Property Investing As A State Of Mind
Investing in only your home state can limit your potential to access increased capital gains and rental yield. Speading your investments accross multiple locations is also a way of diversifying your risk. Don't be put off by the unfamiliar. Read on to learn how to invest accross the borders.
Whether it’s because of the convenience or down to local knowledge, it comes as no surprise that the majority of property investors focus on their home cities or states.
Australia’s property market has been an uneven playing field of late, with the southern city of Hobart – performing relatively well, and the resource states declining or performing sporadically.
When properties in their own state aren’t performing well or the higher entry prices outweigh the potential in rental return, many investors look to options beyond their own commute.
Restricting yourself to just your home state could limit your potential to increase your capital gains and rental yield if you are not investing in areas with potential growth or demand. It is also a way of diversifying your risk by investing in different locations.
But before you put down a deposit on a property thousands of kilometres away, it’s worth considering some of the issues involved in investing interstate.
President of the Real Estate Institute of Australia Adrian Kelly said there were gains to be had from legislative variations between the states, in particular at the point of purchase.
“There are potential stamp duty concessions and other tax benefits available in terms of tax thresholds in each state,” he said.
As an example, owning few properties in NSW means you pay tax on the cumulative value of the properties. Spreading your portfolio across states can mean staying within the individual state tax thresholds and could lead to huge savings on tax payments.
But there are also issues that can arise if things don’t go smoothly.
“It can all look relatively easy until there’s an issue with tenants causing damage or not meeting their rental obligations, or when selling a tenanted property.
“Tenancy laws and regulations vary from state to state, so you need the services of a well-informed local real estate agent to interpret and execute these for you if needed.
“Some states, for example, allow for rental agreements to be terminated upon sale of the property, while others states offer stronger protections for the tenant.”
Similarly, it is common in Sydney to arrange finance in advance, but in Queensland, it is common to sign property contracts subject to approval for finance.
Owner of RE/MAX Elite Wagga Wagga Dave Skow stressed the importance of appointing a reputable managing agent for any interstate property investment.
“The primary considerations for owners when investing in properties across multiple states is to have an understanding of the differences in tenancy laws between each,” he said.
“Aspects of the tenancies such as applicable notice periods for access and termination, landlord responsibilities in regards to maintenance and compliance issues and the function of the tenancy tribunal in each state can vary greatly, so what you can do with a tenancy in NSW can be vastly different to how the same situation can be handled in Victoria or Queensland.
“These concerns can be vastly allayed by engaging a competent and experienced local managing agent to manage the tenancies and to guide the landlord through what can be a legislative minefield if not handled correctly.”
The varied legislative landscape also means buyers have to consider a range of other factors, such as different cooling-off periods once contracts are signed, the availability of any applicable state grants, or procedural variations in auctions in different states.
Lending restrictions over the past two years have led to many investors struggling to build an interstate portfolio.
The award-winning real estate investor and proprietor of Garry Harvey – The Property Guy has built a portfolio of 33 properties in 19 years and admitted the changing lending landscape has presented challenges for investors.
“Investors that have reached lending roadblocks can still move forward once they understand the requirements to access lending and ensure their circumstances are aligned with those requirements,” Mr. Harvey said.
“The formula to accessing credit is quite simple: have a good credit rating; have enough income to service the loan you are requesting, and have enough cash or equity to keep the loan to value ratios at an acceptable level.”
Invest in research
Buying sight unseen is never wise, as online photos and seller’s reports can be misleading or selective in their contents.
Interstate investing requires stringent analysis of local market conditions and knowledge of the property and immediate surrounds. While there are expenses involved, it is crucial that investors visit the property or appoint a trusted buyer’s agent to be their eyes and ears.
Ahead of any purchase, it pays to have a lawyer, an accountant, a professional property valuator and someone to do a property inspection in place. Accountants and financial planners can assist with advice from a tax and investing perspective.
Having the right home loan advice is also critical. Speaking to a lender about the area you are looking to purchase in is can lead to some valuable insights. Lenders can have postcode or location restrictions on what is acceptable security for their home loans.
A visit to the local council and chat to a town planner about what the council has planned for the next few years. You may find they are preparing to start new developments that enrich the local area or conversely have a negative impact in your immediate amenity.
“Ultimately, you need to know what you are getting into,” said Mr. Kelly.
“Do your homework and appoint the services of industry professionals who may be an expense but will ensure your investment is made wisely and managed effectively.”