What properties give you the best capital growth and why?

I've been flicking back over some of the investor profiles in past API magazines.

Certainly some inspirational stories in there.

What I've noticed though is that the property which has shown the greatest growth for the investors profiled is almost invariably their family home.

Certainly in a lot of cases the investors had bought the family home some years before they began investing (and thus used the equity they'd built up to get them into the market). But I wonder whether there's something other than mere time in the market at work here?

I know Steve has a view that you buy in areas where there are predominantly owner-occupiers and at a price above the median for that city. The rationale being that those are the properties which grow the most in value because owner occupiers tend to improve (and sometimes overcapitalise) their homes - but would not make the same capex on an IP.

We don't have a PPOR, just IPs, so I'm wondering what others' have experienced with the growth on their home vs the growth on their IPs?

Cheers

 

Hi Nigel,

I think most PPOR purchases would be in an area that a couple would want to spend quite a few years. It'd therefore by necessity be close to good schools, amentities and good access to whereever they're employed. I think this by virtue ensures good capital growth. PPOR's are generally better presented (if you have any pride ) and if you're in an area that is predominantly PPOR's then they are likely to be well presented as well, which would generally maintain the value of the area, at worst.

Perhaps then, some of these same principles should be used in IP buying?

Just my take.

Dave

 

Nigel,

I've predominantly stuck to investment properties beachside. - Within about500m walking distance to the beach.

Whilst these properties initially did not fit into Steve's rental reality criteria, they are high demand properties for both renters and buyers. The capital growth over the past 7 years - particularly the last 3 years has been spectacular

I have purchased older building and done a few rennovations Eg a 6 week renno I did on a little beachside shack gained me and extra $150k in capital growth and increased the rental return from $200 per week to $350.

You must do you research!

Cheers
BUNDY

 

Dear Nigel,

1. Like Bundy, all my 4 properties are presently located less than 1km from the beach at the Anchorage Estate in Rockingham-Shoalwater suburbs in Western Australia, with good access to roads and nearby schools, shopping centre and other amenities

2. Presently, I do not have an Australian PPOR yet;-However, the IPs houses which I have built/am building is upto the usual "PPOR" house standard (and "ready to rent" conditions) by an average Australian standard/expectations.

3. I personally believe that such kind of "PPOR" standard type of IP houses will enjoy higher growth rate immediately upon its completion in the immediate short-medium term basis ( though not neccesarily so in the long term basis) vis-a-vis one low cost/cheaply built IP house used for rental/investment purposes, all other things being equal. This has been supported by the various recent house resale prices achieved by different types/levels of quality housings in the same Anchorage Estate.

4. As advocated by Steve, I also try to build the new IPs houses in an predominantly owners-occupied suburb and some 10%-20% above the suburb's median house price so as to enjoy high capital growth and to maximise my profit returns by trying to get the optimal resale price, for my investment costs.

5. For your kind update and due considerations, please.

6. Thank you.

regards,
Kenneth KOH

 

For me, it's all about high demand from owner occupiers and position to infrastructure. Having something a little unique doesn't hurt, like a view or a sought after building style either.

 

Guys
we owner built our PPOR and based on conservative estimates i believe that we could sell with a 30-35% profit after 3 1/2 years. Probably would have been 50% 2 years ago.

Whilst not in check with Steve's formula, I purchased an Ip on the south coast 3 yrs ago, spent $10K renovating and would now easily make a 30% gain. Limited views but 300M to patrolled beach.

A PPOR always provides the best net result in times of capital growth
no tax is a great result !

NickM

 

Here is our performance over the past 5 years (yep the boom), please note PPOR is in Canberra (house and land) and IPs are in Brisbane (townhouses).


2000 2005 Growth Growth %
PPOR $180,000.00 $390,000.00 $210,000.00 116.67
IP1 $157,000.00 $280,000.00 $123,000.00 78.34
IP2 $154,000.00 $250,000.00 $96,000.00 62.33


A large part of the performance differential is value adding to PPOR, sunroom in 2000 (not in starting price) and Kitchen and Bathrooms in 2005 (shown in figures). While we have done some minor value adds to IP1, it is not as extensive as thos eon PPOR.

 

Hi Tzaki,

Not bad results at all

Perhaps in order to be a true comparison you need to include what you've spent on them in terms of improvements. And possibly the amount that they've costed you as well, ie the PPOR probably has repayments of around 1250 a month whereas the IPs would probably cost you less than $50 a month

Cheers

 

I agree with Dave on both counts Tzaki.

You've done v. well!

What counts ultimately is total net return.