Land value strategy?

Discussion in 'Investment Strategy' started by Stvn, 26th Mar, 2019.

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  1. Stvn

    Stvn Member

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    Hi all, wonder if you can help me?

    I'm new to property investing, hoping to buy my first IP later this year. Been speaking to a few people & like the idea of buying an IP where I can add value of some kind, get it revalued then borrow some of the equity for the next IP

    I've recently noticed some property listings having a line like 'offered at land value' even though the house isn't that bad (not great but not terrible either) which got me thinking

    Does anyone use this as a specific strategy - looking for properties that are available at close to land value (or even below land value - is that even possible?)? Is 'land value' actually a good measure of the minimum value of a property? And how does buying at/below land value affect the revaluation?

    Basically I guess I'm asking whether buying a property at/below land value is an easy/obvious way to manufacture equity?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    How will you determine land value? By what the agent says? Looking at the UCV on a rates notice/OSR website? Research? Engaging a valuer?
     
  3. Stvn

    Stvn Member

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    UCV - how much do valuers use that as a starting-point in valuing a property?
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    @Stvn - it's a totally irrelevant figure used for ratings/taxation purposes not for valuation.
     
  5. Tonibell

    Tonibell Well-Known Member

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    I think you have the right approach - worry about the land you are buying much more than the house on it.

    Getting something you can add value to is a great way to build up equity. We have only ever purchased dumps.

    As for determining value - comparatives are the best way. Look for places where renovated houses sell for a lot more than ones needing a renovation.
     
  6. sash

    sash Well-Known Member

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    Be careful of land value in falling markets like Sydney or Melbourne....

    Lots of people thought that houses could not drop below...land value..they can.....it is happening all over Sydney. Land value works better in depressed markets as there is more upside!!
     
  7. 7020

    7020 Well-Known Member

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    Every property I have purchased (or looked to) I have asked myself "How can I add value". In my own experience this requires a few things as an investor.

    1. Some knowledge of construction costs (something is better than nothing)
    2. Understanding of the local market
    3. A willing lender

    To expand:

    1. You need to understand the cost of the "product" you are going to make as this will determine suitable properties for you to buy.

    2. Building a 8+ Million dollar mansion in the middle of no where won't work. You need to make sure you research and understand your target market.

    3. Lender's requirements for construction loans can be rather tight especially for an unproven customer and some lenders refuse to do these loans.

    To assist a bit more with your question directly. You need to look at land sales exclusively to have an idea of "land value" however this can be somewhat hard to do. Personally I use a "replacement value" calculator and work back from there so...

    Asking Price: $510,000
    Minus Replacement cost of improvements: $180,000
    Equals land value: $330,000

    Regards
    ComPropAgent
     
  8. Stvn

    Stvn Member

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    Thanks everyone, that's a lot of help. So based on all this, a couple more questions

    @Tonibell so I'm guessing you're talking about renovation, maybe a rebuild or small-scale development? Are there particular areas you find this works better than other areas?

    @sash given the falling markets in Sydney & Melbourne what are your views on the best kind of land to buy? Would you say smaller/more expensive lots in inner-ring suburbs that have fallen a reasonable way eg Epping, Lane Cove, Bondi, Leichhardt etc or bigger/less expensive lots in middle or outer-ring suburbs?

    Also I've heard some people talk about 'landbanking' - not the crappy/spruiked lots in the middle of nowhere but genuinely buying land with the potential for rezoning & selling to a professional developer in the future. Have you or anyone you know successfully used this strategy? Don't the holding costs make it a hard thing to pull off in the long-term?
     
  9. sash

    sash Well-Known Member

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    Don't bother land banking unless you get an absolute bargain....you would be better of getting to growth market...take the profit and then return to a market like Sydney....