OpenCorps’s Cam McLellan’s success in property investment is rooted on this basic principle: “Land goes up in value, building goes down!”
Many budding property investors have been keen on acquiring as many houses and units as they could, but the smartest and most seasoned ones would tell them that their efforts must actually be directed towards getting appreciating assets.
According to Cam, taxation ruling dictates that buildings naturally depreciate because of their deemed 40-year lifespan. By that time, theoretically, they need to be replaced.
“Wealth comes from land only. The building’s only purpose is to gather rental income and assist to cover the land holding costs,” he said.
As a property investor, Cam works hard to grow his portfolio in order to provide a financially secure and stable future for his children as well as his future grandkids.
This is why he always makes it a point “not to pick winners, but avoid losers”. One of the things he avoids putting in his portfolio are apartments, which he described as “a flashy investment option”.
“Even if apartments were to grow in value at a faster rate than medium density housing, I still wouldn't buy apartments to add to my portfolios. The fact is that, if I purchased an apartment, I know that in 60 or 70 years’ time, it's going to start to look run down [and] it will end up a slum,” he explained.
Over a period of time, apartments will age and will need to be replaced. A possible scenario will see the building sold under market value to a developer who will knock it down and build a new real estate asset on the land.
If you buy an apartment, you only get a portion of the land depending on the size of the block where the building is sitting on and the number of apartments in the building—which does not give you much opportunity to see an appreciation in your asset’s value. Therefore, medium-density housing is a better choice if an investor really wants to purchase a building, because then, you also get to purchase a large portion of land.
Cam said: “[This] will continue to grow in value, [because] even if in 60 years I have to replace the house that sits on top of the appreciating asset, being the land, I will still have a very solid portfolio.”
The golden rule
Land goes up in value and building goes down in value—this is the most important rule to remember as a property investor.
“If you’re buying houses, or even units, or townhouses with reasonable-size land … they can be worthy investments. I do, however, strongly advise staying away from small units … [like] one- or even very small two-bed units with low land content as an apartment,” according to Cam.
His advice to his fellow investors: Make sure that the total floor area of all the building is less than the total area of the site. As long as you stay away from apartments, you and your portfolio will do fine. After all, this is arguably one of the safest, most tried and tested strategy in property investment.
Cam concluded: “Land appreciates. Buildings depreciate. If you like apartments, rent one.”