If you are considering building your property portfolio, you may look to invest close to home or buy in areas you know or understand.
While this all makes sense, there is a downside in that it can greatly narrow your choice.
And, if you’re looking to buy in popular areas, you’ll be up against others that may force you to pay more than you should, or even worse, price you out of the market.
One option to help overcome this to cast a wider net and consider buying interstate.
The table below shows that property investors have over 15,500 suburbs to choose from.
And even within most states, there are literally thousands of suburbs available, meaning you may be able to stay within your state borders if you wanted to.
The principals of buying interstate residential property are just the same as buying locally although there are additional matters to consider.
Here are my top five tips and hints to help you buy outside your own state…
1. Select your Property Wisely
It may sound obvious but you must apply the same disciplines when investing interstate as you would locally.
This means you must consider and research the drivers of long term capital growth with a particular focus on those factors particular to the interstate region or suburb.
Typically this will include considering things like population growth, infrastructure, the level and diversification of local industry and employment levels.
2. Research Online & Ask the Experts
It can be time consuming and expensive to research interstate markets yourself, especially if you’ve looking widely.
For most of us it is simply not feasible to make numerous interstate trips to inspect properties and get a feel for an area.
You could spend literally thousands of dollars on plane trips and accommodation without any payback.
This is where using the services of property research companies (like Onthehouse.com.au or Residex.com.au) can pay real dividends as they can provide independent research on suburbs, streets and properties as well a predictions on price and rental yield growth.
The good ones will also provide economic and property updates on a state by state basis which provides useful macro-insights on where and where not to invest (like this Property News subscription).
In addition, you also need to identify a good Local Agent or Property Manager you can trust to manage the property on your behalf and deal with all those day to day matters that would be impractical for you to manage thousands of kilometres away.
Websites like Onthehouse.com.au can help find you an active and trusted Local Agent or Property Manager or you could start by speaking with estate agents who have a national network (they would also be helpful in providing interstate property advice)
3. Avoid Buying with your Heart
Don’t fall into the trap of buying interstate as result of a holiday.
You might get seduced into buying because property is cheaper than your local neighbourhood.
But if it’s cheap, it may cheap for a reason, so you need to remain objective in your decision making.
Another trap to watch out for is those idyllic interstate bush retreats – a tree-change holiday if you will.
Again, you might have had a wonderful experience but it doesn’t mean buying such properties is a good investment.
You also need to think about the risks of such properties, such as bush fires, accessibility and the likelihood of vandalism.
Another thing to be weary of are those free holiday offers from spruikers who promise to fly you interstate for free to check out one of their developments.
Just remember there’s no such thing as a free lunch and you’ll pay for it one way or another, including possibly getting pressured into buying a property you don’t want and can’t afford.
4. Understanding State 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.
For instance, some state markets may be ahead of others or may be moving in opposite directions.
This is important to note because while you’re local market may be booming other markets may be heading south and they maybe one’s to avoid.
Again, this is where independent property research websites and businesses can provide guidance on where each interstate market is heading and where they sit in the current cycle.
This information can prove valuable when discussing an interstate selling agent’s views on their market, especially if the two differ.
5. Make sure you do the Maths
Of course you have to make sure you can afford your interstate investment property (as you would any other property you buy) but you also have to be across the different costs of ownership as each state has different stamp duty and other charges.
In addition, you should factor in and be aware of what can and can’t be claimed for tax purposes.
For instance, generally speaking you could claim travel costs to inspect you property however the tax office may take a dim view if it believes regular inspection costs are nothing more are than an opportunity to get a tax deductable holiday.
It’s best to speak with your accountant, financial and property adviser and get their guidance on how your tax, acquisition and ownerships costs may change if you buy interstate.
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.