3 Things To Consider Before Investing In Regional Areas
Over the last few years, demand and values in regional Australia has exploded.
With strong capital growth and tight vacancy rates driving up rents, more and more investors have been looking to regional areas. While many regional areas have been strong performers, there are a number of things you should check before investing in these locations.
Across the country, there are very big differences in regional locations. Some small towns have only a few hundred people, while the larger towns have over 100,000 and are basically regional cities.
When you’re looking to invest, it’s important to understand what the key drivers of the local economy are in those areas. A great example is a mining town. Many mining towns have very strong economies driven by a local mine site. While the commodity sector is strong these towns do well, but things can quickly turn around when prices fall.
On the flipside, some of the larger towns have multiple economic drivers and include infrastructure such as hospitals and universities that contribute heavily to employment. The more diversified the economy, the stronger the location and the more likely it is to sustain capital growth.
In recent times, talking about vacancy rates is not something many investors are likely considering. But over a long period of time, many regional areas have suffered from a lack of quality tenants, which can lead to your property being vacant for a long time.
This is common in seasonal locations and holiday areas. While there might be strong demand during the summer months for a beachside location, during winter, you might not be able to find tenants.
A lot of smaller towns also have problems with social issues which can make it difficult to find tenants that will look after your property.
Lenders understand that regional areas, while appealing, also present some risk if the value of the property falls due to any number of factors.
For that reason, many will require you to put down a larger deposit than what you could typically find for a city location. This is common with lifestyle properties and things like hobby farms that only suit a certain demographic of buyers.
Lenders will normally have a list of postcodes that you can purchase in with them and it’s worth speaking with your mortgage broker ahead of time to ascertain what lenders are currently thinking about a certain regional area if you’re thinking of buying there.