State of mind: Risks and rewards of interstate investing

Buyers around Australia are increasingly looking beyond their own backyard for their next property purchase but need to be aware of investment pitfalls and potential alike before buying interstate.

Collage of cities in Australia
Interstate migration played a big part in driving property prices higher in Perth, Adelaide and Brisbane in 2024, and investors will this year be looking for the next smart move nationally. (Image source: Shutterstock.com)

Buying property interstate can be an appealing yet daunting prospect.

The motivation to buy interstate also varies among buyers and investors.

Some buyers need to relocate for work or to a preferred location, while investors may look interstate to seek opportunities for higher returns, portfolio diversification, or due to budget restrictions.

Buying interstate, of course, comes with its own challenges, with risks to be carefully mitigated, but you can reap some great rewards.

The attractions and deterrents also vary from state to state, city to region.

In Perth, a combination of low vacancy rates and strong market demand has led to the highest annual price increase, prompting many sellers to hold onto their properties, hoping for even greater returns. Major infrastructure projects in Brisbane are supporting house sales but listings are rising and inward migration levels slowing, and prices may soon join Melbourne and Sydney in falling.

And playing its part in shaping the market in 2025, interest rates will be a wildcard to watch that may affect all markets to differing degrees.

Why buy property interstate?

  1. Lifestyle changes

Some buyers may not have a choice but need to buy interstate because of work, family, or retirement. Some buyers may make the choice to relocate to states with warmer climates (or colder if you love the snow season), better career prospects, or more affordable living costs.

  1. Investment opportunities

Many investors will look to buy interstate where the returns will suit their needs and property investment strategy.

Novice investors will try to buy close to home so they can “keep an eye on their investment” but experienced investors understand that the best returns are achieved by sticking to an investment strategy, and this may mean purchasing interstate.

A property manager will keep an eye on the investments but all the decisions about the property will still be made by the buyer.

Buying interstate may offer access to higher cashflow, development opportunities, higher capital growth areas, better tax strategies, and portfolio diversification.

  1. Market diversification

Once you begin growing your portfolio to more than one investment, it is important the portfolio is diversified to mitigate and spread portfolio risk.

Buying interstate means exposure to varying economic conditions, and different housing market cycles, government legislation and tax strategies.

This provides the opportunity to offset downturns in one market with stability in another.

  1. Affordability

Housing affordability varies significantly across Australia. Some buyers, whether owner occupiers or investors, might need to purchase interstate because they are outpriced in their immediate market.

This also spurs rentvesting, where investors will rent the property they are living in but buy an investment property in an area they can afford that has better long term potential.

Risks of buying property interstate

  1. Limited market knowledge

Understanding the nuances of a local property market is essential for making informed decisions.

Without on-the-ground experience, buyers may underestimate factors such as local demand, zoning regulations, or future development plans.

Limited market knowledge might also mean you are following a crowd to a supposed boom town or so-called hotspot. The growth, however, is often driven by an influx of investors rushing to buy and is not true organic growth from buyers who actually want to live there.

This will impact returns when it comes time to sell the property.

Limited market knowledge may also mean you are buying the wrong type of property for your individual circumstances and your investment strategy.

  1. Unfamiliar legal and taxation requirements

It’s important to recognise that the buying process differs between states and real estate laws also vary in terms of stamp duty and land tax.

Misunderstanding these requirements can lead to unexpected expenses or legal issues. It is important that your lawyer or conveyancer is licensed in the state in which you are buying.

  1. Reliance on remote communication

When purchasing interstate, buyers often rely on digital communication with agents, solicitors and property managers. This lack of face-to-face interaction can lead to miscommunication and potential errors.

It is even more important to get a building and pest inspection done, and to physically visit the area for an inspection before purchasing.

  1. Market risks

Property markets in Australia can be unpredictable, especially across different states. A lack of familiarity with market conditions, trends, or upcoming developments could lead to buying at the wrong time or in the wrong area.

How to mitigate these risks

Research and due diligence

Thorough research and due diligence into the micro market as well as the state which you intend to buy in, is essential.

Look for trends in property prices, rental yields and vacancy rates. Online tools, local real estate agents and property analysts can provide valuable insights.

Research the local economy, employment rates and population growth. These factors significantly influence property demand and value.

You should also fully understand the area’s lifestyle and how locals have access to amenities. Conduct research into future developments planned for the area, what the hospitals are like, whether there are any new roads or upgrades planned, and the local schools and access to tertiary education. Transport and access to transport like rail and airports is also important.

If you’re nervous about buying interstate, hiring an experienced buyers agent who understands the area will mitigate risk.

If risks are mitigated and navigated, buyers can reap lucrative benefits and get a leap forward in building a solid property portfolio.

Article Q&A

What are the risks in buying property interstate?

Buying interstate, of course, comes with its own challenges, with risks to be carefully mitigated, but you can reap some great rewards. Risks arise when buyers have limited market knowledge, are unfamiliar with the regulatory regime, have to rely on remote communication and get the market conditions wrong.

Should I buy Australian property interstate?

Buying property interstate can deliver stronger portfolio performance and a lower cost entry point but there are some expenses and obstacles of which buyers should be aware.

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