Should I invest in my suburb or interstate?
If you’re considering investing in property, one of the major decisions to make is where to invest. For many, it’s difficult to grasp the concept of investing outside of an area that you’re comfortable or familiar with. Typically, the choice will be between investing in an area close to your neighbourhood or within the suburb you live in. Fear of the unknown and the lack of time and knowledge to adequately research can lead to people’s reluctance to invest outside of an area they are familiar with.
There is no real right or wrong answer here and at different points in time, the right place to invest will change. As an investor your decision on where to invest shouldn’t just be guided by comfort and familiarity but also by research and market cycles. Understanding the independent market cycles around the country will enable you to pin-point where the best market is for you to invest before delving deeper into micro-markets within that city or region.
Below we’ve outlined some of the key considerations with each strategy.
PROS: Investing where you live
To make the right decisions when investing, it’s critical that you understand the market you’re investing in. Naturally investing in a market that you’re familiar with allows you to ensure you’ve ticked this box. You largely know what to expect, you understand what the local market is looking for; the suburbs’ best streets, proximity to schools, cafes & restaurants and transport. You’ll also know about the drawcards of the suburb and the places to avoid.
Another important consideration is being able to avoid some of the areas with new property supply that is predominantly being targeted to investors. You also have the ability to view the property in person, talk to local agents and walk the streets as if you were a potential tenant.
CONS: Investing where you live
The main disadvantage here is how you leave yourself exposed to an unfavourable market cycle, as investors rely on market movements to achieve capital growth. For example, if you live in Sydney and invested in your local suburb between 2004 and 2010, you would have achieved minimal growth as the markets were quite stagnant. In fact, some properties in Sydney saw their values slightly decline over that period. In contrast, if you invested in Sydney in 2011 you will have benefited from the nation’s strongest growth cycle.
In addition, buying an investment property in the same suburb where you have purchased your home, is essentially putting all your eggs in the one basket. If the local market you’ve invested in is stagnant – then it will limit your overall wealth strategy as both your home and investment property will underperformed. Being guided by what you know rather than the hard data can also lead you to make an investment decision which may not yield the best capital growth or rental income prospects. The last thing you want to do is make an emotional decision based on the type of property and area you like, rather than a rational decision based on the likely return on your investment.
PROS: Investing interstate
In times when the interstate markets are at the right stage of their respective property cycle, investing interstate can often provide greater opportunities for capital growth than your home suburb. There may also be at a lower price point with a better rental yield (percentage of rental income comparative to purchase price), lowering the barrier to entry to purchase an investment and assisting with the overall affordability.
For example the Sydney market has experienced significant growth over the last 9 years and many Sydneysiders are now struggling to purchase home. Historically, peaks in Sydney property prices have led to a substantial exodos of families seeking a more affordable lifestyle. Queensland often attracts a high proportion of these people moving out of Sydney and as a result demand for Queensland property increases dramatically. This is the stage where we find ourselves currently and investors are benefiting from more affordable investment opportunities, strong rental returns and strong capital appreciation opportunities in Queensland.
CONS: Investing interstate
If you decide to invest outside of your home state, you may need to purchase the property sight unseen. This can be risky if the correct steps aren’t taken to do your due diligence on the property.
You’re less likely to have a deep understanding of the area, know how attractive it is to buyers and renters, and understand the lifestyle factors of the area such as walkability, proximity to public transport, services or entertainment. You don’t want to invest in an area or property type which the locals know isn’t overly desirable, but from a marketing brochure may seem to tick all the boxes. If you don’t have property professional assisting you with the purchase process, then it would make sense to take some time to travel to the location to verify the research for yourself. Even if it does cost you some time and few hundred dollars in flights, buying the wrong investment property can be a very costly exercise in the long term!
What to consider when choosing where to invest
It’s important to do extensive research before taking the leap, regardless of where you choose to invest. There are several things you should consider:
- What are the vacancy rates in the area?
- What’s the average rent for similar properties?
- How many listings are there for properties – both for rent and resale?
- Does the area and property type mostly attract investors or owner-occupiers? It’s always best to invest in areas which appeal to owner-occupiers as these tend to perform better
- Is the property type you are buying desirable to local owners? You don’t want to purchase a small and dark apartment that will be hard to rent and resell in the future
- What have similar properties in the area sold for recently?
- Where is the suburb on the property clock – i.e. is the market on the rise or heading towards stagnation? Ideally you want to buy in areas where prices are closer to the bottom of the market cycle, as these tend to have greater upside as the growth cycle swings around
- Is there population growth in the area? Is there an increased investment in infrastructure projects and local amenities such as hotels? These can be a good precursor to growth as these amenities tend to attract more population and additional investment
To gather this information look online, talk to local agents and if possible talk to people who live in the area. You may choose to partner with a property investment firm who can do this due diligence for you. As experts in property they can identify the areas and properties with return on investment potential. Just make sure they have a great track record and are ethical in their approach, always ensuring your interests are paramount.
Looking to invest interstate and need some guidance? Chat to us today to find the right property investment for you.
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