Doing numbers on real estate

I was recently asked my view about real estate valuations.
My response was wasn’t brief and it had many variables.

Today, I walked past a house in South Yarra (which is a really nice inner-city suburb in Melbourne, Australia) which caught my eye.

Then I looked up the specific property’s transaction history.

Over 30 years, the gross annual compounded return for this property has been 9% (without any considerations made for any financing, maintenance or carrying costs) that the various owners may have incurred.

And this gross 9% p.a. capital return is from a property in a seriously fancy street, in a sought after suburb within one of the world’s most hottest real estate markets over that time.

My scribbles below are showing the gross annual compounded return achieved from each transaction to the other.

There is nothing like doing the numbers….