Diversity plays a key role in successful investing, and buying a rental property outside your home town can be a smart move.
Remember the expression ‘never put all your eggs in one basket’? It’s all about the value of diversifying, and it’s something landlords would be wise to take on board especially if they already own property including their home.
The property market is far from uniform
Different suburbs, regions and states all experience varying levels of capital growth, tenant demand and rental returns. As this creates different market cycles, and one location can be experiencing strong rates of growth, while another may be going through a market low.
As a guide to how the market can vary across locations, figures from research group RP Data show that in the year to November 2013, property values across Australia’s eight state and territory capitals rose by 8.0%. Yet in Sydney property prices soared by 12.5%, while Canberra achieved growth rates of just 0.8%.
Owning two or more properties in the same area means pinning all your hopes on that particular suburb. By spreading your investment across several locations, you gain exposure to a wide range of market forces. This diversification tends to smooth out market highs and lows, giving landlords the benefit of steadier overall returns over time.
Don’t overlook hidden gems
Diversifying your property portfolio by location can also mean taking advantage of overlooked areas like regional towns and cities that can punch well above their weight in terms of capital growth and rental yields.
By way of example, research by the Raine & Horne property group shows the entry-level market in Dubbo in western NSW has risen by more than 20% since June 2012. Angus Raine, CEO of Raine & Horne says, “Shrewd buyers and investors are casting the net wider to regional population centres, where it’s possible to secure affordable investments for less than $350,000, and where yields of 6% or more are achievable.”
Research is critical
One of the challenges of investing outside our local area is that we tend to be less familiar with other locations. That makes good research critical.
Websites like SQM Research (sqmresearch.com.au) provide up to date figures for the current asking prices on properties plus weekly rents and vacancy rates across a vast number of locations Australia-wide. But there’s no substitute for leg work. It pays to visit a suburb a few times to get a feel for the area paying particular attention to the amenities, work opportunities and transport links that can attract tenants and support rising property values.
Consider professional property management
Investing outside your local area – be it in the next suburb or interstate, may mean it’s essential to hire a quality property manager. A good property manager will be able to advice on appropriate asking rents and have contacts with local tradespeople, which can streamline the upkeep of your investment property.
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 RP Data-Rismark October Hedonic Home Value Index Results 2 December 2013