If you live in a major city, chances are you’ve thought about saving money on a property investment by buying in another location.
Buying real estate elsewhere in search of a better return is called ‘borderless investing,’ and it comes with both benefits and risks.
Victor Kumar, property investment adviser and director of Right Property Group, joined Auction Day to explain how to avoid some of the biggest risks.
Benefits of borderless investing
Buying property in a different city means that investors can diversify their portfolio, but it also allows them to more easily cash in as markets rise and fall.
Kumar says that because Australia’s various real estate markets are at different stages in the cycle, investors can better chase returns.
“Melbourne and Sydney are in a decline now, whereas all the metrics are showing that Brisbane is still powering ahead. So, therefore, it allows us to get into a different state where the market is still tracking upwards,” Kumar explains.
“If you’re priced out of Sydney or Melbourne, you can go to a state that’s got a lower entry point.”
What could go wrong?
Every investment opportunity comes with risks and borderless investing is no different.
Kumar says one of the biggest problems for investors is the tendency to view another market with local eyes.
“If we start looking at Brisbane properties with Sydney eyes, a property that’s close to CBD metropolitan area is looking very, very cheap because it has a four in front of it,” he explains.
“[In Sydney] we’re used to seeing properties with six, seven or eights in front of them, for something of a similar distance from the city.”
But that property could actually be overpriced for the area.
“We have to make sure we’re looking at it from that state’s local eyes, rather than our state’s local eyes,” Kumar advises.
The next point to remember is that things aren’t always what the seem on the internet.
Whether the grass is a shade greener or living rooms selectively cropped, Kumar says property agents have become astute at editing photos to make their listings appear far nicer than in reality.
Sellers today even digitally edit whole pieces of furniture into the photo’s of people’s homes to style them up.
“This is actually something I’ve seen quite often now,” he says.
“The cloud patterns, the tint of the grass, that’s a dead giveaway that the images have been digitally enhanced.”
“So if you’re totally reliant on buying properties just by looking at photos on the net, that’s what you’ll end up with…it’s a huge difference.”
Understand the area
When buying in an area outside of the home turf, it’s important to do your research, advises Kumar.
“Look at what’s happening in that area, what’s driving it apart from the normal fundamentals, what else is driving it, what’s the catalyst in there,” he says.
That means checking out the employment rate, whether the town relies on certain infrastructures, such as mining, and whether it’s prone to environmental disasters.
It’s also advisable to see whether any new infrastructure is on the cards on local council websites, as that that could impact future prices.
It’s not always easy to get a good read on the vibe of a neighbourhood if you’ve never visited, so he says it’s important to look into the crime rate of an area.
“Moreso if you’re investing in regional areas, you want to make sure you’re ending up in the right streets so that it’s not going to be something that’s not rentable in that sense,” he says.
“There are whole streets in certain regional areas that property managers won’t look at.”
The final step is to get on a flight and actually check out the area before buying.
“Have a walk down a street and make sure you’re not paying for a property with a neighbour from hell,” he warns.
Watch the video above for more.