“While the median property value provides a useful reference point for the ‘typical’ home value in an area, buyers on a tight budget might find it more practical to narrow down their property search by examining lower quartile values. It’s important to remember the median represents the middle point of the market; half the properties in a region will have an amount that is lower than the median and half will have a value higher than the median. The lower quartile (or the most affordable 25% or properties in a region) provides a better view of the market entry point. In contrast, the upper quartile (most expensive 25% of properties) indicates premium values.” Corelogic
Smart investors should always look at the risk and return of an asset at the exclusive suburb, why?
Whether you found a suitable location in the best economic suburb, with an affordable price point that matches your budget, it will be irresponsible to waste your hard-earned money on the worst house in the best suburb. Ideally, it can work if you have an extra fund to redo the house and bring it closer to the high-end value; however, with a tight budget, this is a risky bet.
If buyers attached to a specific suburb and want to live there no matter what, so yes, if they tight so there might be opportunities in the lower 25%, however, even for them, when the time comes to expand and move, they might jeopardise equity and the ability to sell.
Let’s take Hamilton as an example, one of the top inner suburbs at Brisbane, which considers a robust economic spot, close to the water and only 4-5km from the CBD. We look over 1.5 – 5 million dollars for a standalone house that likely to grow every year. However, if you find in the same suburb a very affordable unit, let’s say 250k – 350k, even after renovating the property, it will still associate with extreme equity risk due to the oversupply and many other factors.
If we let go the dream of buying a standalone home and decide to find a small house or townhouse that close to a unit product in the 600k – 800k mark, it still won’t be good enough. Again due to oversupply of the “small” townhomes and the attraction for families that willing to pay top dollar to buy a proper standalone house, there is a high likelihood to lose money on valuation, equity growth and time on the market when the time comes to sell.
Every suburb associated with specific risk and a figure, not the median price, but a ‘figure’ $900,000 or $1,000,000 for instance which the variation can be 5 -10%, not more than that.
If for instance, in the perfect suburb the market average price is around the 1 million dollar mark, and you want to get in, you will have to look at this range, maybe around 900k or $1.1M. If you are looking at the low range of the 25% and find a 600k property, the risk will increase as the demand will reduce and so other critical factors that impact risk & returns.
Want to understand where to buy in your desired area, which asset classes that will work better for your money? Contact us through www.investinproperties.com.au/contact or sent a PM.