Investing without borders: the secret to interstate property investment

It’s become the latest fad. If you want to invest in property, why not get into the fastest climbing markets even if you live on the other side of the country?

Welcome to the year of borderless property investing.

Of course, we’ve seen examples of this before.

In the early 2000s, thousands of southerners accepted free flights to southeast Queensland’s sub-tropical wonderland and were then invited to invest in newly built houses while the palm trees were still being planted.

Then, there was the great cross-country track to WA as the early stages of the mining boom delivered massive gains for Perth and Port Hedland property around the 2007 - 2012 mark.

Then the biggest of them all: the international boom which saw purchasers from China and across Asia surge into Melbourne then Sydney during 2013 - 2017.

It all made sense. Why not claim a piece of a rapidly growing market where property prices are cheaper than where you live?

Interstate investment, local knowledge

The first problem investors face in entering a market is finding the right people to guide them.

In 2024, a lot of borderless property investing is being driven by data at the expense of local experience.

Some investors ‘do their own research’ on the internet and quickly identify what they think is a winning location and property type.

But without being familiar with the area, it can be difficult to determine if a good-looking data set is a short-term aberration, a case of a locality playing catch-up or a genuine long-term trend.

Even worse, some investors are buying properties sight unseen thanks to inexpensive ‘advice’. I’ve come across cases of this recently with interstate investors relying on an inexperienced advisor pushing properties that never should have been recommended

Often these clients are put under pressure to make a rapid decision - always a bad sign.

Betting the future on this year’s winner

It’s not just local knowledge that is a necessity, it’s also taking a step back and viewing through a wide-angle lens.

Let’s take the east coast investors jetting across to WA around 15 years ago as an example.

Port Hedland was the standout opportunity for many. After all, we were at the beginning of a long-tail mining boom, workers were flooding in and accommodation was scarce.

How could you go wrong?

Very easily, as it turns out. While the mining boom did have a way to go, the workers flooding in were there to build infrastructure. When that job was done, back they went to their homes leading Port Hedland’s housing market into a classic peak and dive movement.

More sensible investors decided that one-industry towns were risky and instead plunked their money into Perth, capital of the world’s richest mining province.

While that looked a more reasonable bet, it didn’t exactly turn out to be a winner either. Perth’s property prices also felt the chill when the mining construction boom wound down.

Hardest hit were outlying suburbs like Mandurah, which suffered a 39 per cent peak to trough fall. But the entire Perth market did what it has done many times before - dawdled for years after a quick upturn.

The problem here is that rush of external money runs the risk of creating a false market where sale prices are pushed beyond what is sustainable.

We saw that in new estates south of Brisbane in the early 2000s and we saw it with newly built high-rise apartments marketed to Asian investors in 2013 – 2017 and many of the suburban mums and dads who followed them.

On the ground experience trumps property intuition

Now to be clear, I’m not writing off the Perth market or southeast Queensland. Indeed, there are some good opportunities in both of these markets.

But if I was going to put my hard-earned money into either, I wouldn’t just rely on the word of a newly minted buyers agent, or a set of good numbers from a website.

Instead, I would be pairing up with a real estate adviser with years of experience working on the ground who understood the dynamics of area.

Those who have weathered the ups and downs and importantly, have long established networks, will know things like which property types the banks are wary of, flood prone locations and plans the local government has for the area’s development.

And they won’t be doing what I’ve seen many inexperienced advocates do: not viewing the properties they recommend and outsourcing inspections to unrelated third parties. Many of these third-party agreements struck by advisers leave the investors without legal recourse should the due diligence process be shown to be inadequate.

Often too, these advisers haven’t sought the advice of property managers and local agents as to the suitability of their recommendation.

Any one of these can lead to a serious, expensive issue for an out-of-town owner.

If buying real estate interstate, data is not enough

The very first thing to understand about real estate investing is that while data is a crucial determinant of where to look, on its own, it’s inadequate.

As an investor what you’re really after is a property that has all of the factors that will drive performance over time.

We can see how that plays out over the long term when looking at 30-year data with the best locations benefitting from the inward push in major capitals.

Chasing a rising market may deliver a short-term sugar hit but it often fails to deliver long term capital growth.

At my firm, we assess every property we recommend based on our 57-factor checklist. A good buyers agent anywhere in Australia will use a similarly detailed analysis, something which no published data set can capture.

So, before you head off and buy a property on the other side of the country, make sure your real estate partner is an experienced hand, not just someone just wanting to put their fingers in your pie.