Why Free Advice Isn’t Free … or Good Advice!
Now that you know the steps to buying property which outperforms the market, let’s review the first step; why free advice isn’t good advice.
Flip open any property magazine and they all scream with attention-grabbing headlines such as:
- How to make millions fast
- Single mother becomes property millionaire in 18 months
- Build a multi-million dollar property portfolio in your spare time
- How to invest with little or no deposit
- Secret strategies of the wealthy
- You too can become property wealthy with no effort, no deposit, no money and no knowledge (actually I made that one up for fun…)
Property investing has become so trivialised and it seems so easy, that apparently almost anyone with no experience, no deposit and no income can become a property millionaire – overnight!
It’s important to understand how the property market in Australia works and that ‘free advice isn’t free or good advice’.
Unlike the financial planning, mortgage broking and insurance sectors, the property sector is not regulated by a national governing body such as ASIC so alarmingly, there is no requirement for people involved in the property sector to have a minimum qualification to provide ‘property advice’.
As a result, there is an abundance of property spruikers, selling agents, developers and even mortgage brokers, financial planners and accountants who are all selling property based on the ‘free’ education, strategy and advice they provide. This property based education often takes the buyer down the path of buying whatever property or strategy the ‘expert’ has to sell, because it matches the ‘free’ education provided (the exception being those who offer genuine independent and unbiased ‘advice based’ buyer advocacy services).
While ‘free advice’ may seem harmless, the consequences can be devastating!
The difference between buying an property growing at 3% pa, versus an investment grade property that grows at 8% pa on a $400,000 purchase, could literally make $100,000’s and even millions of dollars difference over a 10 – 30 year period.
So while the advice has been free, poor performance has cost the investor a phenomenal amount of money in lost capital growth.
|Years||3% growth p.a.||5% growth p.a.||8% growth p.a.||11% growth p.a.|
This is why owning only 3 high performing properties instead of 7 average ones is a better strategy. However the property developers, project marketers and selling agents won’t agree with that!
As an aside, there is also the matter of conflicted commissions that some accountants and many financial planners are earning when referring to project marketers, developers and property spruikers. In this instance, they legally represent the vendor in the transaction and not their client, so they aren’t acting in their clients best interests, which is what they are required to do. This also means there is a potential liability risk to their business that is associated with receiving these ‘referral’ fees (commissions).
Much of the property sold in Australia is sold on the basis of buyers being provided with ‘free advice’. That in itself should act as a warning to buyers, who need to learn more about who they are dealing with by asking better questions.
The people selling property to them aren’t required to (and aren’t going to) volunteer answers to questions investors don’t know to ask, because it may kill their deal – and, if they are commission sales agents, they need to eat!
‘Free’ services and how they are really paid
There are numerous clever and innovative ways of selling property in the marketplace today, including memberships, referrers, research houses, telemarketing, in-home visits, clubs, coaching and property ‘experts’. Urgency and exclusivity are often used in many of these sales methods to put high pressure on buyers to make fast decisions, without allowing them time to seek independent advice on the basis that they will miss out. Often these methods educate their clients to buy their product, but they may not provide holistic advice.
Let’s review a couple of methods:
One method is offering memberships to investor groups, project marketing firms or clubs for exclusive access to special deals that have been sourced by ‘specialist acquisition teams’ who negotiate amazing deals on behalf of their members/buyers.
Sound familiar? Don’t be fooled. In its simplest form, this is sales and marketing ‘smoke and mirrors’ to hide the fact that they are real estate sales agents/project marketers/property spruikers/wholesalers of property. While they might sound like they are working for the buyer and their interests, they are actually being paid by a vendor/seller/developer and are seeking the highest sale price possible. They are acting in the vendor’s best interests at all times, not yours.
Research houses are often licensed real estate agencies marketing themselves as ‘research’ houses, or having specialist property research or acquisitions teams within their firm, who source or assess developments presented to them. They determine whether these developments meet particular criteria required for them to be willing to sell them to their clients or referral partners/business partners. On the plus side, some of these firms are being more selective with the property they are selling than the average project marketer, but they are still selling from the limited selection that they have, and not from the total marketplace.
You are likely to be invited by your accountant or financial planner to attend the research house’s Property Market update, where you can learn how to accelerate wealth personally or via a self-managed super fund (SMSF) by investing in property. You can also discover the key drivers of capital growth, understand property cycles and the importance of investing at the right time (which will be immediately because they have stock to sell immediately) and discover growth markets and buying opportunities (the stock they have on hand).
For example, the invitation may read as follows “We provide customised investment strategies based on your personal goals and situation. By providing professional in house advice about your investment needs and exclusive access to properties that have been sourced and negotiated by our specialist investor buyer agency*, we help you to achieve your property goals without stress or fuss.”
* It is possible that use of terminology such as ‘investor buyer agency’ when they are in fact acting as for a seller or vendor and not the buyer, could be deemed deceptive and misleading conduct by Consumer Affairs/Fair Trading, so ask questions to clarify how they are being paid.
The purpose of these many of these groups is to provide education, networking support and often the sourcing and provision of property for purchase. Joining a club is showing an indication that you are self-directed in your desire to buy property. However, it doesn’t mean these services are holistic or impartial, because the group’s purpose is to sell property to members, not just to educate.
By understanding the methods in which property is sold and the underlying intent behind the ‘free’ advice provided, investors have the greatest chance possible of asking the right questions to ensure they are buying the right property to meet their needs and not the vendor’s needs.
Some of the article content is extracted from the book Property Prosperity – 7 Steps to Buying Like an Expert by Miriam Sandkuhler © 2013, with the author’s permission