20/02/2012

Question: My husband and I already own our own home, which we paid off at the end of last year. The property is in Western Australia and has been valued at $400,000. We are now looking to purchase an investment property, and have started thinking about buying interstate. How advantageous would this be for our portfolio? Should we go ahead with the idea and, if so, how can we best go about our research to ensure we make the right investment decision in an unfamiliar market? I’ve read about buying sight unseen and wonder if it’s too much a risk to take not to view the property first before buying?

 

Answer: It’s great that you are thinking of investing, and especially good that you are realising the importance of diversification.  You are already invested in the WA market, and spreading into another market will add an extra level of safety to your portfolio.

Since all markets move differently from each other, those who own all of their property in one city or state can find that, if a period of time comes where prices stagnate, all of their properties will remain flat together and further leverage will become difficult.  When you diversify into other areas it is more likely that, at any one time, something in your portfolio is experiencing growth, and constant leverage into more property becomes more likely.

Whether you are buying an investment in your own area, or interstate, a physical viewing is not necessary as long as you follow some basic rules.  In fact, from my experience, not viewing a property means you are far more likely to buy something which has the characteristics of a good investment, rather than something which appeals physically to you, but might not be in the best area to invest at that time. Buying sight unseen tends to increase the likelihood that you will more thoroughly research and not fall victim to misplaced emotion.  When you think about it, once you have researched an area well, looking at a property won’t change its outcome as an investment – it will still be either a good choice or a bad one, based purely on its economic data and future potential.

Focus on the intrinsic growth drivers which, while they may not guarantee you will buy the best ever investment, should guard against buying a lemon.  Research things like population growth, median household income, council plans for infrastructure, employment data, business activity and vacancy data, and this will go a long way toward helping you to choose well.  Then be sure you have a good property manager on the ground who can look at it to ensure it is habitable and rentable, and you will be buying like a pro and minimising the risk of costly mistakes.

  • Answer provided by Margaret Lomas, founder Destiny Group