There are two main reasons to diversify in terms of the areas in which you invest. Every suburb grows at a different pace – no suburb will continue to grow steadily forever, each market works in cycles. If your home and investment properties are all in the one location, you will miss the opportunity to take advantage of other market cycles.
Even in a wider market downturn, there are still some suburbs that might outperform the city or national markets. For example, in the past 12 months, house prices across Australia have fallen by 5.2%. But apartments in Toorak, Melbourne and houses in Surfers Paradise, Gold Coast have risen by over 19% in the same period.
Secondly, the reason why people choose to buy their home in a certain location is based on their personal lifestyle needs or affordability range. But the reasons why you like an area doesn’t mean it will appeal to everyone. And even if your home suburb is a great suburb to live – how likely is it that the suburb you live in will always be the best performing suburb Australia-wide?
When you buy a home it’s an emotional decision. But when buying an investment property, it has to be a practical decision. “Buy a home with your heart and invest with your brain.”
The other benefits of portfolio diversification is choice. For example, if you live in Sydney and are considering investing in Sydney, then you’re likely to face two options:
- You can’t afford to buy an investment property in your home suburb
- Within your budget you can only buy within 30 – 40km of the Sydney CBD
By expanding your options beyond your home city, you can tap into other more affordable markets, in cities such as Melbourne and Brisbane, where you can still buy a great property very close to the CBD or in a premium location at an affordable price.
After the 2003 Sydney market peak, we saw opportunities in Brisbane and the Gold Coast – where high growth was predicted by analysts. At that time, we took our investors there, which helped them to experience some growth at a time when many Sydney investors were losing confidence in the market – seeing zero growth for their Sydney properties in the years between 2003 – 2013.
Taking advantage of other markets can not only add value to your portfolio, it can also build your equity which you can take out to invest in another emerging market.