You may have noticed that in some states property rates have grown significantly, while rental yields have recorded minimal growth in comparison to other states.
Well smart investors are going beyond their stomping grounds to build diversified property portfolios spanning several states, taking advantage of the non-uniform Australian property market. But there are risks and it requires thorough research, hard work and a good understanding of the property market to ensure the right investment.
Here’s a few of the pros and cons of buying interstate to help you plan your property purchase better.
Pros of buying interstate:
- Non-uniform property market
As property prices shoot up in Sydney, many investors are turning to Brisbane, as it currently offers a low entry rate to investors and promises higher rental yields.
This means that all property markets follow a different cycle and smart investors can balance capital gains and rental yields by buying properties across states.
- Tax Saving
Buying interstate has benefits in terms of tax thresholds in each State. Owning multiple properties in NSW means you pay tax on the cumulative value. Spreading your portfolio across States can mean staying within the individual State tax thresholds and could lead to good savings on tax payments.
Ask your tax adviser how these points might affect your situation.
- A Diverse Portfolio
Investing in property interstate can help diversify your portfolio and mitigate market risk. As many markets offer properties at lower rates, it can make investing more affordable.
Cons of buying interstate:
- Different laws and regulations
While the process of buying property may seem standard, laws and regulations differ across States. For example, it’s common in NSW to arrange finance in advance, but in Queensland, it’s common to sign property contracts subject to approval for finance.
It helps to know the following before you seek to buy in another State:
- Do you need loan pre-approval?
- Can your lawyer review the contracts before signing?
- What is the cooling off period?
- What is the auction procedure in the State?
- Who draws up the sale contract?
- When do you apply for finance and any applicable state grants?
Distance doesn’t make it easy to buy property in a different neighbourhood. Flights and accommodation costs add up. Even if you have made the purchase, managing your rental property from a distance can be an uphill task.
Do a thorough market research before you buy in any area. Are the rental yields good enough to cover the costs of hiring a property manager… Because not having a property manager can definitely add on to your long distance woes!
- Not knowing the market well
Buying in another area means you need to understand the new market well.
Get in touch with property managers in the area to understand the market better. Get them to supply a free property report to get real insights into your preferred suburb.
Here’s a summary of tips to help you on your quest:
- Research – Don’t compromise on this one.
- Understand the local laws and regulations – If you don’t, you may never be able to enjoy the tax benefits or get good returns.
- Look before you buy – See the property firsthand or hire a buyer’s agent to be your eyes and ears at the property site.
- Hire a property manager – They’ll bring you tenants, deal with them and save you lots of time, energy and headache.
- Have a team of experts – And have them ready in advance.
- Use a mortgage broker – Using a mortgage broker can save you money and ensure you breeze through the financing process.
If you have any questions contact Omnia Group, and we’ll see what we can do to help.
Written by Toby Dames (Ignite Alliance)