When people think of buying an investment property, many only think locally. Investing in a property interstate could possibly be a smarter idea, potentially resulting in a better return on your investment. It may also be a potential way to snaffle a bargain. You could be buying into an area with greater potential capital growth compared to your home state, as each state reaches different stages of the property cycle at different points.
2015 figures from LJ Hooker’s Investor/Tenant Survey indicated only 14 percent of Australian investors surveyed own an interstate investment property.
Some of the key issues to keep in mind include:
The logistics of property management
Some may find it hard to manage their investment property from another state. It can be costly maintaining a property and finding tenants if you regularly need to travel between states. Although employing a property management service may be of help here.
Property managers undertake several jobs that can be difficult for an interstate investor to do. They can screen your tenants; source the best local tradespeople for repairs; and, by inspecting the property on your behalf, can save you the expense of flights for site visits.
While you may be recommended a property manager by your real estate agent, it’s a good idea to shop around, given there’s usually some variation in the nature and quality of the service that managers provide.
Some, for example, might provide an annual market rent review but others might go to the next level and give you feedback on how you can optimise the rental income on your interstate investment. Not all property managers will be as effective at managing the property or screening tenants, while others could be better qualified, so the fee they charge for their services could vary.
Get a pre-approval
Pre-approval is important because it informs you about barriers you can encounter when you seek to arrange finance for an interstate investment. Certain lenders can be restrictive in the terms and conditions they attach to loan approvals in different parts of the country. The location of the property could impact the amount you can borrow from a lender – and it’s important to remember different states have different fees and taxes. Getting a pre-approval can give you the confidence you need to make a sound investment decision.
Visiting the property
Visiting the property and seeing it is more telling than simply viewing pictures. But the travel and cost associated with investing in interstate property obviously imposes limits on the time you can spend seeing the property.
A buyer’s agent is one potential fix, but it’s costly, and you could wind up paying a buyer’s agent just for them to tell you that a property is potentially a poor investment. Likewise, it’s expensive to make the discovery yourself after you shell out for flights and associated travel expenses, so it pays to research the property and area as diligently as possible prior to undertaking closer physical checks. The internet is a great source of valuable information, including property guides and market updates.
As with any property, local or interstate, there are pros and cons and you need to conduct your due diligence to ensure you make a good decision.
To decide if interstate property is a suitable investment for you, it’s worthwhile consulting with an MFAA accredited finance broker about the considerations to be mindful of before applying for finance.
When you’re confident you’ve identified a suitable interstate investment property, a broker will be on hand to support you to get an appropriate loan for your needs.