Top 5 Tips when Investing in Hobart
Today I want to talk about investing in Hobart.
I still remember the first time that I went to this wonderful place to visit. There were green, rolling hills— the environment is amazing!
But the question is — besides the fact that they’ve got over 2,000 kilometres of walking tracks, there are 18 national parks, there are world heritage sites and when you leave Hobart’s port, the next destination is Antarctica…. they’re just naturally endowed with all these beautiful things — but do the properties make for a great investment?
So today I want to give people some tips on what investors should look for if they live interstate and they’re looking to invest into the market of Hobart.
The first one, for me, is around due diligence.
Unlike some of the other cities around the country — Victoria, South Australia; where they have a cooling-off period — in Hobart, Tasmania in general, there’s no cooling-off whatsoever. So, if you sign a contract and you go unconditional, there isn’t an option to cool off. It’s really important — it’s important around the country, but really important in Tasmania — that you get legal advice prior to entering into a contract.
Similarly, they don’t have a vendor’s statement.
In Victoria we have the Section 32; in South Australia, the Form 1; in Queensland, you have the Vendor Statement or the Disclosure Statement — these are documents that disclose the title, the covenants, the rates and a lot of information that you need to do your due diligence prior to purchasing. But in Hobart, there’s no requirement to have it. Again, you need to go and dig deep to find out some of this information yourself. Quite often you need a local expert to help you find the stuff you’re looking for. So, it’s not for the faint-hearted.
With the due diligence, if I’m in, say Melbourne or Sydney, longer Days on Market generally means at the property’s stale; but in Hobart, longer Days on Market can sometimes be the norm if it’s in a market that’s not booming.
So, if it’s on the market longer than what you’d expect for one of the mainland capitals, it doesn’t necessarily mean it’s a stale property. It just means it’s a feature of the market. So, due diligence is my number one tip if you’re looking to invest in Hobart.
The second thing you need to think about is the type of property.
I’m always looking for is one with higher land content, as opposed to townhouses and apartments, which are often quite popular with investors in Melbourne or Sydney, largely because of affordability. In Tasmania, they expect a house and they want higher land content. Also, really what you want to do, is to avoid those high-maintenance properties. You’ve got these beautiful period homes, but if they’re weatherboards and they require a lot of maintenance, this could be a real drain on the investors pocket. So don’t fall in love with the property if there’s ongoing maintenance needed for these properties. This will drain the cash flow.
There’s a general rule of thumb in terms of proximity: you want to be about 30 minutes away from Salamanca, which is where the Salamanca markets are, down in Battery Point. Because even 45 minutes is considered a long trip. Whereas, in Sydney, that could be two suburbs — but in Hobart, it’s a long trip. So, the rule of thumb is being 30 minutes from Salamanca.
You also need proximity to the lifestyle drivers because it’s a small region. You want to be within easy reach and, again, somewhere that ties into this 30-minute radius.
One thing to keep in mind is in Hobart, water views are everywhere — you go down there and they’re just beautiful. If you’ve got water views in Perth, Adelaide, Sydney or Melbourne, you really place a high premium on water views; but the locals in Hobart can just take it for granted because there are so many properties that can see the Derwent and the ocean. So, just keep that in mind, particularly as you’re doing your research online.
Just because it’s got water views, it doesn’t necessarily mean that it commands a premium.
These are a couple things to think about in terms of the type of property.
My third point is around the type of sale.
If you’re one of those people who are fearful of auctions…. good news! There’s not a lot of auctions in Hobart. In fact, the majority of sales are done by private treaty, which is really, really good.
If you think about the negotiation phase, you can make it subject to finance, subject to building and pest, subject to the sale of another property; subject-to whatever you feel is reasonable in the negotiation process. Unlike buying a property at auction, we’re unconditional under the hammer. This is not necessarily the case, and given the fact that they don’t have cooling off and they don’t have a Vendor Statement, you might make it subject to doing your due diligence. So you can pick up the property sooner and make sure it’s not sold whilst you’re doing this due diligence, which is a hard word to say!
Generally speaking, it’s important to know that these sorts of things are important when you’re looking in the Hobart market. Private treaty is the norm.
The other thing to think about is, okay, we can make it a conditional contract —but in negotiations, we’re usually dealing with a lot of the local agents. In Hobart, you’re normally dealing about $5,000 from the asking price. Whereas in Melbourne, Sydney and Brisbane, being $15,000 from the asking price is not unusual. Because it’s from a lower base and the affordability is quite low — which is often the appeal for investors — the negotiation disparity between the ask price and the end sale price is often closer than what you get in the mainland cities.
My fourth tip is around what your tenants are going to expect.
In Queensland, it’s a must have an air conditioner (see more Brisbane tips). Whereas, in Hobart, it’s a must to have heating. And not just heating — it has to be adequate heating. So when you’re researching the properties, one thing to ask is, “Does it have heating?”
If it’s not adequate heating, have you got the provision to provide it? Because it does get chilly down there, and your tenants will demand it. So you need to make sure that you’ve got it, or you’ve got a provision in place to make sure that you’ve got it.
My fifth tip for investing in the Hobart market is around their economy.
It’s one of those cautionary points. Because at the moment —we are at the beginning of 2018, so at the end of 2017/18 — Hobart’s enjoyed a very good peak or a bit of a rise. There’s been a lot of invested demand from the mainland, which also happened back in 2003 — a really huge spike. But in between it was quite lean. If you think about what’s going on in the Tasmanian economy — a population of about 520,000 people; in Hobart, around 211,000 —it’s not a huge population base. So you’ve got to make sure that you don’t get it wrong.
Forestry, tourism, retail, farming, and maybe a bit of fishing agriculture, is what drives the economy; but it’s not exactly a financial services heart. There aren’t huge multinationals looking to put their head office there and employ lots of people on six-figure salaries. It’s important to understand the local economy. Ultimately it’s okay to bring investor money into that market, and maybe even bring the price up, but it’s the locals who are going to rent it. And it’s also the other locals who are going to buy the surrounding properties to keep propping up the prices long term.
It’s important to understand that there are periods of spike, but there’s all also periods of flat growth.
If you’re an active investor, great — you get in when it’s spiking and then you move your money. But if you’re a passive investor, or you’re an investor that’s getting close to retirement, it’s important to understand that these flat growth periods can derail your portfolio goals if you haven’t gone in with your eyes wide open.
For me, it’s important to understand that the economy is not as strong and as robust as some of the mainland capitals. But it has so much appeal for many other reasons — largely around the natural endowment of assets it certainly has.
So they’re my considerations for people from interstate who are looking to invest in Hobart going forward in 2018. My final view is largely around… if you’re going to do it, take the advice from the locals, whether that’s a Buyers Agent or the real estate agents in the area. It’s important that you understand the local conditions in the local market — so you don’t impose your interstate paradigms when looking to invest there.