Successful investing is about one thing – growth. In property investing, the cash flow needs to be affordable and make sense. Capital growth as the main driver or cornerstone.
So how does growth work? Quite simply, growth comes from price increases, fueled by supply and demand, over long periods of time.

Real Estate Institute of Victoria (REIV) figures show that the median price for Seaford in March 2008 was $355,000, against a Melbourne metropolitan median of $435,000. Valuer General data also confirms that capital growth over the past ten years has been steady, averaging 12.7% per annum.

Figures and data like this can be confusing; if you are considering buying an investment property in Seaford with the view to develop the land, the area of this suburb most likely to provide the strongest long term growth is beachside of the Frankston freeway. In the last six months, data from the REIV tells us that the median price paid for a three bedroom townhouse in Seaford in 2007 was $393,000. Houses in the same period showed a median price of $345,000. How can this be, nearly 20% higher than houses, yet on half the land size? Position, and one other factor, position. All the higher priced townhouses were beachside (the dearest reported was $670,000 Wyatt St, January 2008).

Let’s assume all goes well with council and they will let you build what you want (you have checked that haven’t you?) Costs from here –

• bank interest
• stamp duty on your purchase
• holding costs
• plan of subdivision costs
• architects costs
• project manager
• building costs (about $250,000 each)
• unforeseen costs (the ones we don’t want to know about)
• selling costs (agents)
• capital gains tax
• opportunity cost of using that money elsewhere

If you can sell each of your two townhouses for somewhere close to the highest selling townhouse to date ($670,000 according to the REIV), allowing for growth over the next twelve months, you might have some chance of making a limited profit. That is, if your primary motivation is to buy, build and sell straight away. If you can afford to buy, build, hold (rent) then sell, your chances of a stronger financial outcome grows significantly.

Some experts say the market is going up and some say it is going down. Property does go up and down in the short term. Sometimes it’s because of artificial interference from governments via the manipulation of interest rates, or first home buyer grants, rent controls or tax concessions, but often it’s the natural market forces of supply and demand.

As demand exceeds supply near good schools, trains, the beach and the central business district, prices will continue to rise, along with increased wealth and net migration.
Auction on the weekend.

47 Donald Street Prahran – I rated this property at 691/1000 (see attached rating). Few issues to consider – pool not for everybody, corner block (perhaps a privacy issue), bathroom a bit messy. However, a very nice home and position AAA+++ Prahran. Opened with a vendor bid of $1.15M and three strong bidders took the bidding well above the vendor’s reserve (I think reserve was a tad under $1.3M) to a sale price of $1.505M.