Always better to buy above the median

From John McGrath today on million dollar suburbs:

"Of course, a million dollar median means the middle price, so there’s an equal number of homes valued below $1 million as there are above $1 million. But obviously, a suburb with a $1 million median is going to have more expensive housing all round.

McGrath says it is still better to buy above a suburb’s median because that means getting a superior product to what is ‘the typical home’ for the area.

A property that is 10-20 percent above the median price is going to have better features, providing a better lifestyle and more than likely better capital growth over the long term, he notes."



I'm not sure I agree with this (the middle paragraph). What do you think? (My latest buy is 20% below the suburb median).

 

I vaguely remember reading a property book in the mid 90's (author could be Jan Somers?) and the rule of thumb it mention was to divide the for sale properties into 4 groups, ie high price group, followed by second highest to above medium. Next group is below medium to half way between bottom, and finally the lowest 25% of properties. The book indicated to target properties in the 3rd group, ie just below median, to above the lowest 25% in the said market.....

 

Many ways to see the question. We are investors, after all. If you buy cheaper, reno, add value, add rooms, add outdoor living areas etc. Push it to above median....

Of course if you buy to subdivide, buy something subdividable! Which might be above median.
People like trains etc so if you buy somewhere convenient its going to cost more. But its worth it in the long run.
Always look at it's potential for adding value and location wins time after time....
Dodgy house in a good location is much better to own than a great house in a dodgy location.

 

Its true that in some cases people will pay excessively for a run down dump because they are hyped on the renovation potential

 

That's some pretty good haggling skills

 

I don't agree - not for me, anyway.
Because
1. a cheaper property will rise at at least the same rate as a more expensive one in the same area or More because
2. a wider range of buyers can afford the cheaper one
3. You can add value to make it more attractive than the other cheapies
4. sometimes trends go against conventional wisdom e.g. units sell like hotcakes for a while and houses don't move or two bedders are more popular than 4 bedders, etc.
Finally,
5. I know where I stand with a cheapie - it's as low as it will go. How do you know you're really getting a bargain if it's more expensive?
Some may find that crazy but that's how it works for me.

 

Entirely agree

 

This is interesting, have heard it too. Are you able to explain further?

 

Does the purchase in question have 20% less features than median?

 

Forgot 6. Very important. The yield is better.

 

@bob shovel - 20% below median = 20% below expectations. Spend 20% to bring it to the median, spend another 20% to bring it over the median (oh! that's the add-value).

 

In shocking news, a real estate agent encourages people to buy the more expensive house

 

How many million dollar IP's have people bought?

 

16 apparently:
How many houses did it take for you to acquire $1 million in property?

 

I think it comes down to individual strategy, but for me at least I'm not interested in getting a 'superior product', but rather only interested in getting a 'superior deal'. Superior product usually means paying a premium price with no room to add any value.

What I much prefer is to pay below the median price, buy into a good location, good bones house with poor aesthetics (allowing for more room during negotiations) and then finding a way to add value to manufacture equity from early on.

 

I'm sure you don't complain if you manage to get a discount as well

 

No of course not.. who would complain about that...

But its a given I'm getting a discount - or no buying will take place.

 

Its one strategic approach amongst many.

 

What he says is pretty rational. If you're buying at the median price in a most suburbs, you will be compromising on a lot of things (size, location, land content, features, aspect, proximity to transport and amenities etc) because the median, by its very nature, is NOT the average... It would be a rare sight indeed to find a suburb in which the median is more than the average.

Lets use my old stomping ground as a reference point. Marrickville, NSW.

Median 4 bed house: $1,420,000
Here's one that sold for $1,450,000: Sold Price for 88 Thornley Street Marrickville NSW 2204

• Needs a reno
• Flood prone

How about Moorooka, QLD.

Median 3 bed house: $570,000
Here's one that sold for $570,000: Sold Price for 35 Cobden St Moorooka Qld 4105

• Flood prone
• Tiny block
• Train noise

I've bought stuff below and above the median and am not precious either way. Just sharing some food for thought.

 

Like negative gearing...can minimize tax, but then a loss is a loss...a strategic approach.