Buying Property - The Most Important Question - Why?

Property investors are spoilt for choice in current times compared with a generation ago, when the major focus was on building traditional free-standing family homes. These days, there is much more variety in the types of structures approved as dwellings. While the family home with a generous back yard is still in demand, converted warehouses, old churches, and multi-lot dwellings via apartment complexes are also prime real estate.

What is Your Objective?

The dilemma for someone contemplating buying property in these times is in knowing how to make choices that are appropriate to the individual. Buyers need to decide what they want out of the property. Are they looking for capital gain, a consistent rental return, or, if this is to be their principal place of residence, what type of lifestyle are they seeking?

By the time buyers come to see us at All Residential Real Estate, we hope that they already have the answers to these questions and know what they are looking for. It makes our role in their search much easier if they have already narrowed the field. Unfortunately, much of the time this is not the case, and we often need to start at “square one” to find their perfect property.

Of course, as real estate specialists, we already have a lot of research at our fingertips that helps to make this process as simple as possible. Buyers often ask us, for example, what is the better prospect for capital gain – a house or an apartment. We can provide current information based on statistics and independent opinion, but ultimately the buyers must make their own decisions.

What is the Land to Asset Ratio?

When comparing these two types of properties, houses versus apartments, the key driver is the land to asset ratio. This is the difference between the value of the land, and the asset, that is, the house or apartment that sits on it. Put simply, land traditionally appreciates in value over time while structures depreciate over the same amount of time.

An apartment shares the land it sits on with as many other apartments as there are in the complex. In some cases that could be 20 or less, or it can be hundreds. Therefore, the value component of the land is directly related to the number of other owners who hold part of the same title. Purchasers of a free-standing dwelling do not share the value of their land with anyone.

Land Appreciates – Buildings Depreciate

As the land appreciates in value the gap between the capital gain for the single dwelling as opposed to the apartment widens, while the depreciated value of the structure remains consistent between the two types of assets. This is why purchasers must be very clear about their objectives for buying property. If they are looking purely for capital gain, apartments are not necessarily the best choice, but as an investment property or for a lifestyle choice they may be just perfect.

Whatever their final decision, our sales staff here at All Residential Real Estate can help them find the perfect property for their needs.

 

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