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Johnny’s Million Dollar Property Mistake

This article highlights examples of property decisions that could have had very different results in hindsight. I hope it can give people some simple and comparable scenarios in suburbs near them that outline the benefit of a few key points;

  • A hold strategy in property – long term compounding growth has great power.
  • Deciding on your strategy & selecting the right asset can be very important to financial success in property.

Let’s paint the picture; it’s 2004 in inner-city Melbourne, median house prices for units was $336,000 & a house $395,000.

Johnny Smith is considering purchasing his second home, his finance is pre-approved for a purchase price of $400,000.

Johnny likes the idea of living in an apartment that has less upkeep and maintenance yet would also like to make a good property decision that will allow him to get some strong capital growth. He has looked at several properties & has a keen eye on two places;

  • A house on Alexandra Parade in Fitzroy, which he can buy for $360,000. The house is a 1920s built, 3-bedroom 1 bath period home & might need a little bit of upkeep & a bit of cosmetic improvement to get to the condition Johnny wants.
  • A unit on Alexandra Parade, just 10 houses down the street for $350,000. This is a 3-bedroom ground floor unit, will need slightly less upkeep, and looks a little bit more modern.

Due to the slightly more modern look of the unit, as well as not needing to put in money for a new paint job, Johnny decided to bid on and was successful at purchasing the unit for $350,000.

Now this unit was one of 4 units, it had clear scarcity which is one of the key pillars we see drive unit growth. It’s in a good area and it’s quite large for a unit. If anyone was looking to invest in the unit market today, this would be a great asset.

Johnny’s Million-dollar property mistake didn’t come through losing money. Over a 16-year period, Johnny’s unit had a capital gain of $600,000, which is a pretty great result.

His mistake is not buying the period home, which would now be worth 2.17M. That’s an additional gain of $1,000,000 that Johnny would have been able to realise if he had purchased the home at that time in 2004.

Since then, then owner of the period home has been able to complete a renovation costing $200,000, which while a large cost, it gave him the opportunity to further increase the value of the house.

There’s the icing on the cake of Johnny’s Million Dollar Mistake.

FITZROYPurchase Price & DateCurrent ValueProfit
Alexandra Parade Fitzroy, VIC, 3065- House  2004 – $360,000Estimate – $2,170,000$1,640,000 (Less $200,000 Renovation Cost)
$1,610,000
Alexandra Parade Fitzroy, VIC, 3065 UNIT2004 – $350,000Estimate – $960,000$610,000

This is a real-life example of a scenario that Johnny would have been faced with in 2004. In Melbourne there has been a clear benefit to owning a house with a land component.

I have outlined below some other case studies I have done for other suburbs around Australia. Note that with our comparison in Coogee, the unit has had very similar capital growth so its not a hard and fast rule that houses always outperform units. Yet you will note that houses with a land component have on average had much better performance.

See below some other suburbs around Australia where I have done some similar comparisons for someone in a similar position to Johnny.

Prahran – Victoria

AddressSale Price & YearPurchase Price /YearCapital Gain & Years
Greville St Prahran – House$1,717,000 09/2019$322,000 09/1997$1,395,000 – 22 Years
Jessamine Avenue Prahran, VIC, 3181 (UNIT)  $950,000 06/2019$271,500 05/1998$678,500 21 years

Randwick – NSW

AddressSale Price & YearPurchase Price /YearCapital Gain & Years
Alison Road Randwick – House2004- $498,000$1,550,000 Estimated Value Today1.052,000 16 Years
Ada Street Randwick, NSW, 2031- (UNIT)  2003- $440,000$630,000 Estimated Value Today$190,000 17 Years

Coogee – NSW

AddressSale Price & YearPurchase Price /YearCapital Gain & Years
Leeton Street Avenue Coodgee House$1,750,000 09/201507/1995 – $150,000$1,600,000 – 20 years
Mount street Coogee (UNIT)$1,510,000 2019$150,000 – 01/1999$1,360,000 -20 years

Mermaid Beach – QLD

AddressSale Price & YearPurchase Price /YearCapital Gain & Years
Albatross Avenue Mermaid Beach, QLD, 4218 – House  2001 – $445,000$1,700,000$1,255,000 – 19 Years
Albatross Avenue Mermaid Beach – (UNIT)2003 – $450,000$800,000 Estimated Value Today$350,000 17 Years
  • Property prices based on sale price on date referenced, current value based on RP data current value estimation.

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The information contained on this website is general in nature and is no way intended to be legal, financial or investment advice. The information provided is not intended to be taken as, or relied upon as financial advice or providing recommendations in relation to any financial product. You should seek independent financial advice from a licenced financial services advisor to check how this information relates to you and your circumstances. Inovayt Pty Ltd and Inovayt Wealth Pty Ltd does not accept any liability for injury, loss or damage incurred by the use or reliance on the information provided on this website.

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