Most property investors usually start with a property in an area they know well, or at least in the city in which they live. But buying a property investment in another state is also a smart strategic move – and if prices in your own city have reached their zenith, it can be more affordable.

Peter Bushby, the president of the Real Estate Institute of Australia (REIA), says the advantage of buying interstate is that you can benefit from the different peaks and troughs of the property cycle. If you do your homework, you could buy at the bottom of the cycle in an up-and-coming area interstate and enjoy strong capital gains in the near future.

‘In addition, diversification is a useful strategy in any investment portfolio,’ Bushby adds.

However, doing your homework is key. ‘No matter where you’re buying, you really need to investigate the market you’re looking at and understand the opportunities,’ Bushby says. ‘Where there’s opportunity, there is also the potential for risk and you need to be mindful of that.’

Where do you start?

Your investment strategy should be based on in-depth research and analysis of the interstate area or suburb you have earmarked for your next investment property.

Say, for example, you have set your sights on the outer Melbourne suburb of Lynbrook – identified by property market expert John Lindeman of Property Power Partners as being among the top 10 boom suburbs of 2014. Begin by researching the suburb online to gain an understanding of the local economy, the area’s rental demand and potential for capital gains.

‘Look at economic studies of the region you are researching,’ Bushby says. ‘Is there population growth that would fuel demand for rental properties? Are there any threats that would inhibit rental demand? For example, a large employer potentially shutting its doors?’

Bushby also recommends visiting the area before making an investment, to do some on-the-ground research and meet with local agents. ‘It’s not your patch so you may not understand it as well as your own city or state,’ he says. ‘It’s useful to visit the area if you haven’t been there before.’

Property management from afar

Another important aspect of buying an investment property interstate is that you won’t be handily nearby for regular inspections or if a tap is leaking. You must, therefore, find the right estate agent to manage the property and factor in travel costs for inspections or any issues that may arise.

‘You need to have skilled people there to manage your property and you need good reliable support in the area for any maintenance that will be required. You should factor that into the cost of the investment,’ Bushby says.

‘The underlying theme here is to do your homework,’ he adds. ‘Do as much risk assessment as you can before stepping into anything like this.’

Posted by Rate City on 18th January, 2014