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Mining a good investment - The pros and cons of investing in mining centres

Investing in real estate has the potential to pay off substantially, but there are many factors that must be considered before you dive feet first into the property market.


Investing in real estate has the potential to pay off substantially, but there are many factors that must be considered before you dive feet first into the property market.

In the first instance, the physical features of the property that you buy can significantly impact whether you are able to enjoy a big return in the future. As such, it's important to take the time to weigh the benefits of a certain property against the potential disadvantages.

Secondly, in property investment, location matters. If you buy a good property in the wrong area, it can significantly impact your rental returns and capital gains. With that in mind, it is imperative that you do your due diligence and purchase in an area that not only meets your needs but will yield results.

Considering mining centres

There are a few benefits associated with purchasing an investment property within a mining centre. Firstly, these areas are likely to remain popular and populated. Mining is big business in Australia and the human resources required by this sector is huge. As such, ample housing is often needed to cater to the workers living in these areas.

That said, some mine sites are resourced by primarily “fly-in, fly-out” workers, so the surrounding towns do not have significant housing requirements. So, with this in mind, before you invest in any mining area, it is a good idea to find out which mining centres play home to the site's employees and which cater for “fly-in, fly-out workers”.

Regions that attract permanent residents to mining centres are currently experiencing a housing shortage. This means that prices will continue to be pushed up by the strong demand, and investors have the opportunity to purchase property that will grow in value.

The high price of real estate in mining centres offers property investors a unique opportunity. Investors have the option to rent out properties to would-be first home buyers who are priced out of the market as well as cashed-up miners who do not wish to spend their money just yet on property.

Who should avoid mining centres?

While there are positives to buying real estate in mining towns, there are some investors who shouldn't consider making a purchase in these areas. Since there is an inherent risk associated with investing in mining centres, you should avoid these areas if you are not willing to take on this added risk.

Mining is an industry that is volatile. A centre that is booming today may become abandoned within years. The workforce follows the jobs, so investors who purchase in booming mining centres risk holding a worthless property if mining companies move on to other areas.

Mitigating the Risk

That said, there are ways to invest wisely in mining centres. Start by determining how long a mining company has committed to mining the region. You're looking for long-term contracts for stability. It is best to stay away from areas that have only a single resource to be mined, and you should pick an area that has additional attractive qualities to offer in addition to its mines.

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By Phillip Capper from Wellington, New Zealand [CC-BY-2.0], via Wikimedia Commons

Posted in: Archive

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