Buying in a mining town
In many parts of the world especially Australia, there are vast resources in
remote locations. As the value of these resources such as oil, gas, coal or
minerals are generally very high; they will be mined and sold. Of course to work
these mines you need many people, engineers, controllers, truck drivers,
administration staff, security, safety officers and many other roles. These
people need somewhere to live while working and this is where special mining
towns are built to house these people.
These properties are generally never very glamorous and just need to be there to
house workers while they are there. Miners generally work in varying shifts such
as 4 weeks on and 2 weeks off. These properties are not designed to be a home,
just a comfortable place to live while working and waiting to go back home to
their families.
Because these properties sole purpose is to house miners the rental income is
very high. In fact, in town only built to support a mine, it must be positively
geared otherwise there is no point in anyone investing there. These properties
experience great positive cash flow and as such make you money each week. There
are limited amounts of housing in each mining town so a premium is normally sort
and big mining companies are normally willing to sign a long lease to secure
housing for their workers.
While the cash flow is high, this is where the risk is. If the mine was to go
out of business or they cut back on staff, your property could soon be
generating no income and worth nothing. Remember this house is there to support
the mine and nothing else. So if the mine goes under so does your property. Most
investors buy houses in mining towns for one to two years then sell and move on.
When you have a mining town property you must do extra work to safe guard your
investment. Keep a daily watch on the global and local market of the product
that the mine produces. You need to make sure you sell the property months
before anything even seems to go wrong with the mine. These properties can be
time consuming to manage and have very little long term growth.
These properties can provide you with a cash flow to finance other properties or
investments, but they must be carefully managed and watched. A property in a
mining town with no mine is not worth a cent. It would be wise for someone with
great industry insight or the commitment to take on the industry knowledge to
deal with these properties. As a final note, mines generally have an expected
lifespan of decades, if you are new to the game make sure you choose a mine that
has a very long expected lifespan of fifty years plus.