Two golden rules guaranteed to protect you.
by Neil Jenman
Within an hour of reading this article another investor will almost certainly have been ripped off in another dud Queensland property deal. That’s how often it happens.
While there is no official ‘Register of Rip Offs’, it’s not hard to work out the figures. Based on the number of sales made – especially to novice investors (often from interstate) – I estimate that a thousand people are ripped off in Queensland property deals every month. And that’s probably conservative.
The rip offs are quite simple. Investors pay too much for the properties they buy. And, what’s worse, the vast majority don’t know they’ve been ripped off. Some never realise it. This is especially true during a boom.
Let’s say the true value of a property is $350,000 and the naïve investor buys it for $450,000. A few years later, the property may be worth $650,000. The naïve investor has made a [gross] profit of $200,000. He thinks he’s done well. The poor chump (and there are plenty in this category) may even buy a second or third property (and unknowingly get ripped off a second and a third time).
Of course, when the market is stable (or rising only moderately) some of these investors do discover they’ve been ripped off. The discovery happens if they come to sell. They go to a local agent and are horrified to learn that the property they bought for $450,000 is only worth $400,000, at best.
Right now, especially in Queensland, hundreds of novice investors are buying house-and-land package deals. Well, actually, I think it’s wrong to say they are “buying” because that infers they acted wisely.
No, these investors are being “sold”. They are being talked into buying properties that are way over-priced, often by as much as a hundred thousand dollars, certainly fifty thousand dollars. The reason so many of these novice investors are buying is because skilled salespeople are making the buying process so easy. “Just sign here and we’ll take care of everything.”
Novice investors all have similar characteristics, which make them ripe for a rip off. They are eager to buy (because they believe, often rightly, that property is a good investment) but they are daunted by the buying process. To a novice, everything seems complicated. And, so, when someone comes along and offers to “take care of everything” the novices feel a huge sense of relief.
Now, if you are reading this because someone is suggesting you buy property in Queensland, you’re almost certainly thinking that this article does not apply to you. After all, the people from the company you are using all seem so nice, so professional and so knowledgeable. There’s not a question they can’t answer in an instant. They are making you feel completely at ease.
Well, let me tell you something obvious. Nobody who gets ripped off in real estate ever knows it at the time they are buying the property. They all feel good. If not, they wouldn’t be buying. The same applies for almost every commodity that people buy – at the point of purchase, when they hand over their money and/or sign a contract – they feel good.
But in property transactions, thousands of people – especially novice investors – make a simple and deadly mistake. They fail to do two simple things that could have saved them being ripped off.
The first thing is to get an independent valuation (from a valuer who is not connected to the company selling the property) and the second thing is to seek the advice of an independent lawyer (who, also, has no connection to the company selling the property).
Of all the things that astound me in the property world, nothing makes me shake my head in despair as much as the foolishness of novice investors. People who are spending hundreds of thousands of dollars make the terrible mistake of not spending a few hundred dollars getting what amounts to a veritable safety check of the property – an independent valuation.
Oh yes, I know, the salespeople selling the investment property all have a snappy and persuasive line for why there is no need to get an independent valuation. They will say such things as, “If the property isn’t worth the money, the lender won’t approve the loan,” or they may say, “All our properties have already been independently valued,” or, “We insist on letting the banks show you their valuation.”
Well, no matter what they say, here’s a warning for you – do not believe them. Get your own independent valuation.
Yes, I know the process of buying property seems complicated (it’s not, but salespeople make it seem complicated so that you will “leave it all to them”); but, seriously, what’s complicated about saying, “Before I commit to buying any real estate, I must get an independent valuation.”???
Do you know what’s really astounding? Most people would never buy a car without getting an independent inspection (usually from a trusted automotive association such as the RACQ) but when it comes to buying property those same people will spend ten or twenty times as much money as a car and not spend a few hundred dollars on a valuation. It’s madness.
I see scores of people ripped off in real estate. It’s heartbreaking and oh-so-frustrating. What makes it so frustrating is that, in the beginning, it’s all so easy to avoid.
Here’s what I hope is a sobering fact for all investors who are thinking of buying property in Queensland right now (or indeed anywhere).
Yes, thousands of people have been ripped off in real estate and yes, hundreds of people are now being ripped off, but the good news is this: I have never seen anybody ripped off in a real estate investment if they have followed what I believe are the two golden rules of investing in property.
Get your own lawyer and get your own valuer.