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Ben Kingsley Blog post by Ben Kingsley

The ‘Piggybacking’ Strategy

There are many property investment strategies available to investors looking to create wealth through investing in residential property. This month I am going to share with you one of my strategies I call the ‘Piggybacking’ Strategy.

Property values are made up of two components, the land value and the ‘improvements’ (more communally referred to as the property/building). An industry accepted way of establishing  value is via ’comparative sales’. These comparative sales are one way in which qualified valuers can determine the demand and supply drivers to establish the present valuation as at this moment in time. Valuers are looking for ’like’ property recently sold within a 1km radius of the subject property to determine the valuation. Once you understand this you will get a better understanding about how one goes about buying ’Piggybacking’ Property.

One way is studying the market to locate areas with older style properties at lower than median values, which have new property development occurring close by.  These new subdivisions will have brand new properties that are going to be built.  These new developments see their developers trying to  squeeze as many properties as they can on the land available to maximize their profits, which results in smaller land size allotments than the older subdivisions of the 60’s and 70’s.

However due to the dwellings they squeeze onto these blocks, they often fit 4 bed, 2 bathroom 2 living areas on these allotments.  The marketers selling this stock have all the fancy tools of their trade to convince buyers that this is the area and property to buy.  Most importantly for the Piggybacking strategy to work, they offer these properties for sale for as much as 50% more than the older property stock in the area.

So through buying the older stock property you will experience a drag up valuation over a 10 – 20 year period.

Why is this?

Well the new property’s value is made  up of a greater value in the improvements (the Property) when sold for the first time, but over a 10-20 year period they too become older stock. So the new stock has helped increase the land value  and overall  value in the localised area, because historically speaking over this length of time property values have always gone up, so the existing older properties get a greater capital growth ‘piggyback’ return compared to the new property of the day.

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