Why should you buy an interstate investment property? You might be the kind of person who wants to “try before you buy”, and visit your investment property. Looking in your home state feels “safer”. Maybe you have an emotional attachment to your hometown, and think your tenants would be best off living where you grew up.
However, this is not the thought process of a successful investor. Buying interstate may seem like a daunting process for some investors, but here’s 6 reasons why you need to consider it.
The old saying “don’t put all your eggs in one basket” couldn’t be more accurate. If your whole portfolio is contained to just one market then you are completely exposed to how that market performs.
Take Perth, for example. About 10 years ago the Perth economy started to take off as a result of the mining boom. Investors flocked to Perth, and property prices started to skyrocket. Post mining boom, Perth property prices have spiralled downwards, and investors have lost a lot of money. If, however your portfolio had exposure to growth markets like Melbourne and Sydney during this time, the effects of the Perth downgrade would be negated.
2. Your Market Doesn’t Stack Up
Your market has been through a significant growth period and has reached its peak – for example the current Sydney property market. The reason for buying property should always include an element of capital growth – taxation relief alone should not be the main impetus for entering the property market.
3. Holding Costs
The cost of holding a property can vary greatly in different locations. This is largely because the rent you receive in one market may be markedly higher at the same purchase price than other markets. As an example, in the current climate you generally receive higher rent in Brisbane and the Sunshine Coast than you would in Melbourne or Sydney at that same purchase price.
Everyone’s budget is different. Although two individuals or families may share similar income levels their ongoing expenses will determine borrowing capacity and how much they can afford to spend on an investment property each week. Similarly, levels of equity in your current home may restrict the amount of deposit you are able to raise which will in turn restrict how much money a bank will lend you. This may mean looking to purchase in markets where prices are lower in order to purchase your next investment – and keep in mind, the price of a property is not always a reflection on how the property will perform as an investment.
5. It can actually reduce stress
If you’re the kind of person that would drive past your investment property every day, checking if the tenants were maintaining the garden or were parking on the lawn then buying a property you can’t access regularly may be a great decision. The term ‘out of mind, out of sight’ can actually be a positive in this context.
6. It’s a business
Buying an investment property is exactly like buying a business. You are the owner and CEO, your team (i.e. Property Investment Advisor, Accountant, Financier, Financial Planner & Property Manager) form the staff and your tenant is the customer. When you strip the decision down, you are effectively buying a square box that should be making you money so it makes sense to base the business in a location that gives it the best possible chance at success (i.e. growth).