How many times have you heard it said or read in a “how to” book, that the best way to succeed in property investment is to stick with what you know best?
But when it comes down to the facts, is the commonly proffered advice to remain in one’s comfort zone and buy in your own backyard really the best way to approach building a property portfolio?
While a priority for anyone looking to make money from real estate should be a comprehensive insight into the market you intend investing in, staying close to home isn’t necessarily the best option when it comes to optimizing your property investment returns over the long term.
And let’s face it, investing in anything is all about making a buck.
Familiarity is not the be all…
Think about it for a minute – would you buy shares in a particular company just because their headquarters are around the corner from your home?
Or would you base your decision on the facts and figures – how well that company has performed and will continue to perform into the future?
Well the same principal applies to property, particularly in today’s market where affordability is an increasing issue for those looking to get ahead in the property game. Just ask Melbournians, who for years have shown a bias toward their home state for property investment, but in recent times are starting to look further north for opportunities, setting their sights on NSW and Queensland.
Interestingly, Australians have always been more set on the notion of “backyard investing” than their overseas counterparts, who are more than happy to go interstate or even abroad to seek out good investments, as long as the numbers stack up.
Look further afield for opportunities
Although it’s true that knowledge is power and having an intimate understanding of the local housing market can be beneficial, in some respects it can also mean overlooking a great opportunity. This is because our perceptions can ultimately cloud our buying decisions.
Often when we grow up in an area, we come to know certain suburbs as good and others as bad.
But this is based on reputation rather than how the local property market performs over the long term. In other words, our preconceived ideas and emotional bias can get in the way of our financial judgment and the facts.
We risk making assumptions that could potentially cost us a good investment and a lot of money in the long term, whereas the emphasis should be on an area’s potential for above average long term capital growth and strong yields.
Have the courage to leave your comfort zone
Buying in unfamiliar waters means considering these traits, along with other important considerations such as whether you can afford to buy and hold the property, more carefully than wondering if you’d be willing to live there yourself, which doesn’t matter at all in the big scheme of things.
So next time you’re in the market for a strong investment, before you base your decision on what you know emotionally, maybe you should do some serious number crunching and homework on an area you are less attached to by the heart strings.
Make your research about the historical growth the area has displayed, local rental prospects including whether there is a good pool of tenants to select from, popularity with owner occupiers and the future potential for above average capital gains.
Ultimately, a geographically diverse property portfolio can offer investors a much better wealth creation vehicle, striking more of a balance financially and increasing your prospects of future asset accumulation.
This is because while some states will be experiencing a downturn in house prices, others could be holding stable or showing an upswing in values, meaning you won’t be stuck with a bunch of properties from the same area all stagnating or losing value and negatively impacting on the potential to grow your portfolio.
If venturing beyond your own backyard leaves you feeling less than confident about your investment decisions, empower yourself by researching the area thoroughly. Look into recent sales, historical price growth, talk to local agents and property managers to gauge activity in the market and take a working holiday to the region to pound the pavements and really get a handle on local real estate trends.
European investors make the grade in Oz
A good example of someone spreading their wings and taking a punt on an overseas property market is a client from Europe who engaged our services last year. Having previously purchased properties via real estate agents that had failed to generate significant capital growth, even though they were in close proximity to the Brisbane CBD, she was looking for a better investment outcome this time around.
We prepared a detailed strategy to help her achieve the desired results from her investments and secured a property in the emerging suburb of Everton Park, only a few kilometres from Brisbane, on her behalf. The location had loads of potential, with the suburb undergoing gentrification including a $30 million upgrade to the local Woolworths supermarket and a major refurbishment and extension of the local hospital.
A crucial aspect of the client’s investment strategy was to purchase a property that had value add potential and this one, purchased for $566,000, required a minor cosmetic touch up including pulling up the old carpets and polishing the original floorboards.
If you’re still concerned about your choice of location and its property investment prospects, you can always engage the services of a local buyer’s agent who will be familiar with the area, not because of reputation but because of the all important facts and figures and the housing market that they work in every day.
And remember – sometimes the grass is greener on the other side!
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