The 13 questions to ask before buying an investment property in a mining town
Have you done enough research and background reading? Reading the get-rich quick stories in investment magazines will give you the impression that what you are contemplating is a sure-fire investment bet, but that is never the full picture. You should read widely and thoroughly about the mining town you’re considering investing in including newspapers, investor forums, the views on the mining boom of economists and government reports.
Do you understand all the forces shaping the town and the region? You need to be aware of government investment plans for the region, including transport and other infrastructure and the timeline for their implementation. The mining boom is set to peak nationally in 2014, but when will it peak in your investment region?
Have you spoken to another investor who has bought in the town? Make sure you find out the experiences of other investors. Learn from their mistakes and pick up their tips.
Have you only listened to the advice of marketeers and spruikers? Getting market insights and advice from someone who is also trying to sell you property in that same market (and earn a commission from it) is not a good idea. Avoid the opinions and suggestions of people with vested interests.
Are there other industries driving the economy of that town? Investing in towns that rely solely on one industry are extremely risky. Consider mining towns that have other industries supporting the economy as well.
Who are you likely tenants going to be? Are they likely to be families or contractors living on their own? This will guide the type of property you invest in.
Are you going to buy a new property or an old one? New properties tend to be more expensive, while older properties tend to have better capital growth potential and are in better locations. Never buy a property just for the tax depreciation benefits. In some towns the only option may be a new property, but be wary of house-and-land packages.
Have you visited the town? It’s worth making the journey out to a remote location to speak to locals, get a sense and flavour of the town and make yourself aware of local factors such as pollution, facilities, schools, transport, etc.
Will you be getting enough of a return to just the risk of your investment? Once you are aware of the risks of investing in a mining location, you should ensure the rental yields will be high enough to compensate. On the flipside, very high yield potentials are rarely sustainable in the long run.
Are there any other better regional options? It’s a good idea to consider other locations nearby that may offer better long-term potential. For example, you might choose to invest in the Whitsundays, which is tipped to be a fly-in-fly-out (FIFO) destination for a place like Moranbah, rather than Moranbah itself.
Have you considered a more stable city location with ties to mining? You should also weigh up the alternative of investing in city location that has ties to the mining industry, where the risk is lower. For example, north-east Perth is a FIFO hotspot for WA mining regions.
Do you have the financial buffer to sustain your investment if the market dips? You should have the means necessary to keep your investment afloat should the market suffer a short-term downturn when rents could fall, or your property could stand vacant for a period of time. It’s always a good idea to get professional financial advice for any large investment.
Have you thoroughly reviewed all the information you have at hand? Are you taking a gamble or are you making a sensible investment. Don't speculate without wisdom.
For more on investing in mining towns, download our free eBook Gladstone – Investment keys to one of the nation’s most talked-about hotspots
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