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Should you buy property locally?

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It’s one of the biggest mistakes property investors make – they insist on buying locally. They cling to the notion that it’s smart to buy in the area in which they live. It usually isn’t.

Some property buyers want to be able to “drive past and keep an eye on it”. Others think it makes sense because they understand their own market. Still others reason that if they buy close to home they can self-manage it and save money. And there are many who believe that you must personally inspect any property.

None of these arguments stands up to scrutiny. The key point is this: when you buy an investment property you want to make the best purchase possible. It’s highly unlikely that the best buy right now is just around the corner. Your best chance of buying well in an area that delivers the rental returns and capital growth you’re seeking is to consider the whole nation as your market.

An example would be a Perth resident investing early in 2013. If that person had bought locally, they would have bought at Perth’s market peak and then watched the property’s value steadily fall.

If that Perth resident had thought nationally, they might have had three years of rising values in Sydney. If they’d bought a typical Blacktown house, its value would have risen from the high $300,000s to the low $600,000s.

Many believe they know their local market. If you’re one of them, ask yourself these questions: Do you know the median price for a four-bedroom house in your suburb? Do you know what percentage of households rent and the local rate of unemployment? What’s the vacancy rate for two-bedroom apartments? Which industry in the biggest provider of jobs?

Few people know the answer to any of those questions, much less all of them.

The notion of self-managing is a classic case of false economy. Unless you have a lot of spare time, as well as infinite patience, you do not want the hassles of property management. Find a good manager and pay them to handle it. Then you’re free to buy anywhere in Australia.

The belief that you need to personally inspect a property also limits your options. Buyers can protect themselves by engaging professionals – valuers, building inspectors, pest inspectors, property managers – to check it out for them. The most successful investors undertake extensive due diligence. They pay experts to check out the target property to ensure it’s sound and will be easy to rent.

But the biggest reason to not buy in your own backyard is that you’ll end up with all your nest eggs in one basket. I know investors who have built a portfolio of properties all located near their home. When the local market has a cyclical downturn, they have a bunch of underperforming properties. A portfolio with geographical diversity makes sense from every angle.

So where should a smart investor look? South-east Queensland, including Brisbane, has the most upside, given that Sydney’s party is over and Melbourne is close to its peak. Adelaide and Hobart both have appeal because of their affordability and rising market momentum. There are also many regional cities with diverse economies and growing populations. This really is the year of the smaller cities.

Terry Ryder is the owner and creator of hotspotting.com.au

Written by Terry Ryder

Terry Ryder

Terry Ryder is the owner and creator of Hotspotting.

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