you? You obviously value the smaller block due to its location and features – so I would think it best to buy it in that case. A good investment is not always about the land content – location is the primary determinant of growth I believe.
Obviously, the one in the better suburb is priced higher, even though it is less than the median for that upcoming suburb. I was originally thinking that if I had more to spare after selling my current home (which is worth more than most homes) I could do more to invest as my capacity to earn is very limited. But on the other hand, if a house has greater potential for capital growth, then that’s an investment anyway, even if the outlay is greater. Hence my question of whether a house with very little land will appreciate in the same way as other homes in that upcoming suburb, or are those houses the ugly ducklings? Your answer seems to indicate that location itself is enough.
Location, location, location! Let’s not forget that houses with larger land content have lower yields so they are harder to hold onto. Not every investment has to be a ‘potential subdvision’…there is more to property investment than that.
your decision has to be in alignment with your goals. If you do want to subdivide later on, then the larger land would be useful
What you have to consider is resale, while the Adelaide market will remain flat for some time to come, what you have to consider is are you keeping it forever. Frankly whenever you invest you should always have an exit strategy. So what you have to consider is this. If you were to sell the property in the future what is your market. If it would be only investors then you are restricting your market. If you believe it would sell to owner occupiers then it may be worthwhile.
Without knowing what you are trying to do it is difficult to advise. My personal view is that I would buy in inner city Brisbane as I feel this is an undervalued market and one which will grow
Nigel Kibel | Property Know How
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KrisL
Without realising it .. i think you've almost answered your own question.
You see, my view on property is more simple and specific than most people … probably more due to experience than anything else. And that comes down to what I see the property is going to be used for.
I have a friend who invested 1million dollars in a suburb that was on the up and coming when the 1 million dollar pricetag was quite a lot. She works on the old 'tried and trusted' to have her property make further gains. The suburb was Port Melbourne. On her insight .. it WAS a good investment. But .. she paid a heck of a price. The property zoomed into the mid-4-5 million bracket in no time thanks to the demand brought on with the area and surrounds. That put ALL of her property into a higher Land Tax bracket. Which meant a hefty land tax bill. Also she wasnt a real property manager. She let the pool and gardens run down until .. she had to reduce the rents to get people through the door.
Good overall investment? It was ok, but the expense of the Land Tax really ate into any gains and rent she was going to be living off. She made her gains on the property (she DID eventually sell) but she didnt really make much because due to poor property management practises and land tax .. she started digging herself into a debt hole.
If you are looking for PPOR potential .. you look towards a house with ongoing potential. Most of the houses of the upper middle class families I grew up with were lived in and graduated to becoming substantial properties over and above what they started with. If you are looking for PPOR potential .. you are looking at .. renovating .. extending .. and maybe even land division and townhouses. Thats making the most of it.
Once you leave the valley of potential .. you are left with the increment of inflation and demand to make your capital gains on your property. Both inflation and demand are VARIABLE prospects and shouldnt be your major considerations for a PPOR. Your major consideration should be the ongoing potential and flexibility of your PPOR .. to your dream aspirations.
Lucky 300th post !
You guys have given me a lot to think about.
My goals? I have subdivided before, but I find that unless you are a builder, you really don’t make a lot unless you keep the original house and make it a hammerhead, so no, I wasn’t intending to subdivide the one with more land, but thought it would be sellable in the future to a developer.
Ongoing potential? The house with more land in the more affordable, less central suburb is a solid brick cream 60s home which has been renovated but has a lot of room for adding value. Not enough room to have a boarding student though.
The house with no land is in a very tightly held zone for a popular school, so I could have international students, or rent out the house later if I decided to move again. It is actually a very rentable house, attractive decor and fittings (nothing to improve, so can’t add value), with low maintenance (no garden to improve!) and not much to go wrong, yet in a good area near public transport, shops and schools.
So what’s the disadvantage besides land? It’s about 75K more than the one with land, and that could be the difference in being to able to buy another unit or house with the funds from the sale of my current PPOR. If I didn’t have to consider my next PPOR from an investment point of view and just look at it as a lifestyle decision, it wouldn’t be an issue. But I don’t have the luxury of doing that. So I’d feel a bit more justified going with the lifestyle choice if it is likely to be a good investment decision as well.
If I was buying a rental property – the less land the better. Less gardens to maintain or repair and ditto for paving etc.
If I was buying something to live in then it is a different story all together. I like my space. Look at your goals for the property and work from there
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