A Herald Sun article caught my attention over the weekend about AFL star Alex Rance and his big win for a Richmond penthouse he purchased when he was 19. Having held the property for 9 years and given the growth Melbourne (and Richmond) has had over the past decade, I was expecting big things.
0.5% growth a win?
Reading the article, the journalist reported that Rance had won on and off the field. Rance is certainly winning on the field with a premiership last year and being the premier full back in the game. And he is kicking goals when it comes to other areas of his career – with his modelling, a newly released children’s book and of course, media opportunities post football retirement. Unfortunately, I think he might have hit the post with this property sale.
He purchased the property for $675,000 in 2009 and sold it on the weekend for $678,000. Win???
Melbourne has had 71.4% capital growth since 2008 and if Alex Rance was to purchase the following property for the same price in 2009, it would be worth $1.1M today.
I found a property at 69 Erin Street in Richmond that was purchased in 2009 for $673k, so very similar in price to Rance’s Richmond purchase. The house last sold in March 2018 for $1.1M. This is capital growth of 63% from 2009 to now, compared to Rance’s Richmond apartment growth of less than half a per cent.
Investment strategy is key
And yes, we know, hindsight is 20/20. In the current market, rental yield in Richmond for an apartment is probably going to outstrip rental yield for a house – so of course, your long term investment strategy is a key driver for the kind of purchases you make.
When we sit down with our clients, we discuss how important is to buy the right property no matter if it is to live in or an investment. As a young first home buyer, it’s especially important when you are constrained by incomes and cash deposits. Importantly, if our client is relying on a property for its capital growth to allow them to purchase their next property, then it’s crippling to see virtually no growth across a decade.
Buying in a blue-chip suburb = growth
A lot of times people think they can just buy in Richmond or similar suburbs and make money. It’s a blue-chip suburb and always seems to go up, right? Not necessarily. I know Richmond pretty well, have lived nearby for the past 10 years and also worked here for the past 6 years. I feel Richmond is a great example of how different the pockets of one suburb can be. The pocket of Cremorne, Swan St and Church St is so completely different to that of Victoria street and the demographics who occupy these pockets.
Using the above scenario as an example you can see what an impact property selection can have on the final value come sale, even within the same suburb.
No one can predict what the property market is going to do and how much the wrong decision will cost you in opportunity cost. We can only really know the true cost of what you have gained or lost when you sell. It’s why when I speak to someone, I always tell them you want to buy property then you need to focus on the top 5% of real estate available on the market in your segment. This will ensure that you maximise your growth – it’s easier to sell in a strong market when everything is flying, but the real challenge is being able to sell in a slowing market like we are in now and still get a good price.
Property is complex and often fickle, and it doesn’t all just go up. You need to understand how the market works and research, research, research if you’re on your own. The easier option is speaking to experts like Entourage or a trusted advisor like a buyers’ advocate.