26 Feb Why it is OK not to buy interstate – Cate Bakos
Buyers agent Cate Bakos joins us this week to answer some questions we have received from listeners who are deciding if investing interstate is for them. Cate tells us the pros and cons and why it’s OK not to do it.
Kevin: A question I’m quite often asked is about buying interstate. We’ve had this conversation many times in the show. You do actually cut off a lot of opportunities if you just look in your own backyard. But then by the same token, there are some good benefits in doing that because you become very familiar with your own backyard and a lot more confident about buy there.
I want to ask that question of Cate Bakos, who no doubt as a buyer’s agent has had to look in different parts of Australia on a number of occasions.
Do you prefer to buy in your own backyard, Cate?
Cate: I do, Kevin. As a buyer’s agent I’m licensed in Victoria and not just Victoria but a more specific patch of Melbourne that I’m completely familiar is always an exciting way for me to take a client journey because I am very intimate with the area, I have good relationships in the area, and I have a good feel for some of those micro-facets of those markets, which I wouldn’t have if I was an Australia-wide generalist.
Kevin: Swings and roundabouts, though. Some markets move through good times and some not-so-good times. Do you find you have to sometimes broaden your horizons a bit, Cate?
Cate: I think any investor should. As an investor myself as well, I have interstate properties, and I have chosen to do that because diversification is important. I think jumping around from state to state to try to get the next hot market can be a bit of a trap for people, but if you’re doing it to diversify, I think that’s a really good plan, but you need to understand the growth drivers in the area that you’re going into.
You need to also accept that you won’t have that same familiarity and market knowledge, so you need some good people who you can trust who are part of your team, whether it be the agent that you’re buying from or the property manager who’s looking after your property or the conveyancer who’s on board. I think having local expertise is really vital when you are stepping outside of your own landscape.
Kevin: And when you do step outside, do you advise that people should get their feet on the ground, or can you actually build up enough reliable people in those areas to take their advice, Cate?
Cate: I think the answer is a bit of both, and it depends on your own timeframe. If you are wanting to be hands on and do it yourself, you need to satisfy yourself that you’ve canvased that market at a more in-depth level than just sitting in front of the screen and looking at figures.
You need to understand the demographic that you could be catering for, so understand your target tenant. Talk to the local property managers about streets that they avoid or streets that they prefer, and really get an in depth view from people who know what they’re talking about.
You can do that if you jump on a plane and go and see the place yourself, but you probably won’t be able to do it in a weekend. You need to accept that you’ll be clocking up some air fares, and even still with the advice that you’re getting, you’re just getting few viewpoints.
I think it can be done if that time is available to you, and if it’s not you need to interview and identify a buyer’s agent in the area who knows the area inside out. You’ll probably need a bit of validation from whether it’s past clients of theirs or agents who they’ve dealt with or would use online, and just understand that they are a market expert in that area and that they have a strategy in mind that dovetails into your own strategy.
Kevin: Is it fair to say, Cate, that you can do a limited amount of investigation on the internet and by talking to people? In other words, you’d make the decision about an area and then to make a decision about a specific property, you need to be on the ground?
Cate: I think so. I’ve purchased sight unseen myself and it was a bit of a surprise going and seeing the property, and I would caution people against doing that. I think buying sight unseen is a mistake. If you have someone who can see it for you and even video it for you – and these days, with smartphones, that should be easy for anyone – that’s certainly a step in the right direction.
Your point about doing some research before you head off is great, because you can eliminate areas or you can put an itinerary together for yourself and really get maximum value out of your stay. If you’re doing that, you need to be conscious of when you’re going up, what the market forces are at that time of year or during the week. You don’t want to go up on a day where agents are unavailable, so you just have to be quite particular about your planning phase as well.
Kevin: How do you avoid the analysis paralysis is? You can over-analyze the situation, can’t you?
Cate: I see so many people over-analyzing, and the time that they spend perfecting the model precludes them from the market that they could have bought in to – they’ve lost time in a moving market – or they’re just so petrified of making a decision they don’t make a decision.
I think making sure that between yourself and your partner, if you’re doing this with a partner, that you’re both prepared to press the go button and commit to a purchase. The most important piece of logic they can have in their mind is understanding that there’s no property that scores 100%. Once you’ve accepted that, you can accept imperfections, because property is all shades of gray; it’s just not black and white.
Kevin: Do you rely at all on gut feel, or do you rely solely on the facts?
Cate: It has to be a combination. Intuition and gleaning information from other agents or from the agent who’s selling the property is one thing, and gut feel is an important concept to understand. But all of the figures have to be pointing into the right direction first.
I always look at the cash flows and I look at the comparative sales analysis so that we have the right figures in mind and we understand the yields and we understand what sort of growth we can anticipate. But when it comes to a particular purchase or a tenant type or a street type, you absolutely need to trust your intuition.
The better results are always achieved when you can put a description on that gut feel if it’s a bad one so that you can understand what it is. It might be that the neighborhood just feels unsafe or that the orientation of the property is wrong and it feels too dark. If you can label it, then you’re already stepping in the right direction.
Kevin: Cate Bakos has been my guest. If you want to talk to Cate, you can do that at her website, CateBakos.com.au.
Cate, thanks so much for your time, talk again.
Cate: Thank you, Kevin. Look forward to it.