It’s important to have an open mindset when researching investment properties, particularly as buying in your local area may seem impossible. Australia’s capital city median house price is now averaging over $1 million, which can be unachievable for the average person looking to invest in property.
In addition to this, keep in mind that whilst your local area may have received significant levels of capital growth in the past, this isn’t a guaranteed indicator of future growth.
Earlier we talked about removing bias from your investment decision – as tempting as it is to purchase a property close to where you live, this is breaking the fundamental rule of diversification.
Instead, looking at investing in alternative markets (both interstate, regional and outer-ring markets, as well as differing property types) provides a number of advantages to investors:
● New areas with fundamentals for capital growth
Newer areas that are still close to major infrastructure, for example, or have infrastructure in the pipeline, can offer the opportunity for strong capital growth while still being relatively affordable compared to more established areas.
● Better affordability
Depending on where you live, you may find cheaper properties ($600K and less) interstate, and often in regional or outer-ring markets – which also helps with diversification.
● Tax advantages
There can be tax advantages to be had through minimising land tax by holding properties in different states. This is because land tax in some states is calculated on land you own within a state, not within the country as a whole. Each state has a land tax threshold and once the land you own exceeds this amount you pay tax. By spreading your land ownership across different states, you may be able to remain below thresholds or pay lower rates.
● Diversification
Markets can go through cycles of both positive and negative growth. By holding properties across different markets and product types, you can minimise your portfolio risk during a downturn in a particular market.
● How Do I Identify New Growth Areas in Other States?
Good question! More about the fundamentals needed to identify growth markets is explained in the article Investment Selection. However, if you’re keen to understand where these markets are – chat with Oli!
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SUMMARY
If you’re considering buying an investment property in your local area and it seems impossible, don’t worry. Looking at investing in alternative markets (both interstate, regional and outer-ring markets, as well as differing property types) provides a number of advantages to investors.
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