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Why Buying in Other Cities is a Great Way to Manage Risk

Although a relatively small country in terms of population, there are countless real estate markets in Australia. This means you have lots of opportunities to invest, but it also means you can easily spread out risk, especially if you’re willing to buy property outside your home city or region.

It’s more than possible that another city in the country is going through a more favourable cycle than your hometown and being prepared to jump on these opportunities can be a great way to manage risk and boost the performance of your portfolio.

Here’s some more information on this strategy.

The Importance of Diversification

Before going too far, let’s take a moment to consider why you should be thinking about diversifying in the first place. In short, it comes down to not putting all your eggs in one basket. Sure, if you invest in one area, and that area does well, then you stand to make more. But when things turn for the worse, you will have nothing to soften the blow. You will be left with no other choice than to hope and pray things turn around soon.

Of course, just because you diversify doesn’t mean you can’t lose money. Instead, all it does is decrease the chances of sustaining crippling losses. You still need to be smart about the investments you make, but diversification helps to protect you against unexpected changes in the market.

This is because markets change due to catalysts. These could be changing employment opportunities, demographic shifts, and infrastructure upgrades. Some of this stuff can be predicted, but others can’t, and if you don’t see any catalysts on the horizon that will stimulate growth in your city or region, then it’s a smart idea to start looking elsewhere.

Understanding the Growth Cycle

A lot of people try to use median house prices as an indicator of the market, but these numbers don’t tell us too much. Instead, making smart choices in real estate investment is about understanding the growth cycle, and also about where a certain market is in that cycle.

Infrastructure is a great example of this. If all of a sudden, a hospital or university is built in an area, or plans are announced, then you can expect the market to go through a growth cycle. Other economic factors, such as employment opportunities and wage growth, are important because income determines borrowing capacity, which inevitably drives demand.

Still Be Involved

Buying property outside of your local market can be smart, but since we all know how difficult it can be to understand real estate without local knowledge, make sure to get involved. Visit the area where you’re thinking about investing so that you can see with your own eyes if things are really as they appear on paper. Meet with a local agent and discuss your plans. If your predictions are right, they will surely be able to steer you towards some exciting opportunities.