Warning, watch out for property schemes and spruikers.
There are a lot of “property experts” in the market at the moment – and a lot of gimmicky deals too.
You know the ones; buy a property off the plan and get a cheque for $10,000, or “we’ll pay the first six months of your mortgage for you”, and so on.
But, while things aren’t always what they seem, there is one thing that can guide you when figuring out if a deal is worth taking – the numbers.
Would you pay more than twice the price for a new development?
Nathan Birch, head of Binvested, recently spoke with a guy who had agreed to do just that.
The man had just purchased a property off the plan for $700,000, when the average one in the area sold for $250,000. The block of land was also half the size of those ones selling for $250,000.
“When he tried to get out of the deal, the lawyer tried bullying him, the broker tried bullying him – because they were all from the same sales company that were selling these properties,” says Nathan.
There are a lot of property schemes at the moment.
Nathan says, while there are some pretty cool deals out there at the moment, such as developers selling at wholesale prices, there are also a lot of dodgy ones.
“There are a lot of scams out there at the moment.”
“I think there is going to be a whole wave of people that are getting burned,” he says.
Which is why it pays to do your own research into buying a property.
He says, it is important to focus on the fundamentals, such as whether the numbers stack up.
“Does the property have a strong cashflow? Are you genuinely getting a property at a discount?”
“I’d rather get a discount on the property price than having a fad type thing like cashback.”
What is a cashback scheme?
Many OTP spruikers lure people into paying more than a property is worth by offering them freebies. These can include cashback in the form of a cheque, paying off the first three or six months of the mortgage and 12 month rental guarantees.
According to Nathan, some developers do this to try and maintain the value of the properties if they are having trouble selling. This way, they don’t have to risk devaluing the whole development by dropping the purchase price to secure more sales.
Others may just factor these freebies into the cost of the property, so you are basically paying for them yourself.
Another thing to remember is that OTP salespeople often earn big commissions, so if they are making $100,000 on the deal, then giving you a cheque for $10,000 isn’t going to hurt them much.
Beware the spruiker.
Nathan says there are a lot of so-called property experts out there at the moment who made it big during the boom. They were in the right place at the right time, but this doesn’t mean they are experts.
“All the people they have given advice to have become lucky to make money out of this market, but they don’t know why they have made money out of this market.”
“Now, we’ve got all these experts out there that are touting wealth creation in different ways.”
But, if they don’t understand how the monetary system works, then how can they be experts?
Choosing real experts to back you.
When it comes to dealing with these so-called experts, it is a good idea to find out how long they have been in the industry. If they have made money through more than one cycle, then it is more likely they know their stuff.
Do they invest in the properties they are spruiking to you? It could be that they don’t invest at all. It could be that they make huge commissions from selling properties and that’s how they have become rich.
“It’s important that you have your professional team around you as always,” says Nathan.
Run any new ventures past your lawyer, accountant and financial planner – and make sure they are independent. When you choose a team of professionals, it is important their goals are in line with your own.
As always, says Nathan, it is important to look at the numbers. If you base your decisions on this, the lure of those glossy brochures and cashback schemes will soon turn sour.