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The Experts

Buy above the median

John McGrath
Wednesday, April 28, 2010

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I recommend buying a property that is 10 per cent to 20 per cent above the median price of a home in that suburb. An average home in an in-demand area will likely yield good capital growth. But a slightly more expensive house is likely to have more desirable features and be more in-demand, and thus yield superior growth.

The difference in funding an investment property worth $400,000 versus $350,000 will often not be that much when you take into account the higher rental you receive. And those extra features – a garage or district views, for example – may mean an extra 1 per cent growth, which can make a big difference over time.

For owner-occupiers, it may be a little more difficult to fund a better property because you won’t be receiving a yield the way an investor does from renters. However, with some careful budgeting, you may be able to manage it. If you need to reduce your usual spending for a few years to fund a better property purchase, I say it’s worth it!

Your home is your greatest asset – the most important property you’ll ever own. Not only will you achieve greater capital gains over the years compared to a less expensive property, you will also enjoy the benefits of a better quality home – a large sunny backyard for the kids or being able to walk to the train station, shops and cafes. These are the features you will pay a bit more for when buying your next property. The good news is that other people will also pay more in the future when it comes time for you to sell.

Here are the staples of an 'above average' property:

  • A quiet suburban location away from major roads and traffic noise.
  • Full of natural light – a sunny north aspect at the rear is ideal.
  • Close proximity to CBD transport, shops, cafes, parks, schools.
  • Walking distance to the beach – the value of a property in a beachside suburb is diminished if you have to drive to the beach.
  • An above average land size – in major capitals where land supply close to the CBD is short, the land itself is usually more valuable than the house.
  • Good condition – modern, comfortable with a good floor plan. Original or rundown houses in great locations are good buys. You can fix the property but not the location, aspect or block size so always make these factors the priority.
  • Privacy and a pleasant outlook from most rooms. Looking into neighbouring properties on all sides is a real negative. A pleasant district outlook at least from the main living and entertaining spaces makes a property more valuable.
  • Ample parking. A good quality three bedroom apartment should ideally have double (non-tandem) parking to suit executive couple buyers in the future. A good quality three bedroom house should have at least one parking space to suit small families who often only have one car.

Buy an above average property to achieve higher capital growth and enjoy the ride.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice

Published: Wednesday, April 28, 2010

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