Friday, 24 February 2017
Firstly, you must know that the ‘Property Investment Advice’ industry is not regulated.
It seems crazy that anybody can give you so called advice on investing in property without having any qualifications, a regulatory framework to adhere to or even experience for that matter. There is also no accountability for poor advice which has led the industry to breed some unscrupulous operators who sell their properties under the guise of property investment advice – the property shark.
The property shark can be quite easy to identify when you know what to look out for. They normally hold seminars that they fill through mass advertising campaigns. This is very expensive so you know that they are going to want to recoup those costs, as well as maximising a profit. The presenter is usually a smooth talker, hitting all of the psychological touch-points while delivering a generic property investing presentation. You know the one, “properties double in value every 7-10 years” and “you can’t go wrong with bricks and mortar” etc..
If only it was that simple and straight forward like they will have you believe, however not all properties double in value in that time-frame and you most certainly can go wrong with bricks and mortar if done incorrectly.
Then at the end of the seminar they will unveil their latest development which is a high-rise apartment building 3 years off plan which you get excited about because of the glitzy marketing material and that cool looking rooftop bar in the brochure. You could just imagine hanging out there with your friends having a great time and therefore your tenants will too. You will never be short of a tenant paying top dollar rent… or will you?
What They Will and Won’t Tell You
- Will: Buy now at today’s price so that you can have an uplift in capital when the project is completed in 3 years.
- Won’t: There is going to be 20,000 similar new apartments that are going to be coming onto the market within a few kilometre radius at the same time that will potentially dilute values significantly.
- Won’t: Half the apartments in the project will be sold to foreign investors which could have inherent issues.
- Won’t: A lot of lenders (banks) don’t have an appetite for high-rise apartments in areas of oversupply resulting in difficulty to finance when it is complete.
- Will: This project has great facilities: lifts, gymnasium, rooftop entertaining area.
- Won’t: There will be a body corporate bill of $8,000 per annum that will greatly affect your cash-flow budgeting.
- Won’t: When the project is completed you will have 300 identical apartments coming onto the market at the same time meaning you can only compete on price to get tenants.
More Things to Look Out For
If a property shark is spending all this money to get a sale, they need a lot of people to buy. This means they need to have lots of properties to sell. They don’t necessarily care about how good of an investment it is, they just need a lot of them. That is why they will generally be promoting high density apartments or house and land options where there is no shortage/scarcity of land (because they can get the best terms….for themselves).
Another thing you need to look out for is whether the person/company that is giving you ‘property investment advice’ is also ‘selling’ you a property. Now be aware there is an important distinction between those ‘selling’ and those helping you ‘purchase’ (for example a Buyer’s Agent). The major factor is that one is working for the vendor and one is working for the investor. Once a person/company has an exclusive listing of a property to sell, they are legally and morally obligated to achieve the best outcome for the vendor. They have no obligation (and in a lot of cases consideration) about a good investment outcome for the investor.
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If you are interviewing who you should take advice from in this unregulated industry, find out what their qualifications and experience are. Ask them if they have Professional Indemnity insurance to give property investment advice – this is rare in the industry. Find out if they have access to whole of market properties with no bias, as opposed to a limited stock-list that they have the exclusive listing.
There is no ‘one size fits all’ when it comes to property investing. Every investor has a unique situation with different goals, risk appetite and therefore requirements. A true Property Investment Advisor will take all of this into consideration when providing advice and developing a strategy.
About the Author
Nick Holden is the Founder of Simple Property Investment and an insured, qualified Property Investment Advisor under the ASPIRE Network industry body. He is a Licensed Real Estate Agent, holds a Diploma of Financial Services (Financial Planning) and Cert IV Financial Services (Finance and Mortgage Broking). As there is no ‘one size fits all’ with property investment, he is on a mission to help ordinary Australians create wealth for their futures with personalised strategies and advice.
