Have You Considered Investing Interstate?
Buying a property can be a daunting and stressful experience, and even more so when you are considering investing interstate. Make sure you understand the differences, challenges and benefits before taking the plunge.
Buying a property can be a daunting and stressful experience, let alone when you are considering investing interstate. This is why it is a good idea to educate yourself around the differences, the challenges and the benefits before taking the plunge.
Often investors are inclined to buy in one of the following areas:
- Locally, to keep an eye on their investment, giving them comfort in knowing that they can rectify issues as they arise, but also because it is an area they know well, as a local resident.
- In their childhood neighbourhood, a familiar area, having grown up there.
- A previous holiday location. They have fond memories of the area and feel that others may deem it a sought-after location as well.
The common denominator of all three locations is that they are familiar areas that fall into the investor's “comfort zone”.
Unfortunately, the reality is that none of these reasons correlate to measures of an investment grade area. The chance that one of the above areas, out of the 15,264 suburbs in Australia, is within the right stage of the cycle, within your budget, returning the desired yield, aligned with your investment goals and overall strategy, and is set to experience the best growth when compared to all property markets across the country, is slim to none.
Let’s look at some of the concerns investors may have, the benefits of investing interstate and some tips to maximise your success when it comes to investing outside of your own backyard.
Not knowing where to invest
Property investors may have concerns around where and what state to invest in. When it comes time to finding suitable areas to invest, three core fundamentals should be looked at, as a starting point. Population growth, infrastructure spending and employment. These three fundamentals influence both capital growth and rental demand.
Time and cost in inspecting a property interstate
Property investors may not have the time to sift through the mounds of content and research required to identify the area and locate their next investment property interstate. And it may not be feasible, due to work, nor practical to inspect any shortlisted properties personally.
The logistics of managing a property interstate
Property investors may have concerns about not being able to maintain or see their property if it is interstate. Your property manager, however, will undertake regular inspections and provide you with the photos and notes. If something does go wrong, then a good property manager will promptly engage the professional tradespeople as required and agreed on. A good property manager is worth their weight in gold!
Benefits of investing interstate
Timing of the property cycle
Not all states and individual markets are in sync in their property cycle. Purchasing a property interstate may open up further opportunities to get in at the bottom, start of the recovery or rising market phases, of a property market cycle. This will increase the potential for capital growth and allow you to avoid waiting for the bottom of the market cycle.
Looking interstate for your next property purchase can open up further opportunities to purchase a property within your budget. Your local area may have fewer investment grade properties that suit your capacity and therefore looking interstate will allow you further opportunities to invest.
Diversifying your property portfolio interstate can protect you of the potential risks associated with investing in one location. If you were to solely invest in one location, it could become affected by a market correction, economic downturn, natural disaster or oversupply, which would affect your entire portfolio.
Land tax is calculated on the total value of all your taxable land, above the land tax threshold, for the state in which the property is located, if that property is not your principal place of residence. Therefore, by spreading your property purchases interstate, this can assist in reducing your land tax liability.
Tips to maximise your success
Do your research
Do your research! Utilise the vast amounts of information available to you online and get to know your area and recognise which areas to target and avoid. It is so important that the location you have chosen matches your strategy and investment goals.
Buy with your head and not your heart
It is important that you purchase an investment property because your research indicates that this is an investment grade property, in an investment grade area, that will generate a return in the future and not based on your personal lifestyle goals or an emotionally based decision.
Engage a good property manager
For the occasion that something does go wrong with your property, this will give you peace of mind that your property is being looked after.
Understand the legislative differences of each state
It is important to understand the different legal requirements, taxes, concessions and restrictions of the state or territory that you are purchasing in as they are likely to differ from that of your own. So, make sure that you take these costs into account when looking at your budget.
Consider using an industry expert
Using a buyers agent will remove the hassle and stress of navigating the purchase of a property in a foreign state by handing it over to an expert that has the knowledge, experience, tools and insights in identifying and selecting investment grade properties in emerging markets.