When choosing a suburb, many novice property investors use median price growth as a guide. Concerning the median price, a few points should be mentioned:
Based on the number of sales during a given period, we comprehend how the median price is calculated as the middle price point.
We can discuss the median price for a specific suburb on a specific day, week, month, year, or even for a longer period of time. As a result, the median price can be severely distorted by an influx of new stocks or low sales volume.
Median price growth is frequently overstated in an older suburb. This is due to the fact that it does not take into account the substantial sums of money that people spend renovating their homes or the subdivision of large blocks of land into multiple dwellings, both of which can account for a significant portion of the entire suburb.
Median price growth tends to be lower than it actually is in newer suburbs. This is due to the fact that it fails to account for the fact that both the land and the buildings are getting smaller. For instance, in 2006, you could purchase a 650-square-meter block of land in a newer suburb of Melbourne for $120,000; five years later, however, the same amount of land—325 square meters—will cost you $260,000. That equates to a staggering 34% annual growth rate over the course of five years; however, since median prices are currently based on much smaller properties, this growth in median prices will never be reflected.
People stop looking at the cost of carrying the property when the median price rises. You are out of pocket by 5% annually when you have a net rental yield of 2-4 percent and interest rates of 7-8 percent. This does not include the money you need to periodically maintain and fix your property.
You won’t get the best returns on your money if you buy and keep the same property forever.
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