EVERYTHING about the mining industry is big: the trucks they drive, the holes they dig, and even the financial lessons they can help teach investors.
The latest big thing in mining the cancelling of billions of dollars worth of projects and towns being thumped by mine closures because of falling global metal prices is a handy warning for investors about the perils of buying property interstate and overseas.
Investing interstate can be a great strategy as it diversifies a real estate portfolio and helps you avoid that nasty thing called land tax, which is imposed by state governments for people with multiple land holdings.
However, basing your buys on a boom somewhere is dangerous. Whether it’s a mining town or a hot tourist destination, when the party stops you may be the one left with a big financial hangover.
Fortunately there are a few strategies for investors to help prevent problems.
Most importantly, visit the place where you plan to buy. Many investors get lured by seminars and slick salespeople to buy off the plan in an area they’ve never visited. For a purchase that’s going to cost several hundred thousand dollars, that’s putting a lot of faith in complete strangers (who, let’s be honest, are trying to make a buck).
For such a big expense, the least an investor could do is spend a few days visiting an area, talking to locals, learning what are fair prices for properties there, and understanding its growth potential.
It’s a similar story for overseas investments. Cheap US properties have been snapped up in recent years by Aussies taking advantage of the high dollar and the US house price collapse.
Those who did their homework and visited the US before buying may do very well. Those who didn’t may find there was a reason that some houses were selling for less than $50,000 because they were built in an area where nobody wanted to live and were part of the huge housing oversupply in the US.
Investors looking beyond their state borders also should examine a detailed history of the house prices in the area they are targeting. Has there been a recent boom that is likely to lead to a long period of flat or negative prices?
Money is made by buying when prices are low, not when prices are high. And past performance will never guarantee future returns.
Security of rental income is another key factor to consider. If it’s a mining town and the mine shuts unexpectedly, your tenants may dry up. Targeting an area that has a diverse and resilient economy is likely to be a much safer bet.
BEFORE BUYING INTERSTATE:
* Compare the property’s price with similar local properties.
* Keep and eye on future infrastructure.
* Look beyond popular areas they may have already reached their peak.
* Visit the property in person to understand its condition and the area.
* Beware of heavily-marketed properties offered at seminars and property events.
Source: Propell National Valuers