Analysis Of Local Residential Property Market And Examination Of Properties
Tasks to be Undertaken
This report of property analysis provides all detailed descriptive analysis of local residential property market and examination of properties within local market. In this all the fundamental principles, concepts and methods of property valuation and analysis have been taken and followed herewith. It will enlighten the pros and cons of each type of property within the local purview of residential market that is whether to invest or not or buy the properties for residential purpose or investment purpose.
We have to select two properties one a free standing house and other a unit or apartment which can be rented for short stays and can help in generating some amount of side income.
- A Unit Or Apartment
So first we will concentrate on unit or apartment which is to be let out for rental purpose. This will depend on various factors such as:
- Area and surroundings: We have to analyze the area of the property and also the surroundings whether they are suitable for the purpose of short stays or not.
- Façade of the building: Also the Façade of the building has to be attractive enough to attract the customers such as tourist and students and also some companies such as AIRBNB and STAYZ which can act as a mediator between the owner and the customer and can enhance the value of the property.
- INTERIORS: Interiors are the main thing that matters the most that is how the space inside the house has been utilized. It include number of bedrooms built with attached washrooms and a comfortable kitchen and a living room to relax.
- Local vicinity: Whether the conveniences of daily requirement are nearby the property such as train stations, hospitals, famous landmarks, institutes and colleges.
The location is nearby St Mary’s school having a distance of about 0.19km also Altona college within the distance of 1.76 km and Altona railway station at a walking distance of 170m which takes two minutes’ walk to reach there and a Altona memorial park within the distance of 10km from the locations.
The following property is selected keeping in mind the revenue generating capability of the property and also considering the nearby locales.
The property chosen is 101/105 pier street altona 3018 and have all the features which must be available in a rental property that is a great place for tourists and students for short stays.
Following are the screenshots of the property:
While determining the value of property there are number of aspects which need to be considered such as:
- Comparable properties in the neighborhood: It is of utmost importance to take a look the value of properties sold in the past 6-12 months as it can give a certain idea of the circle rate and actual value of the property.
- Debt and financial expense: The value of property is to be determined after taking the effect of loans and interest paid with respect to buying of the property.
- Net income approach: Income of the property shall be taken as net of all expenses such as property tax, maintenance charges and all other expenses related to the property.
- Gross rental multiplier approach: In this approach the previous rentals and the recent sale price is taken as base for calculating the gross rental multiplier which helps in determining the current value.
- Inflation rates: Value of property is to be determined after taking into account the inflationary measures such as discounting factors and increasing/decreasing inflation in the economy as such economic factors affect the circle rate of properties.
Average Method(Based On Comparable Properties)
In this method the criteria is selected taking base as similar properties sold in past 8-12 month. Details of such properties are given below:
|
PROPERTIES |
SALE PRICE |
|
2/9 Sargood street ,Altona VIC 3018 |
$275K |
|
306/113 pier street, Altona VIC 3018 |
$258K |
|
3/9 Sargood street, Altona VIC 3018 |
$325K |
|
406/105 Pier street, Altona VIC 3018 |
$285K |
|
1/76, Queen street, Altona VIC 3018 |
$292K |
|
204/113 Pier street, Altona VIC 3018 |
$295K |
|
1/24 Davies street, Altona VIC 3018 |
$250.26K |
|
1/27 Mcbain street , Altona VIC 3018 |
$315K |
Gross rent multiplier approach
In this approach the previous sale price shall be taken as base and will be used for determining the current gross rent multiplier which in turn will help in determining the current value of property.
Previously the property was sold for $225000K and at that time the rent was $295 per week.
So Gross rent multiplier will be=$435000/$295*52
=14.66
Currently the weekly rentals are provided to be $355 per week
So the current value of the property tends to be
=28.35*$355*52
=$270623
There is a lot of difference between the average method and GRM as both take different factors to determine the value. We will further proceed with taking the average value of the property as it is according to market conditions and comparability of similar properties.
Processes for Locating and Inspecting Properties
Following are the things which need to be discussed:
- Estimated sale price of the property: As discussed above the property can be easily sold in between the range of $250K to $325K considering the sale price of comparable properties and also knowing the demand for such rented property in the current scenario is quite high.
- Annual rental amount: The weekly rent for such type of property is in between the range of $350 to 380$ per week considering the local market conditions and surrounding. So annual rent comes out to be $18460($355*52) weekly rent multiplies by number of weeks in a year.
- Return on Investment:
Formula of ROI=Annual income/average total capital employed
=$18460/286907*100
=6.43%
So the return on investment comes out to be 6.43%
- Considering it in long term aspect it will provide higher returns as it will provide returns in terms of appreciation of property due to its increasing demand and in case of short term aspect it is great way to earn monthly or weekly income through mediators such as Airbnb and stays that help in making the property public known.
- Free Standing Property
So now we will concentrate on free standing house which is usually used for residential and official purpose. These are the properties which are standing independently and not supported by any other structure. normally being purchased by people for the purpose of residing or commercial complexes which must possess ample of parking and it can be kept for long term investment purpose and earning long term capital gains. This will depend on various factors such as:
- Size of the property: We have to analyze the size of the property as for residential purpose we need to keep in mind the space in the property as compared to a apartment which is to be purchased for letting out purpose and also space availability for parking.
For e.g.: we will not consider space required for garage while buying a property for investment purpose.
- History of property: Usually the free standing buildings are purchased for commercial purpose so it becomes utmost important to consider the history of the property so to know the roots of the property which will further help in resale of the property.
- INTERIORS: Interiors are the thing to consider as for residential purpose there must be enough space for adults and even kids and also for the guest who may visit in while and also there must be plenty of space for putting the furniture into place and enough space for keeping cubicles if used for official purpose.
- Facilities nearby: Property whether purchased for residential purpose or for investment purpose the local facilities are to be analyzed such as distance to airport, confectionaries, super markets, schools and offices.
The following property is selected keeping in mind the revenue generating capability of the property and also considering the nearby locales.
The property chosen is Gold Bullion Australia, 43 Paradise Avenue, Qld 4220 having 741 m square building area 410 m square land area and can be used as retail shop or industrial warehouse or even a sophisticated office.
Investment Features
It is one of the best commercial free standing properties of Australia which can be leased for such a great income or can be used for generating income by conducting businesses of retail shop or can be used to let out to a growing company who are in search of such type of properties and are ready to pay great sums.
Screenshots Of Property
Following are the screenshots of the property:
Principles Determining The Value Of The Property
While determining the value of property there are number of principles which need to be considered such as:
- Comparison sales principle: It is very much necessary to look into the open market as to how the similar properties are performing the current phase of market. It will provide a very much closer look and give an insight into the nearest value of the property.
- Cost or Base value method: The value of property is to be determined by calculating the actual cost of the land for which it was purchased earlier also taking into the indexation effect plus the cost of constructing the building.
- Capitalization of revenue approach: Actual Income to be generated from the investment made cannot be judged but only a estimate can be made. The value of property can be estimated by dividing the annual revenue from the capitalization rate of any similar enterprise.
In this principle the criteria is selected taking base as understanding the circle rate of the local and comparable market. Details of such properties are given below:
|
PROPERTIES |
SALE PRICE |
|
Balcatta HQ,10 Geddas street |
$700K |
|
369 Holmes road,forrestfield |
$550K |
|
7/195-197 Huma street |
$760K |
|
5/195-197 Huma street |
$580K |
The value of the property can be taken as similar to 369 Holmes road which is having the same space as the selected property and have the same specifications and the same market rate.
So the value of the property is taken as $550000 and is considered for further purpose of calculating the financial information.
In this approach the previous rental price shall be taken as base and will be used for determining the current GRM which in turn will help in determining the current value of property.
Previously the property had a rental of $90000 per annum and at that phase the property was listed at $490000
So Gross rent multiplier will be=$490000/$90000
=5.44
In current scenario the lease rental is $110000.
So the Present value of the property proposed is
=5.44*110000
=$598400
Following are the things which need to be discussed:
- Estimated sale price of the property: By analyzing with the help of different method it is evident that the property can be easily sold between the price range of $55000 to $598400 considering the sale price of comparable properties and also the income multiplier taking earlier rental as base.
- Annual rental amount: The annual rent for such type of property is in between the range of $100000 to $115000 per annum considering the rentals of similar properties.
- Return on Investment:
Formula of ROI=Annual income/average total capital employed
=$105000/550000*100
=19.09%
So the return on investment comes out to be 19.09%
- If it is purchased for long term purpose there will not be much benefit as trends tell that people are selling such similar type of properties which will lead to deteriorating demand in near future. If bought for short span of time it will provide great returns considering the high rentals and high return on investment which means recovery of investments and earning some respectable amount of profits over recovery.
- Firstly understood the history of property, trends of the price fluctuation in the market and factors resulting the price fluctuation.
- Understanding of rise and decline of certain property markets that is why the property rose and why it declined.
- Adopted the practicality of methods and principle which technically helped in determining the value of property and further the sale price of the property in near future.
- Understanding of the property market took a lot of effort to understand the effect of business trends on the property market.
- A survey was also conducted in the market with regard to both the properties as to know the circle rate of the properties and knowing the reason behind the fluctuation of prices of property and fluctuating rentals.
Conclusion Of Analysis
After all the analysis and research the report concludes that there are many factors which gives way to determining and analyzing the value and understanding the local market conditions and surrounding of the market but among them there are some criteria without which the research could not have been possible such as the comparable prices of similar properties which was the common factor for determining the value of the of both the properties that is the apartment and freestanding building. The research has also helped to gain knowledge of the trends related to sale price and rentals of different type of properties and understanding the fluctuations in property market and in turn affecting its rentals.
References
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Anon., n.d. Capitalization rate. [Online] Available at: investopedia.com
Anon., n.d. factors to consider before buying a home. [Online] Available at: studentloanhero.com
Anon., n.d. Investment property and suburb performance data. [Online] Available at: www.realestate.com.au
Anon., n.d. median sale price vs average sale price. [Online] Available at: www.realestate.com.au
Anon., n.d. Melbourne property investment market data. [Online] Available at: www.realestate.com.au
Anon., n.d. Valuation of rented properties. [Online] Available at: homeguides.sfgate.com
Anon., n.d. value a lease rental property. [Online] Available at: www.investopedia.com