You’ve probably met someone who bought property in a mining town and made a bucket load.
Years ago when everyone else was turning up their noses at those giant red holes in the ground that were mining towns, some crazy risk-takers bit the bullet and took the gamble. It wasn’t much of a gamble, really – you could buy property that probably fit within your credit card limit, but at that time everyone figured nothing much could come of it.
Stories abounded of untold success. It was the first we’d ever heard of a "donga", but apparently these tin sheds skyrocketed and fetched astronomical prices and rental yields. Everyone wanted a piece of that action, and you had to jump out of the way to avoid the stampede of investors racing to these one-horse towns for their piece of investing gold.
There’s no question that a great return can potentially be made buying property in a mining town, but people make money investing in pork bellies and trading foreign currency, too. Why don’t we all jump on that bandwagon? Quite simply, because we know they are high risk, and we are mostly pretty acquainted with our own personal appetite for risk.
So what madness is this that causes property investors, many of them without money to lose and gambling the equity in their own family homes, to completely ignore the risk factor attached to buying in mining towns?
I have a few theories around this. Firstly, property investors rarely educate themselves before taking the plunge. Somehow they feel that just because they own a home of their own they are suddenly experts at picking the right property. It’s a bit like believing that just because you bought Telstra shares you vicariously received a crash course in share investing and are now an expert at it.