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Have you considered investing interstate?

When people think of buying an investment property, many only think they should buy locally. Investing in a property interstate could possible be a smarter idea, potentially resulting in a better return on your investment. It may also be a potential way to snaffle a bargain. You could be buying into an area with much higher potential for capital growth compared to your home state as each state will have different stages of the property cycle at a different time.

Some of the key issues to keep in mind if you do want to invest interstate.

The logistics of property management Some may find it hard to manage their investment property from another state. It can be costly maintaining a property and finding tenants if you regularly need to travel between states. Although employing a property management service may be able to help here.

Property managers undertake several jobs that can be difficult for an interstate investor to do it by themselves. They can screen your tenants, source the best local tradespeople for repairs and, by inspecting the property on your behalf; can save you the expense of flights for site visits.

While your real estate agent may recommend you a property manager, it’s a good idea to shop around, given there’s usually some variation in the nature and quality of the service that managers provide.

Some, for example, might provide an annual market rent review but others might go to the next level and give you feedback on how you can optimise the rental income on your domestic investment. Not all property managers will be as effective at managing the property or screening tenants - while others could be better qualified and so the fee they charge for their services could vary.

Get a pre-approval Pre-approval is necessary because it informs you about barriers you can encounter when you seek to arrange finance for an interstate investment.

Certain lenders can be restrictive in the terms and conditions they attach to loan approvals in different parts of the country. For example, some lenders might put a restriction in some postcode area, such as mining town.

The location of the property could impact the amount you can borrow from a lender – and it’s important to remember different states have different fees and taxes.

Getting a pre-approval can give you the confidence you need to make a sound investment decision.

Visiting the property Visiting the property and seeing it is more telling than merely viewing pictures. However, the travel and cost associated with investing in interstate property obviously impose limits on the time you can spend seeing the property.

A buyer's agent is one potential fix, but it's costly to pay a buyer’s agent to tell you that a property is potentially a poor investment once, let alone several times. Likewise, it's expensive to make the discovery yourself after you shell out for flights and associated travel expenses, so it pays to research the property and area as diligently as possible before undertaking closer physical checks.

Benefits of investing in interstate

Different property market cycle

Not all states are having to the same property cycle at the same time. Purchasing a property interstate allows you to find more opportunity to get in at the bottom of the property market. This will give you the potential of capital growth without having you wait until the property market goes down.

Diversification of risk

Diversified your property in a different state can protect you from potential risk if you invest all your properties in one state. For example, if you invest solely in Western Australia, if Western Australia property market is going down, your 100% property portfolio will be affected by the market downturn. However, if you spread your investment portfolio into five different states, if Western Australia property market is doing down, only 20% of your property portfolio will be affected.

Low property budget

Investing interstate not just protected you from the risk, it also gave you more opportunities to continue investing even you are having a tight budget for your next investment property, and you can’t find any investment property that matches your budget, with a big land size plus closed to the city.

Tips to maximise your success in investing interstate

Do your research before you invest.

Always do your research about the other state, know more about that area, find out any upcoming project in the suburb. It is essential to find out what is your interstate investment strategy and investment goals.

Engage a good property manager

It is essential to engage a competent and trustable property manager there because when something does go wrong, you know someone is looked after it for you and give you peace of mine.

Consider using an industry expert.

When investing interstate, it is essential to get help from the mortgage broker, as they can help you find out whether any lender restriction in that area. For example, you want to borrow up to LVR 90% of your investment property, due to the lender policy restriction, the lender might only lend you 70% LVR of the property, if that happens, either you need to comes up with more cash, or you might have to give up that property. It is always better for you to apply pre-approval with the mortgage broker before you sign any contract of sale. Same as a buyer agent, buyer agent have the knowledge, experience and tools, they can help you do the research about the interstate suburb and reduce most of the hassle and stress in buying the interstate investment property.

The internet is an excellent source of valuable information, including property guides and market updates.

As with any property, local or interstate, there are pros and cons, and you need to conduct your due diligence to ensure you make the right decision.

Not sure if the interstate property is a suitable investment for you, it will be worthwhile to come to speak with Kevin Poh on 0415 820 016 about the considerations to be mindful of before applying for finance.

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