3 factors to consider before investing in regional areas
Although investment properties in regional areas may give investors strong returns, there are many factors to consider to ensure the town has a strong economy and its future has a good outlook.
Blogger: Gavin Smith, director & general manager, State Custodians
With CBD property prices rising, many investors are turning to regional suburbs to buy property.
According to the realestate.com.au HASI survey, ‘buyer interest is heading out of the major cities and into the regional centres’.
Although investment properties in regional areas may give investors strong returns, there are many factors to consider to ensure the town has a strong economy and its future has a good outlook.
Most people have heard the horror stories of people purchasing a property in an up-and-coming area, such as a mining town, only to experience a huge loss as the major industry in that area went bust or other moneymaking projects failed to finish. Other issues, such as natural disasters (eg. floods or bushfires) can have a detrimental effect on a regional town very quickly.
So, before jumping in an investing in a regional suburb, invest time into researching the area thoroughly. Some factors you may need to consider include:
Natural disasters
Most areas in Australia will be at risk to one or more natural disasters, but is the area prone to regular disasters such as bushfires, droughts or floods? If it is a disaster prone area, it is important to ensure that it also has a strong economy, population growth and employment prospects.
Number of industries
It is important not to rely on just one industry to keep the area prosperous.
Certain industries can boost a suburb’s economy significantly and increase the number of people who move to the area. However, as it may also have a great impact on property, what would happen if that industry closed down? The suburb may become a ghost town and it could become difficult to rent or sell your investment.
Tourism seasons
It is important to be cautious around areas that rely on tourism. Although there will be a demand for rental properties throughout certain times of the year, if there is a ‘quiet’ season, then it could have an impact on your rental income and the rental yields in the area. Investments in tourism towns are often considered unstable.
Just like any other investment, the best way to get a sense of an area’s future prospects is to look at recent sales data. Look at factors such as recent property sales, auction clearance rates, vacancy rates and rental yields. The free Property Report on the State Custodians website can help give you some of this information.
About Gavin Smith
Gavin Smith is Director & General Manager of State Custodians and has over 20 years’ experience in leadership roles within the banking services sector. An expert in personal finance, securitised lending and the mortgage industry, Gavin has a Post Graduate Degree in Management from the Australian Graduate School of Management (UNSW), including several mortgage and securitisation qualifications.
