Have You Considered Investing in Property Interstate?
“An investment property should not necessarily reflect the type of property that you would like to live in; it simply needs to make financial sense.”
With property prices in Sydney and Melbourne holding strong (and in some areas, rising further), it can be hard to imagine being able to buying a first home let alone investing. However, if you are not looking to occupy your new purchase, there are options available in order to get your start on the property ladder or invest for the future. The idea of purchasing interstate may seem daunting, but you’re not alone! Here we will look at some of the common deterrents to investing in property interstate and how you can overcome them.
Shouldn’t I invest in a property close to where I live?
Australia is a large country with its major cities spread hundreds, if not thousands of kilometres away from each other. Not living close to your property can act as a mental barrier to investing interstate, and it can be particularly difficult if you are not familiar with suburbs outside of the city you live in.
Investing interstate usually means having to leave your comfort zone and seeking out the best area to invest in as opposed to the area that best suits your current circumstances.
Another barrier for investors can be considering the time and cost involved in finding and then inspecting a property interstate once they factor in travel costs, time off work and the logistics behind researching and inspecting a property in a completely different state to the one they live in. Some investors also worry that they may not be able to check on a property in person if a tenant is having a problem such as a leaking tap, but even if you do reside in the same area as your investment property you should be engaging the services of a property manager, so should you really let this stop you from making a smart investment in another city?
When is the right time to buy interstate?
Getting in at the right stage of the market cycle is crucial and it is important to remember that not all states and individual markets are in sync. A boom in one city does not necessarily mean that all suburbs, cities or states will be experiencing the same. Purchasing a property interstate may actually provide opportunities to get in at the start of the recovery or in a rising market phase of a property market cycle and this will increase the potential for capital growth and allow you to avoid waiting at the bottom of the market cycle for recovery to start happening. This means you can strategically start to build your portfolio over a shorter period of time.
Can I afford it?
Using the example of the Sydney and Melbourne market again, looking interstate for your next purchase can provide opportunities to acquire property within your budget that you might not be able buy in the area local to where you live. Seeking a property purchase outside your local area might mean access to more investment-grade properties that suit your budget and do not exist close to home. Refusing to look at options in other states may mean you are forced into buying sub-par properties in your area.
Is interstate property investment actually wise?
Spreading your portfolio across a number of different suburbs and states can potentially allow you to de-risk your portfolio rather than putting all your eggs in one basket in the one market. As mentioned previously, cycles can differ from state to state and suburb to suburb. A downturn in your home state may not affect your investment in another, as the cycles move at different paces.
As you can see, there are plenty of positives to investing in property interstate, however, it is always important to assess your personal financial situation and seek the appropriate advice before making a commitment of this nature. Some of the important factors to consider prior to purchasing are:
Once you start hitting thresholds in different states land tax can be prohibitively expensive so by diversifying into different states you can take advantage of each state’s land tax ruling and thresholds. For example, once you exhaust your threshold in New South Wales you can start investing in Queensland as they have a different land tax threshold. You should always seek advice based on your personal situation to avoid unnecessary tax implications.
Long term investment goals
It is very important that the location you select matches your strategy and investment goals. Avoid buying in an area just because your friend said it was a good area to buy in. Aligning your purchase with your personal circumstances and the goal of generating a return in the future is key.
An investment property should not necessarily reflect the type of property that you would like to live in; it simply needs to make financial sense. The idea is to gain a return on your investment, so getting caught up in making improvements to the property based on personal taste may not be wise unless those additions or changes add value, improve the rental income or both. Improvements may be necessary in some cases, however, such as getting a tenant in or keeping a quality tenant.
It is crucial that you seek relevant advice to help you understand the differences in each state with regard to legal requirements, taxes, various concessions and restrictions. These differ from state to state, so it's important that you do have a grasp on what is involved. In some states, additional costs may be incurred so ensure you are informed and in a position to factor in these costs when you're looking at your budget and considering your feasibility.
Finally, you should consider using an industry expert such as a buyer's agent to remove the hassle and stress from negotiating a property in a foreign state. Engaging a buyer’s agent also means you can tap into their knowledge, experience, tools and insights to identify an area and find the right property, in the right emerging markets around the country suited to your individual unique strategy.