Rules for successful property investing – Rule 5

Land appreciates

Smart investors buy properties with a high land to asset ratio.

That doesn’t necessarily mean a large block of land, but one where the land component makes up a significant part of the asset value.

And while it’s true that land appreciates in value, it’s not really as simple as that.

Not all land is made equal and not all land appreciates at the same rate.

There’s lots of land (ample supply) in the outer suburbs of our cities but much of the demand there comes from a small segment of the market – first home buyers (restricted demand).

This keeps a lid on capital growth and makes these areas poor investment prospects.

Even worse…the land component, the bit that appreciates, usually makes unless half of the total value of the property (in other words alow land to asset ratio.)

However in the inner suburbs the proportion of the land value to the total property price is usually considerably higher.

Remember it’s the scarcity of land that causes property values in these locations to keep rising and currently, there is strong demand from a wide range of owner-occupiers for properties in our inner suburbs.

This trend is likely to continue as more of us choose trade space for place and chose to live close to our workplaces in locations that offer better access to infrastructure like public transport, shopping and entertainment facilities.

As demand looks set to outstrip supply in the middle ring suburbs of our capital for many years to come, these areas are where successful investors will buy for long term capital growth.

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Jason Gwerder
Wednesday, 13 January 2021

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