What Should You Consider Before Buying Interstate?

By Kristie Kwok on 11 Dec 2013
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Opportunities are plentiful if you are open to buying interstate. 

However, you need to have a bigger risk appetite in order to invest in markets further away because there are added dangers to this type of investment.

Cheaper Interstate Real Estate Prices and Other Benefits

Essentially, the main benefit of buying interstate is access to cheaper house prices. 

As the RP-Rismark index results below shows, house prices in Sydney and Melbourne are much stronger than in other cities, so markets with lower price growth such as Brisbane and Adelaide are becoming more attractive to investors looking for better value and higher rental returns.

RP-Rismark index results

Source: RP Data

Since rules for land tax and stamp duty vary between states, there are also potential cost savings by crossing state boundaries for your investment. Land tax is only charged for properties held in each state.

Another advantage is portfolio diversification.  By spreading your investments across areas with different growth prospects, your overall risk of losing capital is lowered.

However, interstate property investors face added risks.

Buying an Investment Property Interstate Requires Onerous Research

When it comes to the crucial question of where to buy, the way you assess properties for capital growth and rental income potential remains the same irrespective of where you invest. However, a lot more research is needed to build up your knowledge of an unfamiliar area in a different state.

Expert real estate commentators say that when it comes to interstate investments, it is important to know how to ask the kind of questions that uncover the investment potential and growth drivers in an area. 

“Interstate property investors face added risks.”

Experienced investors will no doubt find this much easier to do than novice buyers.

Interstate visits for inspections and research will also involve considerable costs, unless you are willing to take the risk of buying without seeing the local area and the property.

This approach could land you in hot water further down the track, if the physical condition of the estate or its surroundings differs from your expectations.

The Difficulty of Finding Local Professionals You Can Trust

Local buyer advocates can educate you on the local housing market, as well as help with the process of identifying and purchasing your property.

Having a legal advisor in the state of your purchase will also ensure your investment satisfies all legal requirements.

Whilst engaging local professionals seems common sense, however, the difficulty is finding a trustworthy advisor without a conflict of interest in an area.

Interstate Property Management a Costly Exercise

Additionally, you will need to get a property manager you have faith in to deal with any property issues or requests for maintenance on your behalf.  Finding someone reliable who will also work hard to search for and retain quality tenants will almost certainly be no easy task.

If you are still keen to purchase interstate, try to meet other investors with this type of experience so you can learn about any potential issues and pitfalls.

The advice provided on this website is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should seek your own independent advice, having regard to the appropriateness, your objectives, financial situation and needs.

About the Author

Kristie Kwok is a Street News writer and a fully qualified chartered accountant with a Bachelor of Accounting and Finance degree. Kristie has a passion for all aspects related to property. She also has a strong interest in the economy and financial markets. Kristie has worked for reputable corporates such as KPMG UK, UBS, Lloyds Banking Group and the Royal Bank of Scotland.

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