Identifying Intrinsic Value

Building an 'A' team

Individuals are often credited with successes. But if you look just a little closer you will see that successful individuals surround themselves with a working team. A team that complements their skills, and creates the 2 + 2 + 5 energy we call 'synergy'.

I encourage you to begin to gather your own 'A' team around you. People who not only complement your skills - but share your core values... If integrity is one of your core values, then all the people on your 'A' team must have integrity... And you must agree on the vision, on goals fro what you want to accomplish together.

Intrinsic value

What makes a quality investment? It's intrinsic value.. And what is the intrinsic value of a particular investment? Its underlying... franchise... commodity...

That's how it works. You spot the potential in an asset... that the market is currently underselling.

In property investment, identifying intrinsic value means focusing on land and the land content of the property value, as defined by its size, zoning and location.

"What's the commodity?" In real estate, it's land. Land is a commodity because it is finite in its supply. 'What gives it its franchise?' Primarily, its zoning. Zoning defines the usage of a particular property, and also clusters and limits the complementary and/or competing usage of adjoining properties.

Some so-called 'industry experts' like to measure the value of residential property based on the median house price. At best this can only be a rough guide to the increase in residential values, because the 'median house' that they compare year after year, decade after decade, has in fact changed dramatically in landscape terms.

When I started in real estate in 1980, the average sized residential block was your quarter acre: 1000 square metres. During the mid-80's, with the beginning of urban sprawl, the average allotment was reduced to about 700 square metres. A decade later it was down to 450 square metres. You might only have lost 5 to 7 metres off the frontage of the property: where you lost space was in your backyard...land developers are now doing sub-divisions into 300 square metre allotments. That's 10 metres by 30 metres. Houses are built literally from boundary to boundary - and not a whole lot of room left over for the BBQ...

All these changes have been absorbed into what we call the 'median house price'. The truth is that if you are in one of Australia's eastern state capitals, with the thousand square metre allotment you bought in 1980 for around $50,000... that same property today will have well outperformed the median house price - perhaps even doubling it!