Now more than ever there is more information about property investment available.
Much of it is online and in many cases it’s mostly untested.
Any Tom, Dick or Harriet it seems can create an “expert” persona, perhaps because they’re good with words or have a couple of property wins on the board, probably solely due to a rising market.
Information is king, but poor information can end up not only making you feel like the court jester, it can also make you go broke.
Who’s offering you advice?
As I see it there are three different groups of people you’re likely to come across when you’re looking for your next property investment:
- A Salesperson.
While many salespeople appear to be working for you, they in fact represent the people who are paying their wages, either the property owner (if they are a real estate agent) or a developer.
Because they work off a stock list you’ll usually find they have a solution for you even before they know what your real needs are, so they’re not really giving advice.
Of course, they have their role in the property game but at least you know who they’re working for. And it’s NOT you!
Remember…if you’re not paying their fee, you’re likely to become the product.
While sales people are transactional and think of the current “sale” or purchase, a professional property advisor will aim to develop a long-term relationship and help their clients understand the next 2 or 3 steps even before taking the first step.
A good advisor will not have any properties for sale, but will have a range of potential options to recommend and will then refer their client to a buyer’s agent who is part of their team to find the best opportunity in the market to suit their client’s budget, plans and risk profile.
- A property spruiker
Now these are the ones to be careful of, because they are salespeople who masquerade as advisors.
Some offer mentoring programs, others invite you to join their “club”, while others cold call and offer you a home consultation or free seminar about investing in property.
You know…”no obligation, just great information and education.”
Sounds good so far. What could possibly go wrong?
But of course, their aim is to sell you a new or off the plan property from their stock list.
So, here are some signs that you’re dealing with a property spruiker.
- They have a one-size fits all approach
Just like everyone doesn’t fit the same pair of trousers, one strategy does not fit every investor.
While my strategy is to only buy investment-grade properties, there are variables within this depending on the individual investor’s financial position, income, age, goals, cash flow and hopes – the list goes on and on.
A professional property investment adviser will create a detailed plan that reflects all the above, which means the strategy is uniquely tailored for each investor.
A spruiker, on the other hand, will have a one-size fits all approach such as everyone should buy new off-the-plan units because of the tax deductions.
That’s not a strategy. It’s a recipe of disaster, which leads me to my next point…
- They don’t talk about the risks
Property spruikers don’t talk about the risks.
When “recommending” a new apartment, the property spruiker would concentrate on the potential to claim various bits and pieces at tax time.
They won’t outline the fact that the investor will have to have the cash flow to pay the mortgage from one year to the next before receiving of this supposedly “money for nothing” funds.
They also won’t talk about the risks of buying new units such as the propensity for oversupply because developers tend to get a bit carried away.
They also won’t talk about the risk of new units not increasing in value at the same pace as superior investments, like well-located established properties, because then you might decide not to buy the stock that they’re spruiking.
On the other hand professional property advisers outline the potential risks and rewards to all their clients at the outset, because while their strategies are proven, the world can go topsy-turvy for plenty of reasons we can’t imagine, let alone control.
- They talk a lot about investing but don’t do it themselves
Many online experts can talk the talk, but they haven’t really walked the walk.
Perhaps they have bought a handful of properties and because of some market growth – that everyone in that location benefitted from – they start shouting their newfound expertise from the roof tops.
I often say a rising tide lifts all ships, but it’s when the tide recedes that you learn who is still afloat and who is not.
Professional property investment advisers should have substantial experience over a number of market cycles.
That means they should have invested for at least one or two decades and have solid evidence of their property investment achievements.
A spruiker will likely use an example from recent times, whereas a professional will be able to show (and not just tell) you about properties that they have invested in personally and professionally over the years.
Also, a spruiker probably doesn’t follow the non-strategy they’re spruiking, whereas a professional will live and breathe it heart and soul.
Here are some more red flags to watch out for:
Beware of someone who:
- Has a stock list of properties to sell you.
- Offers you a property rather than an investment strategy.
- Gives “advice” before they’ve found out all about you, your needs, your plans, your risk profile.
- Offers a “one stop shop.” Particularly if they want you to use their lawyers, rather than your own who should vet any contract carefully.
- Tells you that negative gearing is a sound property strategy (because it’s not an investment strategy at all – it’s a consequence of how you finance your property.)
- Suggests property values always keep rising.
- Offers a rental guarantee to sweeten the deal.
- Pressures you into saying yes quickly to whatever it is they’re offering, whether it’s deciding to attend a seminar, signing up with their company to gain advice and any other sales tactics.
- Downplays the risks and related costs that are involved in property investing, and/or has an inability to substantiate their claims of profit and success. If they’ve helped so many people achieve success, where is the proof of that?
The bottom line.
Education is key in your journey to successful property investment and the ability to distinguish between an expert and a spruiker must be one of your first lessons.
Don’t get me wrong, the vast majority of people in the profession do the right thing.
The trick is make sure you’re working with the ones who always have your best interests in mind and who are more than happy to show you the times when they got it right, but also the times when things didn’t quite work out as they had hoped.
You see, those people are the professionals who aren’t afraid to admit that while they might be experts today, they were once learning the ropes just like you.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.