In Australia, home ownership is a steady and reliable investment. There are some spikes however, like the recent steep rises in value in the inner suburbs of Melbourne and Sydney. Nonetheless, considering the potential of your property’s value is a logical step to take when undergoing planning to meet your future financial goals. Read below for an introduction to some of the factors you may consider when gauging the future value (FV) of your property as a financial asset.
There is a basic calculation that can assist with your estimations of FV that you can also use to assess whether to purchase a place you haven’t already bought. To begin, you’ll firstly need to calculate future growth. Note: this equation uses an annual rate of growth as a decimal figure not a percentage:
FG = (1+annual rate of growth) value in how many years
Next, FV is then obtained by adding in the FG to this second equation:
FV = Future growth × current value
The caveat to FV calculations is that they require an assumed rate of growth. Keeping in mind that the previous performance of property isn’t necessarily a guarantee of future returns, it means that this type of calculation is a general guide only. Also, remember that this is based on value alone, and doesn’t factor in interest on your mortgage or things like stamp duty that will also inevitably impact your bottom line.
Rates of growth can vary for a number of reasons. In real estate, you may encounter property valuations that are also calculated to consider development potential. When factoring in development, value can be based on land alone (if for example you had empty land in Geelong or if demolishing is on the cards) or it could be a valuation that also considers the existing structure (in cases of refurbishment or conversion). You can see now why unsuspecting vendors can potentially accept lowball offers from shrewd developers if they’re unaware of the broader potential of their property.
Even if development is not suitable for your site in the medium term, other elements such as urban renewal in the wider area where your property is located will also play a part in the future value of your home. Major infrastructure works can also impact value, as can almost unpredictable business factors such as major corporations opening headquarters in your local town, or a university being built nearby.
Therefore, property valuation is often a complex exercise, so consult a licensed valuer to give you a more in depth understanding of the circumstances relevant to your individual real estate situation. If making improvements to your property, the best home builders in Melbourne may also have some anecdotal information that will also provide insight into your FV calculations based on their previous clients. All of this will provide your financial plans with a higher level of accuracy, so it’s worth seeking out the appropriate professionals to more comprehensively maximise your wealth in terms of your real estate portfolio.