Data that was recently analysed by economics experts from the University of Tasmania and the University of Sydney has revealed that the majority of property investors in Australia buy an investment property in their suburb. The data was from 1,150,000 mortgage applications between 2003 and 2009, and it revealed that two-thirds of investors bought in their suburb. There are a few reasons why you should think twice about buying in your suburb, and we’ve listed them below.
Concentrated risk
While you might be partial to your suburb, you live there after all; it may not be the best investment decision, especially from a risk perspective. When you invest in the same suburb where you live, the risk of a market downturn is concentrated in one suburb. This is where it can be beneficial to invest in a different suburb, or even a different state, to where you live to make sure that your financial risk isn’t concentrated in one area.
The decision becomes too emotional
The data also revealed that 20 per cent of investors preferred to self-manage their investment properties, which could be a key driver of why investors choose to invest close to home. It does, however, still beg the question whether this becomes a more emotional decision than it should be. After all, property investing is about the numbers, so being emotionally attached to where you’d like to invest can be counterintuitive. We often advise investors that property investment is all about the numbers. If the capital growth and yield are both positive then you have a great chance of this being a wealth building investment. Too often we hear investors say “ I wouldn’t want to live there’.
Identify your needs before deciding on a location
Before you decide on a location, you need to decide what your long-term goals are with your next investment. Is it a property that you’ll move into one day, or is this property purely part of your wealth-building strategy? If you’re going to move into the property one day, it may make more sense to buy in an area that you would like to live in, even if it is close to your current home. In this case, however, you still need to understand and manage your risk. This may mean you buy a property where you can renovate further down the track and add value. Or a unit where you can downsize.
Take your time
Another reason people tend to invest in their area is that it’s familiar. Taking some time for research and exploring your wider city, or other states, however, will give you a better idea of how the market is performing across Australia. It’s better to take some time for research up front, rather than rushing into an investment because the area is familiar. Investments are about building wealth, it’s worth having a conversation with a professional about different areas to invest in or do some reading on up and coming areas. You are looking for areas with solid infrastructure, easy to use and reliable public transport and a desirable community that will attract lots of tenants.
Buying a home and investing in property are some of the most significant financial decisions Australians make, so you need to take your time and do your research. With some research, you may discover the potential for capital growth and rental yields that you never thought was possible; it just takes some patience and the ability to look outside where you currently live.
