Should you invest in another state?
There’s so much you need to consider when investing in property, and the location and your proximity to the property is just one of them.
Investing interstate is not without its risks
But to be a successful property investor who creates sustainable, lasting wealth from your property portfolio, you need to adopt a diversification strategy.
This is because, there is not one “single” property market in Australia.
Our country is made up of many real estate markets, which don’t always move in sync – they each have their own cycle.
Just look at the significant variance of the different property markets in 2020 for evidence of that.
Values have been falling in one market and rising in another, a dynamic that sometimes plays out at a suburb level.
By that I mean, one suburb can be experiencing growth, while a nearby suburb may not.
There are so many reasons for this, including the individual characteristics of the neighbourhood.
An oversupply of apartments, for instance, can make one suburb perform poorly, while a few suburbs over, closer to the city and with fewer apartments, the market is growing.
Investing in a city other than your own can be a wise way to spread your risk across multiple markets, and take advantage of growth cycles that may be stronger than your local area.
Over the years, a large number of investors who strictly buy in their own state (or worse still, their own city) because it’s in their comfort zone.
It just makes sense to them and they can easily visit the property and keep an eye on it with their own two eyes.
They make this huge investment decision based on their proximity to the property, rather than on evidence, facts, or research.
This is a decision that is often made to their detriment in the long run
Think about it: if you limit your investment options to your own backyard, are you really setting yourself up for financial success?
Furthermore, searching for properties in your local area is not really “researching”.
Rather, it’s searching for facts to support your ready-made preconceived opinion that the area is a good place to live or invest.
After all, you have a vested interest in this outcome – you already own your own home in the area and it’s your hope that it will grow in value.
This is known as confirmation bias and it’s a common problem for property investors.
Some investors like to buy in their own area because if it’s a suburb they enjoy living in, they assume others will.
This may very well be the case.
But is that really the best criteria on which to base your investment decisions? “I like living here, so surely a tenant will!”
What about public transport? If you have a car and your tenant relies on PT, they might not find the area as convenient as you do.
What about drivers of growth? What are supply and demand ratios like?
Is there a broad range of people who want to live in the area – families, students, professionals, migrants – or is it a select group who like the suburb?
And what about vacancy rates? Your area might be a desirable place to live, but if there are plenty of properties on the rental market already, you might be waiting too long in between tenancies.
These are just some of the questions to ask yourself when deciding where to invest.
And here’s the truth about property investing…
Diversification of location is key.
It’s those investors who have diversified property portfolios who will find they benefit, as different capital cities each have their own “day in the sun” – as their cycles peak at different times.
There are also land tax issues to take into consideration.
If you acquire a number of property assets within one state, you could end up paying a whopping land tax bill every year.
By spreading your risk and buying properties in various locations, you may minimise the amount of land tax you’re required to pay.
This is not a reason to diversify, it’s just one of the possible benefits.
Now don’t just invest in other states just for the sake of it.
As investors build their property portfolios, they should add investment-grade properties in the 3 big capital cities in Australia to their assets.
If you’re keen to become an investor but you’re not quite sure what to do next, contact GM-Homes to see how we can help.
Contact the GM Homes Australia team today