The Pros & Cons of Investing Interstate

Category: Invest

Well it’s no secret that the real estate market has become more competitive than ever. With that fun fact in mind, potential investors are thinking outside the box – and outside their own backyards – in the hunt for new properties.

Interstate investment is on the rise and it’s no surprise – as different states go through different stages, the market can be kind to risk takers.

At the same time, there are pitfalls involved in committing your cash to an interstate purchase.

As always we wouldn’t want you running into any real estate conundrums, so we’ve put together a complete guide to buying interstate – the good, the bad and the ugly.

The Pros: Why Buying Outside Your State Can Be Great

Spread the Risk

By getting into the market in another state you inherently spread your real estate risk. Each state is passing through the property cycle at a different time – so markets ripen and soften accordingly. For instance, while we’re all very aware the prices in Sydney are sky-rocketing, it may be worthwhile to look at properties in Perth or Brisbane. This is especially worth noting if you’re hoping to use the investment as a rental. You may be able to buy in to the market for a lower rate, but charge a comparable rental fee.

Take a Tax Break

They say tax is a part of life – which is true – but why pay more tax then necessary? If you owned three properties in NSW, you’d be taxed on the cumulative value of those properties. However if you spread those purchases between NSW, QLD and VIC, each would be taxed individually – at a lower rate. On top of that legislation differs between states. As of July next year, the South Australia government will abolish stamp duty on non-residential properties. So if you’re looking to buy an investment property, Adelaide may be just the ticket.

A Pretty Portfolio: Variety is the spice of life – so they say – but it’s also the key to having a refreshing real estate portfolio. Investing interstate means you’re able to expand into different styles of properties, depending on what works in each market. You might have an inner city terrace in Sydney, a high rise apartment in Adelaide and a weekender in Queensland. Now doesn’t that portfolio look pretty? The reality is that each market in each state has different demands – so by investing interstate, you can pick up a variety of assets.

 

The Woes: Why Interstate Property Can Be a Worry

Tyranny of Distance:

While absence may make the heart grow fonder, it certainly doesn’t make managing a property easier. Unfortunately, being far away from your investment makes everything more difficult. Local knowledge is key when it comes to purchasing a property, so when you’re facing a mystery market, things become more confusing.

Hidden Costs:

Buying a property is a big investment and doing it interstate requires an amount of risk. Success requires help from a property manager – but they don’t come for free. You also have to ensure you find a manager who is reliable, with good judgement and a great work ethic. To make matters worse, chances are you’ll end up footing the bill for legal advice, due to the complex nature of real estate legislation between states.

Risking it On Research:

The bottom line is that expanding your portfolio to include properties requires a lot of research and groundwork. You have to familiarise yourself with a different market, spend time finding a manager you’re comfortable with and then go through the process of actually finding an investment that suits. Even with all this research, there is still an element of risk.

If you’re looking to invest interstate, Park Trent can help. Send your questions to the Park Trent team.

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