DON’T GET HOODWINKED BY PROPERTY SPRUIKERS
With the real estate boom that has happened over the past five or so years, there has been the usual spate of property spruikers looking to make a quick buck by separating a fool from their money.
Nathan says, the best way to avoid getting scammed is to have a clear goal, map out an investing strategy and make sure every purchase you make fits in with your game-plan.
HOW TO SNIFF OUT A SCAM
There are so many types of scammers out there, we just can’t list them all here. However, it pays to know who you are dealing with so here are some of the most prevalent ones we are seeing at the moment:
OFF THE PLAN SPRUIKERS
You can’t deny it, it does feel nice to buy something shiny and brand new. This is exactly what off the plan retailers are counting on.
Diving into an off the plan investment property purchase based on emotion means your deposit will be held captive while you potentially wait years until settlement, losing valuable opportunities and time to make money!
What’s more, sneaky clauses within contracts are common, meaning your contract can be rescinded or the final property will end up looking very different to what was shown in the brochure.
Thirdly, retail priced new properties are often overpriced to cover in heavy marketing costs, sales overheads and commissions.
Being better than sliced bread or even a Thermomix (if you believe the spruiker), you just chuck one on your property and soak up the money. Why wouldn’t you do it?
Well, looking at things strategically there are good reasons not to. Granny flats don’t add much value to a property but can cost around $100k to build!
The money could be used to buy properties elsewhere, or renovate a few existing properties, where is it likely to return better capital returns and cash flow to boot!
Granny flats eventually need maintenance which could erode the cash flow before they’ve paid themselves off and earned their keep.
SO CALLED “GUARANTEES”
If you see anyone offering a guaranteed rent or cash back then think twice. What makes them able to offer you this guarantee? It’s likely that the equivalent cost of the guarantee or cash back has actually been built into the price. Will the property actually be worth what you paid for it?
Secondly, what will happen afterwards? Reading the fine print will often show that rent if often only guaranteed at a certain cap or for a certain amount of time. Will you be able to get reliable rent at all after that period ends?
NEGATIVE GEARING AS A WEALTH STRATEGY
When spruikers promote tax advantages then they’ve got nothing else going for their property apart from you losing money and them framing it as a tax benefit. Negative gearing is not a property investment strategy, it is a tax minimisation tool.
OVERSEAS PROPERTY INVESTMENTS
It can be easy for a spruiker to rip you off with overseas property. Different socio-economic conditions, geographical constraints, past and future market conditions, different legal system tax implications are difficult to make sense of. Many buyers can be easilly mislead.
Specialty accommodation is any kind of accommodation which is intended for a niche market such as holiday, retirement or student living.
Retirement accommodation is often promoted as a ‘safe’ investment with guaranteed rent, but in reality, it is actually a high-risk investment, says Nathan. This is because maintenance costs are usually high, the tenant base is relatively small and there is little movement in price.
Student accommodation presents a similar problem – the market for renters is very limited, wear and tear is greater and there is a high turnover of tenants.
When it comes to holiday accommodation, owners have no control over the rent and the returns usually aren’t good. Nathan says, “Generally, it’s very hard to get a loan on them and they are not worth what you pay for”.
PROPERTY SELF EDUCATION COMPANIES
The keyword here being “self” because in the end, even after all their help, investors are still left to their own devices when structuring their portfolios and purchasing properties. They may have paid thousands for an education package, yet still don’t have a clear strategy or properties to show for it. They still need to do all the hard leg work themselves.
While it is important to educate yourself on property investment, it’s unrealistic to be an expert in every area of property. Unless you have 24 hours a day to devote to learning about law, finance, property management, financial planning, property scouting and negotiation then you need to put aside your pride and accept some hands-on help from professionals with proven results.
Many so-called property advisors who offer free property consultations or mentoring sessions are actually just off the plan or investment product spruikers. No one is going to spend money hiring a venue, flying you to a location or creating a course in order to give free advice without expecting anything in return.
You should question the agendas behind anyone who gives you “free advice” and make sure to base all your decisions on whether or not taking a certain recomended action will help you achieve your long-term goals. The most expensive kind of advice is the advice you get for free. The same goes for that “free” trip or holiday.
If you want to succeed in property, then it’s vital to get no BS advice from the right professionals who have consistent, proven results in helping investors achieve their goals… even if it means parting with some money. Educating yourself is CORRECTLY is the best investment you will ever make.
HOW TO AVOID BEING HOODWINKED
When it comes to being successful property investing, it is essential to treat it like a business. All good businesses operate on a well-thought out plan that is based on how well the numbers stack up.
If you remained focused on your end-goal as an investor, as well as your plan of attack to get you there, you will be less likely to make the wrong purchasing decisions.
KNOW WHY YOU ARE INVESTING
What is your end goal, what position are you currently in and what action do you need to take in order to get there?
HAVE A WELL-RESEARCHED AND ROAD TESTED STRATEGY
Map out a plan of attack and have a thorough understanding of the types of properties you need to purchase during each phase of your investing journey.
MAKE SURE EACH PROPERTY TICKS THE RIGHT BOXES
Before deciding to purchase any property, make sure it is below market value, has a good upside for growth and has a strong cash flow.
MAKE SURE EACH PROPERTY IS IN LINE WITH YOUR GOALS
Before deciding to purchase any property, ask yourself whether it will bring you closer to achieving your goals. Is it in line with what you need at this particular stage of your investing? How does it fit within your portfolio?
MAKE SURE THE NUMBERS STACK UP
Do a cash flow analysis and study the market so you can be certain you are getting a good deal. If the numbers don’t stack up, then don’t buy it.
BALANCE YOUR RISK
Make sure that the property you buy and the way in which you buy it manages your exposure to risk so that you can ride out the worst case scenario or have a property exit strategy. It’s equally important to make sure you don’t take on too little risk and limit your potential to create wealth and achieve your goals.
If you arm yourself with knowledge about the market and the best way to achieve your goals, you will start to know a bad deal when you see it.
Have you ever come across a scammer? Do you know someone who has been tricked out of their money? Please share your experiences in the comments section below.