Invest In Different States OR Only In Your Own State
I often get asked this question and it’s a great question because some people say that you should only buy within the area you live in because you are familiar with the prices, you can drive past to inspect the property and if required you are handy to make your own repairs. Whilst all those reasons have merit the answer goes far beyond the this
There are several really important reasons why you should invest in properties interstate. It’s more about good investment principles more so than based on convenience. Here are a few:
1. RIDE THE PROPERTY WAVE. The property cycle moves differently in different States. When one State is at the top of the property cycle other States could be at the bottom.
2. PROPERTY CLOCK: The property market moves through a cycle and when things are booming in Victoria they may not be booming in NSW. When they are slow in Perth they maybe booming in South Australia. Currently Melbourne is over supplied and Sydney is “steady as she goes” and Queensland is at the bottom of the cycle but the Gold Coast is anticipated to stay at the bottom for many years to come whilst Brisbane is showing signs of life. Perth is steady as she goes and so on. As you can see each State is at a different part of the cycle so its important you time the purchase at the bottom of the cycle. Hence buying in your own suburb or State may not be the proper thing to do if you are at the top of the cycle.
3. LAND TAX: Each State has different Land Tax rules. Each State allows a certain land tax threshold before land tax is payable. Once you have “used up” your land tax threshold in the one State by having several properties held in that State, further properties in that State will attract higher rates of land tax. If you then buy in another State the land tax threshold starts again. Hence another reason to buy in other States is because of the amount of land tax you are prepared to pay.
If you carefully manage the timing of your new purchases it is possible to buy both at the bottom of the cycle and minimize your land tax by buying in the right State at the right time. For example, whilst the property cycle suggests Brisbane is at the bottom of the cycle and may be the best place to buy your next investment property, if you already have several properties in the State of Queensland you may already have breached the land tax threshold in Queensland. Further properties bought in the Queensland State (irrespective whether they are in Brisbane of Townsville or Gold Coast) would mean you would be paying excessive land tax. In this instance you should consider investing in another State that is at or close to the bottom of the cycle and one where you have not used up the land tax threshold as yet.
In the above example you may consider buying in Darwin if you have no properties there, as you have the full Northern Territory land tax threshold to take advantage of. Hence careful management of your property investment strategy could mean you pay no land tax at all even whilst holding over a dozen or so properties. Wouldn’t that be good.
4. DIVERSIFICATION: Just as its important to Diversify your Share Portfolio its also important to diversify your property portfolio. Diversification means that when some properties are slowing down in some States you should have properties in other States that are growing.
This will also help manage your bankers stress levels because, whilst some properties they hold as security are going down in value the other ones they are holding may have gone up. Risk management is about ensuring your Bankers do not force you to refinance when the market values are down or you are forced to sell the properties when the market is down.
Whilst there are emotional reasons for investing in the State or suburb you feel most comfortable in, investing is much more scientific than using one’s “Feelings”. Its always best to use Professionals to assist in property selection because they have the research material to determine where you should be investing. Timing is so important because the “market” could change within months. Get a Property Accountant to assist you with buying it in the right Structure to minimize tax and give you the flexibility should your circumstances change in the future.
Non-Executive Chairman, Chan & Naylor
Disclaimer: This information has been prepared as a general guideline, and is not intended to be an exhaustive or a complete analysis of the topics in question or issues raised in this article. There are many particular legal, taxation and accounting matters which have not been dealt with in this article and readers are urged to discuss any aspect of the operation of any of these matters discussed herein with their professional advisers. In particular asset protection, estate planning and superannuation are potentially a very litigious areas of law and you will need specific advice before you take any actions if you want your wishes complied with. Before taking any action or implementing any strategy you should seek professional advice from your lawyer, accountant and or financial planner who will take into account your specific circumstances and objectives.
When your circumstances change it affects your tax and asset protection position.