It’s tempting to only buy investment property in your local area, but as an investment strategy it’s limiting. Sure, buying interstate requires more homework than buying in your own hometown, but the benefits can be well worth it: you’re likely to find a better opportunity to enjoy a combination of strong capital growth plus healthy yields across your total property portfolio.
As with any type of investment, it’s key to diversify your assets and look to capitalise on different property markets around Australia that are at different stages of the property cycle.
Before you get started, here are some key ideas to consider when buying interstate.
Reviewing The Data
You’ll be less familiar with the new areas than you are with your home state, so it’s even more critical to do very thorough research.
If you’re doing the research yourself, start with collecting data, not ‘advice’. Be careful not to base your justification for investing in an area after reading a hot tip in a magazine or listening to a property podcasts. You need to collect your own data and examine the employment drivers, population growth rates and research if any new infrastructure is planned for the area.
There is a multitude of online resources that exist to provide data on key factors such as population, price trend, average days on the market, suburb reviews and more. It can be very time-consuming but doing your due diligence be well worth the effort in the end.
In addition to your own research and data collection, it is highly recommended that you consult with a property professional who is intimately familiar with the area.
But it’s not all cautionary tales… the silver lining is that buying interstate also gives you the opportunity to be more objective in your perspective. So, as long as you understand the primary drivers of a local property market - and find out what will continue to drive demand for property in the area - you’ll have an advantage.
Using Experts
For most people, visiting the same number of properties as you would have in your home state is just not an option.
Enlist expert help to shortlist and visit they type of properties you might be interested in. When you add up the cost of all your flights to view potential properties, let alone the cost of making a bad investment decision, a buyers’ agent is well worth considering.
An expert buyers agent based in the area will also be able to give you insider advice about the area you’re buying into and identify which properties are best for investment.
Different regulations apply in each state in regard to property transactions, so you need to understand the contractual obligations when negotiating and making offers. Make sure you also have a qualified solicitor or conveyancer assisting you with the contract review.
As an investor, another expert you’ll need on your team is a reliable property manager to screen tenants, collect rent and maintain repairs. A good buyers’ agent can also help facilitate introductions to good property managers and other professionals.
Reading Property Cycles
Property values move in cycles and it’s not always the case that each state’s cycle moves in the same direction at the same time. While your local market may be booming, other markets may be heading south.
Independent property research websites and property experts can provide guidance on where each interstate market is heading and where they sit in their current cycle.
Land tax and Stamp Duty
Each state has different rates of land tax and stamp duty - this of itself is NOT a reason to invest in that state, but it is important to understand how each state levies these taxes and take advantage of the tax-free threshold for land tax by diversifying into other states.
When you buy multiple properties in each state, the land value of each property is aggregated to determine your land tax liability.
A final word…
Buying property interstate is a whole lot more challenging due to the distance factor, but the rewards are worth it.
Don’t buy with your heart and think it would make a great holiday destination - research the market extensively, or engage a buyers agent to do the legwork for you. When done right, buying interstate opens up a whole new world of opportunities to expand your property portfolio.
