Land value, and not just land content, is a major consideration for any prospective property investment. This video unpacks the topic a bit more and considers the difference between different property types.
VIDEO TRANSCRIPT
Today, I’d like to talk about the concept of land value as it relates to investing in property. One of the things that I see a lot of investors get, I guess, confused a little bit about is the difference between land value and land content. And I see a lot of investors really getting sort of fixated on getting as big a piece of land as there can be. Often times, it will be sort of looking to the regions or looking to suburbs right on the edge of a capital city and trying to get as much physical land as they can. The idea being, in their mind, that land is a thing that appreciates and buildings are the things that depreciate. So, I hear that quite often. And there’s a fair bit in that. But really, it’s important to sort of finesse your understanding around land, and not necessarily just be focused so much on the physical size of the land, so the land content, but rather the land value, so the value that’s attributable to that content. So one of the sort of metrics that I look at very closely for my own properties and also for clients’ potential properties, is a land-value ratio. So, how much of the total purchase price of that property is attributable to the land itself? So, even if I’ve got a two-bedroom unit or a villa or a nice townhouse or something like that within five to ten kilometres of a capital city, it might only be on maybe, the units could be 80 square metres. The villas, obviously, a fair bit more than that, but they might not be that much in terms of land content. As opposed to going all the way out, 40, 50 kilometres from town, relatively easy to pick up 600 square metres, plus. But, the actual values of those strata units or the villas or whatever they might be, could actually be quite a bit more. So, a lot of time investors disregard that and are always searching for that bigger piece of land. So look, that’s just one thing to consider around the actual value of the land, not necessarily just the size of it. I think that’s an important thing to consider when you’re looking for property.
