Buying in Your Suburb

Posted by Jack Guthrie

Property is such a unique investment and part of Australian culture. Holiday homes and Air BnB’s are so common in today’s society, and it can make property hard to treat the same as shares, gold, bonds or cash. Funnily enough, if you queried the majority of investors none would want to live nearby the headquarters of the company they had invested in, or close to the mine that the gold had come from. However, most of us want to buy in a market close by so we can feel in control.

The majority of investors want to buy in the region and city that they live, with many looking to buy in the same postcode if possible. This is an emotionally driven decision and it’s important to take an objective view when looking at the reasoning behind your investment before you pull the trigger. We see people day in, day out making this decision and their reasoning is always similar.

What are the real benefits of you buying in your suburb? Are you just investing locally because you know the area? You could know the suburb like the back of your hand, but this doesn’t make it a good investment. This is the equivalent of a miner buying into iron ore at any price, or any time in the resource market because he knows what it looks like.

Is it because you want to control/manage the property? Tenancy laws remain the same no matter how far or near you are from a property. It could be next door, or in Tasmania. The same rules apply.

You want to fix small defects yourself? You may think that being handy will be a major saver as an investor. Without the expertise, you may end up wasting more money (and time) than the purchase is worth.

Keeping an open mind and staying objective is more important than anything when investing your money. This concept is much easier to achieve with financial assets, as they are often depicted as just numbers on a screen. Property on the other hand is physical and is a big part of our everyday lives. Let’s take an objective look at the pros and cons of buying in your suburb as an investor:

Pro:

You can see the property (not really an advantage).
You know the area well, so you feel safe.
You might be able to fix a small defect.
You can manage the property.

Con:

You only have access to a miniscule part of the Australian property market.
You have exposed both of your major assets to the performance and risk of one market.
You are emotionally attached to selling/holding the property.
You probably haven’t used a professional to manage or lease the property, meaning you could be losing out on rent.

When you take a step back its clear that the cons outweigh the pros for buying in your home suburb. Although these pros are attractive to a novice investor, they ultimately are based around the notion of comfort rather than research and strategy. If you are going to allow yourself the best opportunity to invest effectively, you must base your decision on data and analytics. This allows you to truly gain an objective understand of a market trends and where strong opportunity for growth lies.

Posted by Jack Guthrie, on 29th Oct 2019