So, property prices are rising are they? And everything’s looking terrific. And all you have to do to make your fortune (okay, well, a modest profit) is to just buy a piece of real estate and wait.
Look, I understand that lots of people are interested in buying real estate. And, yes, I agree, that, many times, real estate may be a reasonably good long-term investment.
But, what I can’t understand – what really gets my blood boiling – is how so many people keep on falling for the advice of so-called ‘property investment experts’. They buy investment properties from investment companies.
They don’t realise it at the time, but this is almost certainly the worst possible way to invest in real estate. It’s the road to disaster.
Over the years, I have written countless articles warning about the perils of dealing with property spruikers. I keep repeating a four-word message -¬†STAY AWAY FROM SPRUIKERS.
The trouble is, of course, that deceitful and unethical property spruikers don’t look like deceitful and unethical property spruikers – at least not when you first meet them. They come across as charming, helpful, knowledgeable and, most of all, caring and considerate. They make it easy to like them and they make it easy to buy from them. They’ll recommend law firms, valuers, lenders and anyone else tied to the buying process. They’re the ‘one-stop-shop’ for everything. But, usually, it’s a one-stop rip-off.
Every day I hear from people who have dealt with property advisory companies. And every day I hear stories that range from poor investing outcomes to absolute disasters.
Here’s one example. In 2004, a young lady and her boyfriend bought an investment apartment in the Sydney suburb of Blacktown. They bought from an investment company where the boss was charming and considerate. He was also a published author. He had written a book on property investing in which he explained that property – especially well located property – doubles in value every seven years.
This young lady and her boyfriend (now her husband) paid $325,000 for their apartment. With costs, their total outlay was around $350,000. Five years later, identical apartments in the same building were selling for $220,000. If they were to ‘cash out’, this lovely young couple – who are on the verge of starting a family – would lose in excess of $150,000. A disaster.
This is not a rare story. It’s a story that’s repeated thousands of times across Australia. Good people get taken in by smooth talking spruikers.
Look, how many times have I got to tell you? I know it “sounds good”! I know they “make it easy” for you! I know that, compared to real estate agents – many of whom never even bother to reply to emails or return phone calls – these property advisory companies (spruiking outfits) are so much easier to deal with.
Unlike the agents, these property advisory companies pay attention to you, they follow you up. They educate you. They inspire you. And they sell you something.
But you know what they sell you? Nine times out of ten, they sell you a dud investment property. (No, I am being generous – make that 99 times out of a hundred).
So, what can you do if you want to buy an investment property and you’re a novice? If these well-oiled property investment companies are so crooked, where do you go for the right advice?
Well, as much as they may frustrate and annoy you with their lack of service, I have to tell you that, generally speaking, by far the best place to buy an investment property is from a real estate agent.
In fact, the smaller and more low-key the agency, the better the chance that you’ll get yourself a decent property investment.
Oh sure, many agents will say that every property is “a wonderful investment” and “there has never been a better time to buy”. But, if you can ignore the corny clich√©s and you are prepared to do a bit of extra leg work, the humble estate agent often turns up a good property investment.
Here’s one of the main reasons that it’s better to buy an investment property from a normal run-of-the-mill real estate agent than from one of those slick property investment companies. The prices of the properties are not loaded up with excessive commissions and marketing fees.
Most investors do not realise (even though it may be ‘disclosed’ in the fine print) that, when they buy from a property investment company, the commission paid to that company can be as much as three to five times higher than the commission a normal agent would receive. I have seen investment properties, that sell for between $300,000 and $500,000 through investment companies, where the total commission and fees pocketed by the company ranges between $20,000 and $50,000.
Compare this with a real estate agent. On a sale price of $300,000, an agent is paid, generally, between $6,000 and $9,000. That’s between two and three per cent. Not the six to ten per cent rates paid to spruiking companies.
But what about all the expert investment advice, the assistance and the support? The investment companies ‘cuddle’ you all the way through. With a real estate agent, you’re basically on your own.
Well, let’s get something straight. Despite the fact that the so-called property experts deliberately try to make property investing seem as complicated as possible, it’s not complicated at all.
To do well in property investing, just buy a decent property in a good area for a reasonable price – and wait.
So, how do you know which area?
Well, I always think that you should, as far as practicable, try and buy in your local area. But, for a list of good investment areas, just use the services of a good researcher such as Terry Ryder of¬†Hotspotting.
And, how do you know if you are paying the right price? Simple. Just use the services of a good independent property valuer.
And how do you know you are not getting ripped off with some tricky or dodgy conditions? Again, the answer is simple. Just use the services of a good lawyer.
So, there you have it. The essence of good property investing is to do the rounds of the agents. If you’re lucky you might even find a nice agent, one of those good old humble types who’ve been around for years.
If you want to invest in property, buy from a real estate agent NOT a spruiking company. That’s what all the smart property investors do.
Remember that property, mentioned earlier, where the young couple paid $325,000 for it back in 2004? Well, as I said, five years later, in the same building, similar apartments were selling for $220,000.
And guess who’s selling them?
The humble local real estate agent.