As prices rose to astronomical levels in Sydney and Melbourne in the past decade, purchasing real estate out of your home city and state has become more common.
Your Property Your Wealth director and buyers’ agent Daniel Walsh calls this “borderless buying”.
“According to the Property Investment Professionals of Australia, about 45 per cent of investors are looking to invest outside the state they live in this year,” he told Yahoo Finance.
“Some of the reasons for this include increased education about property investment generally and, finally, recognition that Australia is a country of many property markets, often operating at different phases of their respective market cycles.”
But Walsh warns that this practice is not for the faint-hearted. Steps must be taken to avoid losing your life savings.
“Buying interstate isn’t a strategy for investment beginners.
“However, it is a strategy for investors who recognise the myriad market opportunities available around the nation – and who recognise that working with experts is their best chance.”
Here are the three biggest dangers lurking for buyers who go interstate without guidance:
Buying a home without actually seeing it
In a time-poor world, some investors really do buy a flat or house without physically inspecting it.
“Of course, this is always a terrible idea, as we all know that photos of anything on the internet are often not what they seem,” said Walsh.
If flying interstate is really not an option, using a buyer’s agent might be the way to go.
“Our team includes experts in a variety of locations around the nation that inspect potential investment properties,” Walsh said.
“They are able to provide feedback on whether the property is worthy of an offer or should be immediately shelved for the next opportunity.”
Rushed and impulsive decisions
Even buyers who do fly interstate can make very bad decisions.
“Some novice investors jump on a plane to attend half a dozen or more open homes on a single day interstate,” said Walsh.
“They rush from one to the next, without really having time to take a breath or inspect it thoroughly.”
If the buyer is inspecting areas that are already popular, they’re unlikely to pick up a good deal. A one-day visit will also mean they have missed hot properties that have sold immediately after going on market – the most desirable ones.
“That way, we can determine whether they are a good fit for any of our clients before anyone else knows about the property.”
Not understanding the local area
This is a major danger when you buy real estate out of your comfort zone.
Walsh told Yahoo Finance that every city has bad and good locations, but people who don’t live there may not appreciate the nuances of different neighbourhoods.
“Newbie investors who attempt to buy interstate often start with a general concept of, for example, ‘I want to buy something in Brisbane’,” he said.
“Then, almost like a game of darts, they cast the net over the whole city, which actually has nearly one million dwellings.”
Within each city and town there might be pockets that are gentrifying while another area – potentially just a few streets away – host public housing that will keep prices down.
“[Interstate buyers] also might buy a property that is in a flood zone or has high-density zoning, which means it will always struggle to produce above average capital growth,” Walsh said.
“Often, [interstate investors] wind up buying something simply because it is within their budget without understanding whether the location is primed for growth or is more likely to flat-line.”