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Investing in one's backyard

Discussion in 'Real Estate' started by Jacque, 21st Jul, 2006.

  1. Jacque

    Jacque Team InvestEd

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    There's varying degrees of opinion about this, but I thought it would make for an interesting discussion. There are many investors who advocate investing only in one's "backyard", or immediate local area, for the best gains and growth.
    The theory goes that, by having such intimate local knowledge, one is able to better spot and subsequently purchase a bargain. Being in touch with what is happening in the local community can also reap benefits, as knowing of new dvpts and infrastructure ahead of the pack can result in better outcomes when it comes to specific locations. Being a local expert can be advantageous, as there's a lot of research that you can effectively "skip", being in the central hub of what's going on.
    I certainly don't disagree with this theory, though price can often exclude only limiting yourself to your local area, as well as other state based costs that make the locale unattractive. Historically poor cg rates and rental yields can also dampen one's enthusiasm for a particular suburb, yet there are many investors who simply want the comfort of driving past their IP and knowing that it's safely within driving distance from where they live. They consequently ignore the statistics (if they even go to the bother of finding them in the first place) and dive right in, based on often little more than the comfort of their knowledge of a particular area.
    Investing interstate has never worried me, though tenants and PM hassles have put me off on more than one occasion. However, I am now beginning to see some terrific local bargains that are tempting :) Coupled with good cg and future predictions (though one has to view predictions cautiously), as well as expanding land dvpt and new business parks in the area, even I could soon be a purchaser of my own "backyard".
    Would be interested to hear what others think, and their approaches to investing locally.
     
  2. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Jacque,

    You know, I think, that I am an advocate of that approach. But this was predominately driven by my "value add" approach to IP investing. Given I intend to develop my sites I find that local proximity is a critical factor to being able to effectively manage the process. I'll need to engage a whole host of subcontractors to complete my development and will need to manage it every step of the way. To do this remotely would be infinately more complex.

    But even had I adopted a simple buy-and-hold approach, I still would have favoured the local expert method. I believe it allows intimate understanding of what is good value and what isn't. It is far too easy to be sold a line from an RE Agent when buying inter-state or even just out of your immediate proximity. I feel I've got my finger on the Sydney pulse quite well and can see individual properties in my area that represent good buying and can differentiate these comfortably from those that don't. I'd be hard pressed doing that inter-state.

    The main drawback for some might be the lack of affordability or other attributes of their postcode that makes it unnappealing as an investment area. This necessitates that they look abroad for more appealing IPs. I am fortunate that I can both afford to buy IPs locally and that I consider the area to be a strong one for future capital growth so I need not look abroad to find better buying opportunities.

    As always just MHO.

    Cheers,
    Michael.
     
  3. Jacque

    Jacque Team InvestEd

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    But, Michael, if you lived in a different part of Sydney that hasn't had strong historical cg or doesn't fit the criteria for a so-called "good investment area" would you be as willing to still purchase?
    Mona Vale is a strongly performing suburb on the Northern beaches which has enjoyed an average cg rate of almost 10% for the last 10 yrs (houses) so at least you are fortunate enough, as you point out, to be close by :)

    Investing interstate certainly requires work and time, but there are rewards to be made from doing so. It also spreads the risk a little, if you're prepared to look outside your own state.
     
  4. johnnyb

    johnnyb Well-Known Member

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    I'm in the situstion where my own backyard is not very attractive (for me) as an investment. It's the northern suburns of Hobart, and I don't expect much CG for a long time (although cash flow probably isn't too bad if that's what you want).

    I'm looking to buy another IP soon and will probably engage a buyers agent as I don't have the time do be able to travel to inspect properties. I'm thinking of Brisbane as I've spent most of my life there, so it may be a good combination of backyard knowledge and some expert help from the BA.

    I think it is important to be an "expert" on the area you want to buy in, but that doesn't have to be your own suburb (or surrounds). As you point out Jacque, it is probably less work if it is.

    John.
     
  5. Jacque

    Jacque Team InvestEd

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    It becomes less work as you're more immersed (naturally) in the area that you live in and tend to know the goings on of it so much better than an "out of towner".
     
  6. Dr Lobster

    Dr Lobster Well-Known Member

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    My first foray into IPs was interstate - Brisbane. Sydney was not an option for me as i got in late in the cycle. I had a feeling that due to the amount of time the cycle had run that we were getting in near the top, however the gross yield seemd ok (5.5%) and was definitely within our limits of serviceability.

    Brisbane was not a huge leap for us because my work at the time required me to travel there once a week. The nature of my work was essentially based around demographics, so I had a bit of a feel for Brisbane. Looking back I believe my dd was not thorough, that's not to say I feel I paid too much or the properties are no good, its more that having been thru the process I can see where my dd was thin.

    However what was a leap for us (apart from the fact that we were looking to buy our first IP) was the fact that we could not visit the property whenever we wanted and that we would have to trust our PM when they advised us regarding r&m. This is part of the learning experience and now I hardly think of the properties at all except in terms of how much equity we may have in them.

    After identifying an area, I flew to bris on a sat (knowing which properties I wanted to look at), they checked out ok. Lots of number crunching that nite and then on Sunday morning, I had an epiphany, re-ran the numbers, rang my broker and bought two IPs as our first IP acquisition.

    Now they just truck along, one has never had a tenant change in 3 years, the other has had two. All that worry and self doubt and now we are so blase about them. What if rates go up, what if no-one wants to live in them etc etc etc.

    I believe its a good idea to look back down from where you are on the hill, see where you started from and where you are now, it gives you courage to look up the hill and know that you can get there.
     
    Last edited by a moderator: 27th Jul, 2006