Weighing up the pros and cons of investing outside the city

FOR $400,000 you could buy an inner-city shoebox or a spacious four-bedroom home in the country, but which one makes a better long-term investment?

Take a look at the pros and cons of buying a rental property out in the bush.

The practical issues

From clean air to less traffic, country living has its benefits. But depending on the area, properties both in country towns and in rural areas can come with certain hazards you don’t find in the city, such as greater risks of natural disasters. This can drive up insurance premiums and other costs.

It’s important to understand the unique features of a property before buying, for example:

Is the area at risk of drought, fire or flooding?

If it is in a secluded area, where is nearest fire station or water hydrant located?

Is the area free of chemicals, agricultural diseases and pests?

Are there good roads leading to and from the property?

If you’ll be managing the property yourself, you’ll also have to decide if you’re willing to drive long distances to your property to meet tenants, perform repairs and deal with emergencies.

Rental demand

According to the Australian Bureau of Statistics, nearly 30% of Australians live outside of major cities. Between lower housing prices and a slower, more relaxed pace of life, rural and outer-regional locations can offer an ideal lifestyle for those aspiring to find a better work-life balance.

You’ll find many popular country towns offering top-notch cafes, bars and cultural retreats within a reasonable commuting distance of regional city centres.

These towns and others like them are enjoying increased popularity among both renters and home buyers alike.

When researching rural areas, be sure to look at population growth, median income, rental yields and vacancy rate. Rising population, along with planned developments, means more competition for properties.

This can be a good indication of rental income and capital growth over the long-term. However, buying property in an area that relies solely on one industry, such as tourism or timber, can be risky.

More bang for your buck?

For the first time in history, the median property price in Sydney has reached a jaw-dropping $1 million. At the same time, vacancy rates are rising and rental yields are dropping in many areas.

As skyrocketing property prices across the major cities make it more difficult, if not impossible, for many first-time investors and home buyers to enter the market, going rural could be a better option.

With many country homes being sold for well under the $400,000 mark, buying a property in the country could give you more bang for your buck.

If you’re thinking of investing through your self-managed super fund (SMSF), lower prices in the country mean you might be able to enter the property market sooner, without having to borrow through your fund.

In addition to offering a greater selection of positively geared properties, rural areas that are poised to boom could greatly increase in value over the next 10, 15 or 20 years as you reach retirement.

Given that many investors consider real estate to be a safe investment, it’s not surprising that residential property investments within SMSFs have increased by a massive 65% over the past five years.

If you’re considering adding rural property to your SMSF holdings, be sure to consult with your financial advisor to make sure it’s the right move for you.