Thinking ahead: Ralph Nicholson at his home in Williamstown. Photo: Ken IrwinThere is no denying the residential property market is heating up as investors flood back in, particularly in Sydney and Melbourne. If your local area or state is getting more expensive, then perhaps it might be time to look interstate, at areas that are yet to become the next big thing.
In fact, buying the current ”hot spot” is often a recipe for trouble as, if everybody already knows about it, the opportunities for growth have probably been exhausted.
The founder of property advice company Destiny Financial Solutions, Margaret Lomas, has 40 investment properties, many of which are interstate. She says buying interstate forces you to do more research about the property and area you are about to invest in. ”I think it’s a brilliant idea to buy interstate,” she says.
”It comes down to knowing how to ask the kind of questions that uncover the investment potential and growth drivers in an area.”
The problem with buying close to home, according to Lomas, is that we believe we know the area when we may not actually be as knowledgeable as we think. Interestingly, she also says seeing or inspecting a property is not always a good thing.
”I think actually looking at a property is dangerous, because it allows you to have an emotional buy-in,” Lomas says.
Property investor, journalist and author of Smart Property Investment Peter Cerexhe says that buying interstate can be a good idea, but that you need to be careful of when and how you do it.
”For a start, there is a well-known risk of buying property in haste while on holiday,” he says.
If you’re visiting a holiday town you might start to believe that property is cheap, just because it’s cheaper than home, which is probably a major capital city.
”A quick trip is potentially more dangerous than not going at all, if you are relying on the expertise of a reasonable professional,” he says.
Our case study Ralph, at left, relies on a network he has hooked into, via Destiny Financial Solutions, to inspect local properties that are not in his state of Victoria, but he doesn’t visit them himself.
Louis Christopher, managing director of property research company SQM Research, says you need to be careful of dodgy property promoters who are coming back into the market as it heats up. ”Whatever you do, don’t speak to property spruikers offering you free flights to the Gold Coast or whatever. There’s no such thing as a free lunch, the cost has got to go somewhere,” he says.
Different states also have different stamp duty structures and land tax, which you need to be aware of before you buy.
Capital gain potential
But the fundamentals for buying interstate and buying locally should not change. You need to find areas that have diversified industries, that is to say they do not rely on one sector such as tourism, councils with money to spend on infrastructure, growing household incomes and a growing population. ”You don’t want to be distracted just by the property,” Cerexhe says. ”The local economy is absolutely key.” And you should try to buy those areas before anyone else does.
You should also consider, like our case study Ralph, property structures that could appeal to the widest share of buyers, which in most cases are families.
All of the above might sound like a big ask, but it’s not impossible and you will end up with a much better investment than if you just jumped on the nearest property boom closest to you.Profile taken interstate
Ralph Nicholson is 53 and lives in Victoria, but four of his seven properties are outside that state. He has two in NSW and two in Queensland.
”I looked at my situation three years ago and I thought we may not have enough to survive comfortably,” he says.
His interstate property investment plan is therefore his retirement plan.
After one misstep buying in a bushfire prone area that took a long time to eventually sell, Ralph took it upon himself to get better educated and do more thorough research. ”As an investor you need confidence to buy in other markets, or else it’s a real risk and you’ve got to mitigate those risks by doing your research,” he says.
But he also values the local agent contacts he has found through his property investment adviser. ”I don’t think, even given the education, I would be confident buying in those areas unless I have those local contacts,” he says.
He buys properties that have the potential to appeal to the greatest market, which means residential houses for families with four bedrooms or at least three. ”I just try and buy garden-variety buildings, hopefully with enough land, because I place a fair degree of emphasis on land value.”
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