The border less investor v in your backyard

Well as many of you are probably aware there are many real estate gurus that advocate border less investing for many good reasons ( Margaret Lomas, Bryce Holdsway, Ben Kingsley) including avoiding land tax and getting access to markets that are in favourable cyclical conditions and researching Places in a more business like manner. Some don't even see the properties that they buy.
However there are others who have built their portfolios in their home city (Peter Koulizos - Adelaide) as well sighting reasons such as accessibility to making sure that their property is being managed right and also making it easier to buy ( inspecting properties and time constraints, getting flights etc) Many also claim that they know their own city better. I had one mate for example who had an agent quoting him $2000 for a repair and when he went down to see for himself he fixed the matter for. $200.
So what I want to ask here is what everyone thinks about the matter. How comfortable are you in holding assets far away from where you live and have any of you used strategies for investing close to home.

 

It's a game of numbers not border(s)!!!...

Famous saying "Don't commit all to one boat"..

And investment is all about diversifying ...

Cheers,

 

I live in Perth and have invested in regional WA, Perth metro and Melbourne metro.

I wanted to invest in 2007 but the Perth market was overvalued at the time. My analysis suggested Melbourne was undervalued at the time so I invested there. I bought a dump in an "emerging" area (slum) with development potential. Melbourne by far outperformed Perth over that time.

I have also invested locally for DIY renovations and a build which are difficult to manage from Perth if investing interstate.

My advice is this:

- get to know the area you want to invest in

- property cycles and fundamentals aside, the investment property you buy must stack up on its own merits. Even in a boom a dud property will underperform

 

Traditionally a lot property spruikers have advocated purchasing interstate so they can flog you over priced property in a market that you don't understand. That's my cynical side on a soapbox.

A more valid argument I've also heard is more about buy in a good location, which probably isn't the location you live in. In other words, the best opportunities probably aren't in your own back yard, so invest in the better location. If the best location just happens to be nearby, that's fine too.

Sure, diversification is important. The Australian property market isn't a single cycle, having some here and some there can be advantageous.

I think the land tax argument can be fairly powerful in certain circumstances. When your portfolio grows to the point where more land tax on the next property in the same state eats up 25% of that properties rent, you've got to start thinking that the holding costs really do encourage diversification. This is something that very few investors really think about and analyse until it's too late.

 

Depends on your strategy as well.
If your doing renovations and development where you might be on tools then your backyard usually makes more sense.

Outside of that I would be looking at the different markets. In your example your mate might have saved $1,800 But did he get other quotes? And more importantly what has that market done? Your saving on maintenance doesn’t count for much if your backyard is not growing whilst others are like @Perthguy pointed out.

 

With many major AU markets being in the condition they are, right now (and likely will remain over the next couple of years), I think many will agree that cash-flow is king right now in Australia. With little to no expected capital growth in MOST major markets around the country expected for the next little while, anyone looking to add to/expand their portfolio should be really focusing on yield and higher cash flow.

This segways nicely into 'lowering your holding costs' across a portfolio which of course segways into as Peter mentioned above, lowering the bigger, annualised/recurring expenses. Of which, land tax is a particularly nasty little (well, it can be huge) recurring state-based tax that can be a real profit-eater!

So a state-spread of properties in ones portfolio can help you avoid hitting annualised land tax threaholds in many states (there are exceptions though... hello Tasmania with your low land-assessment rate bracket for land tax! AND hello investors holding everything in trusts and not humans' names; where you start paying land tax straight away due to no thresholds for most trust structures).

Adding also that the benefit of diversifying your markets-risk exposure via a multi-state (and potentially multi-country??) strategy.

Whilst I don't have the biggest portfolio of some of the seasoned legends on this forum; mine certainly isnt small either. If I were to hypothetically shove the 5-state portfolio I currently hold, into just one high-land-taxing state, I would be so walloped each year y land tax that my portfolio would go from basically neutral/slightly positive geared, to heavily negative. No thanks.

I guess at this point worth mentioning that many states are eyeing off the concept of changing their stamp duty/land tax structure to scrap stamp duty in favor of an annualised land tax with a 0/low threshold for it (guess they finally did the math and figured it is better iff earning $50k of income over say an owners 20-year holding 'life' of a property versus $15k as a one-off stamp duty but then potentially never see another dollar from that human in the years following...). I would imagine any change like this would be grandfathered in, but you just never know... these states are selling off all their jewels in recent years and when theres nothing left to sell they will start to look at tactics like this to keep their coffers full... just my $0.02).

To that end though, if anyone is considering employing a multi-state-spread strategy chiefly for the annual land-tax avoidance, I would first be setting up a google alert for news reports of states changing their stamp duty/land tax policies. If enough of them switched over to the more Tasmanian/ACT policy, then for new or single-state investors yet to buy, this could invalidate the strategy above.

It is always a numbers game and if you some day want to LOR (live off rents) from your portfolio, this tax is a big thorn in the side of that strategy. Best to keep abreast of any policy changes in your interest-state(s).