Is it wise to invest in the area you live?

It may seem like common sense to look for an investment property close to where you live. After all, it’s an area you’re familiar with and have an emotional attachment to, and you’ve got a pretty solid grasp on how the real estate market is performing.

But in doing so, you could be jeopardising the viability and success of your investment. Here’s why investing where you live could be a mistake – and how you can avoid it…

1. Suburb risks

You bought your home because the area suited your circumstances, but when inspecting potential properties to invest in, you need to be thinking like your would-be renter – what will they be looking for in a home?

Proximity to public transport, schools, universities and shops will likely be high on their list. Considerations should apply not only to location, but also the property itself – some renters may be put off by a large backyard that requires maintenance, or other time-consuming and costly extras such as a pool.

How to avoid this:

It may be a better idea to consider properties with features such as rainwater tanks and smaller backyards, as these will save your tenants money or effort and be a major drawcard when advertising the property for rent.

2. Vacancy risks

Check for vacancy rates in your area. If the rental market is not as strong as you would like, this could leave you vulnerable to extended periods of vacancy.

How to avoid this:
Instead, research suburbs with low vacancy rates and predominantly owned by owner-occupiers. This should ensure that your property is never untenanted for too long, and you’ll have many prospective tenants applying for it each time it becomes available.

3. Market risks

Look at what stage of the property growth cycle your area is in.If you bought your home a few years ago and values have risen considerably, you may have missed the boat when it comes to finding an affordable property to invest in. Also keep in mind that you would have two properties in the same area, which goes against the diversification rule: don’t put all your eggs in one basket.

How to avoid this:
Become a strategic investor and look for areas that are on the rise, but that are yet to boom – for example, a few suburbs further out from the city, or somewhere that’s due for major infrastructure development in the coming years. If you pick the right suburb, you could see the value of your investment multiply rapidly, allowing you to further build your portfolio. On the flip side, if you choose an area that’s already peaked, and you may find yourself cursing your costly mistake.

Searching for an investment property outside your local area is a great start, but don’t be afraid to look even further afield – perhaps to another city or interstate. Broadening your search area to include more affordable towns means you can invest sooner, rather than waiting until you have the larger deposit required to purchase a property in a more expensive area.