There are times in the market when it makes the most sense to invest interstate. During times of fantastic growth in the property sector, there’s nothing wrong with jumping onto the bandwagon.
But like any investment, it pays to know where the risks and pitfalls lie before jumping in with both feet. We spoke with Michael Yardney of Metropole, an investment property strategist and a leader in his field. Michael has helped thousands of Australians move closer to their financial goals for over 40 years and has been voted as one of the country’s 50 most influential Thought Leaders.
Interstate investment makes sense
Many people are tempted to invest interstate, not just because the market might present opportunities, but to build diversity into their portfolio.
“But … people are just too scared [of] not investing in their own backyard,” says Michael. “They want to see their properties, they want to feel their properties, they want to drive past it”. Such a reluctance to expand, he says, can seriously limit a person’s potential if their local market is not the right place to invest in.
But like any expansion, looking into property investments interstate can bring its own set of challenges, or as Michael puts it “a whole potential bag of worms”. Still, once they are mitigated, he maintains the risk is worth it.
Don’t buy off the plan
One of the big mistakes for people looking interstate is that they will buy a property off the plan. This is particularly true in Melbourne and Sydney CBD, since there are properties specifically targeting interstate investors.
“While they look pretty in the ads and the brochures and models, there is no scarcity value in these properties”. Investors who are attracted to such properties are often relying on pure speculation, rather than owner-occupiers who will drive demand. Investors “usually end up paying a premium for it,” Michael says.
The internet poses unique problems
An easy problem for investors looking to buy interstate is to buy off the internet. This is compounded with well-marketed estates, such as master-planned communities. The temptation to invest can be high, but Michael highlights why this is a mistake.
“There’s a minimum amount of scarcity” he states. “There are new homes around the corner, and the demographics of those areas tend to be young families”. Investment opportunities are in fact limited since such family units are “price and interest-rate sensitive”.
If you’re investing interstate, invest in local relationships
The best way to invest interstate, according to Michael, is to hire someone who will do the work for you on your behalf. However, great care must be taken on finding the right person, particularly when it comes to conflict of interest.
“If you’re going to get somebody to help you… they have to work out where you are, where you want to head, what your risk profile is, what your timeframes are. You want somebody on your side who is independent.”
That last point is of particular importance. Avoid an agent whose incentive is to sell his own property. Rather, they are there to be your eyes and ears.
Never invest in a property without seeing it first.
Obviously, it isn’t practical to be constantly traveling interstate simply to inspect investment candidates. A good agent acts as the missing link between a property and what’s depicted on the internet.
“Don’t risk purchasing sight unseen unless you’ve got a trusted representative…reviewing the property on your behalf”. Local knowledge pays dividends when it comes to the right professional.
“Use a local professional who knows the market, who knows why one side of a street is better than the other, which properties are in school zones”
Michael likes to stress relying strictly on locals. Having to travel in and out, whether yourself or your agent, means you don’t have a reliable perspective of the area.
Like all good investments, it is worthwhile forging strong relationships as well.