by Neil Jenman
The biggest mistake in real estate is failing to do enough research. Look for yourself: Every month, thousands of homes up for public auction and almost all short-sold, often by tens of thousands of dollars.
And why? Failure to do adequate research. No, in most cases, make that “ANY research”.
What about investing?
Recently I have been contacted by two different investors, both of whom made the same terrible mistake. Both lost several hundred thousand dollars each. One of them was the father of one of my children’s school mates and the other contacted us through our support service. Both these “investors” had consulted a man who hails himself as Australia’s most trusted, awarded, respected, honest, qualified property “Buyers’ Agent” – you know the drum. But, gee, what you don’t know, what you don’t see – at least not with this bloke – is what goes on ‘backstage’ and the lengths he goes to in order to hush-up anyone saying anything negative about him.
No matter how often I see people losing money in property investing – especially after they have been given so-called “expert advice”, I feel sad and angry.
Anyway, how can I stop these losses? I can’t – not unless I put my life on the line or spend half my life defending myself in court from attacks by property spruikers.
Some of my closest friends – mostly women – tell me the same thing: “You can’t save everyone, Neil.” Well, now I am coming to accept that sad truth. There will always be people who don’t do enough research or who don’t contact Jenman Support before they dive into the shark-infested real estate waters – not just with investing but with selling or buying a home.
For now, – and especially for those who want information in a hurry – I have listed 17 Rules of Property Investing. Now, I know that, just as Harry Truman knew that if he called the plan to save the people of Berlin after the war, The Truman Plan, he’d have been scoffed at, so he called it The Marshall Plan after his respected secretary of state, General George Marshall.
And so, taking the lead from Truman, this Jenman fellow is not going to call them ‘Jenman’s 17 Rules of Investing in Property’, instead I’ll call them ‘Marshall’s 17 Rules for Investing in Property’ – and, although they are not written by the long-dead old general, I can safely say this – having read the four-volume biography of Marshall’s life by eminent historian, Forrest Pogue, Marshall would not only have approved of these rules, I reckon he’d have followed them. And, if he had any concerns, he’d have done more research.
If you are thinking of doing anything in real estate, do what General Marshall would have done.
17 RULES FOR INVESTING IN PROPERTY
Don’t invest until you understand and follow these rules.
RULE 1. SAFETY.
‘WITWTCH’ stands for: What is the worst that can happen? This 7-word question must always be thoroughly answered. If you don’t like the answer, if you can’t live with the consequences should the worst happen to you, don’t invest!
RULE 2. GLOOM OR BOOM.
Avoid the herd. Sell in boom buy in gloom. Investors who get badly burned are those who followed the herd. Oh sure, it feels safe to jump in when everyone else is splashing around looking happy – but most people are mugs when it comes to investing, so don’t do what mugs do. Avoid buying in a boom. It takes real courage to buy when everyone else is selling, but that’s how you do well – by doing the opposite to what most people do.
RULE 3. FINANCE RIGHT.
Remember you are not “given” money, you are literally BUYING money. So, shop around, you’ll be amazed at how much you’ll save with a few hours of research.
RULE 4. AVOID EXPERTS.
Be careful, most investment companies or self-titled “experts” are making a fortune on fees from developers. If you knew how much these so-called experts are paid, you’d never go near them.
I know I criticise agents a lot but when it comes to investing in real estate, the best buys and the safest places are almost always your ordinary real estate agency. Here’s one of my favourite rules for shrewd investing – “Buy an ordinary property in an ordinary area from an ordinary agent – and wait.”
And please, there is nothing wrong with asking the question of anyone who is selling you real estate: “How much do you get out of this?” If they won’t tell you, ask yourself why not.
RULE 5. AVOID ACCOUNTANTS & FINANCIAL PLANNERS.
Some developers offer accountants and financial planners as much as $50,000 commission just for a ‘lead’ that turns into a sale. Yes, that’s right: Your mild-mannered accountant who’s been doing your tax returns may be the biggest property shark in your district, especially if he or she is accepting thousands of dollars for effectively “selling” names of clients to developers. If your accountant suggests you buy property and recommends a specific investment, ask your accountant how much they are being paid. If they won’t tell you or they admit they are getting any commission, you must take two actions: First, do not buy what you are being offered and second, sack this accountant and find an honest one.
RULE 6. RECORD.
Two things are common these days – lies and technology. A smart phone which doubles as many things, including a recording device. For your own safety, always record any person who is trying to sell you anything – particularly in the real estate world.
Be sure to declare that you are recording a person. Simply say, “I am going to record everything that is said so that I have it for future reference.”
Some people will say they are “not comfortable” with being recorded in which case you should reply, “What, you are not comfortable with the words that come out of your mouth?”
RULE 7. MAINTENANCE.
Beware of maintenance costs. Most investors, especially first timers, have no idea how much it costs to maintain a property. Repairs and maintenance can amount to thousands of dollars a year. Plus, as you are a “landlord”, you are often perceived as wealthy. The agent may call you constantly with requests from your tenants for all sorts of “extras” to be added to your property. Be aware of on-going maintenance costs before you buy.
RULE 8. LOVE.
Love it or leave it. Perhaps the most stupid words in investing – pushed by the sellers of ‘poor-quality’ properties – are these: “You don’t have to like it, it’s only an investment.” Excuse me! Understand this point: If you buy a ‘dud’ property, you’ll limit your re-sale market one day. Plus, what sort of tenants do you think are attracted to poor quality properties? If you do not like the investment property, if you would not live in it yourself, do not buy it.
Love it or leave it, that’s the rule!
RULE 9. TENANTS ARE CUSTOMERS.
In real estate, tenants are often treated as third-class citizens. If you want your property looked after, then look after your tenants. Don’t see them as tenants, see them as customers. Treat them well and you’ll increase the chances of them treating your valuable property well.
RULE 10. HAWKE-EYE MONITORING.
Always keep a close watch on your property and what’s going on with it. If you don’t, you’ll be shocked at what may happen to you. There are three conditions under which people may cheat you. First, if they can justify it to themselves. Second, if there are no ‘checks’ in place and third, if they feel they won’t get caught. These are the conditions that are almost always in play when something terrible goes wrong with a rental property – such as you discover that drug dealers have turned your home into a hydroponic drug centre (it happens often!). If you can’t watch your home yourself, find a competent agent. And beware of tenants who offer to pay six or twelve months rent in advance.
RULE 11. INSPECT BEFORE BUYING.
This might seem a tough statement to make but if you buy an investment property without inspecting it first, you deserve to lose. Never buy any property, no matter where it is, unless you see the property and research the local area. Never mind technology where you can ‘see’ property on the internet by video. Nothing is as good as your own eyes. It’s seriously stupid to buy property “off the internet” without inspecting it – that’s not only stupid, it’s negligent. You wouldn’t marry a person without meeting them and getting to know them (or, at least, you shouldn’t), so don’t buy a property without seeing it and getting to know both it and the district.
RULE 12. AVOID ONE INDUSTRY AREAS.
Some of the worst losses made by property investors have occurred in ‘one-industry-towns’. Never buy an investment – unless you accept that you are ‘gambling’ – in areas with just one major industry. In some of the mining towns, especially in Queensland and Western Australia, hundreds (maybe thousands) of investors have lost hundreds of thousands of dollars each.
In some areas, prices began at less than a hundred thousand and then, in two to four years, soared to eight hundred thousand dollars or more, sometimes over a million dollars, as investors – egged on my property spruikers at get-rich-quick seminars – bought en-masse, many without inspecting the properties.
When the ‘investment music’ stopped, as it always does in one-area boom locations, prices crashed by as much as 80 percent. In just one of many examples, the average price in one area (Dysart in Queensland) fell from $325,000 in 2008 to a mere $73,500 ten years later in 2018. There are dozens of other such disaster towns, all in one industry area.
The best advice for most investors is this: Avoid one industry areas.
RULE 13. RIDE YOUR BIKE PAST IT.
The purists (not to mention the “experts”) may be critical of this rule. You should seriously consider investing in the area where you live. It’s wonderful to be able to ride your bicycle past your investment property. You probably chose to live in your current area because you like it. Well, invest in it then! Many times, every few years, when they have saved some more money, hard-working families buy a home in the area where they live. These people are some of the nation’s most successful property investors. Simple rules, simple values, simple investing. It’s often the best way.
RULE 14. BUY AT AUCTION.
Contrary to the well-oiled industry propaganda, prices at auctions are often much lower than prices under normal sales. Recently one investor said: “I have bought many properties at auction and I always buy for less than I was prepared to pay.” The saying, “You make your money when you buy,” is true – and if you know what you are doing, you can nab a property investment bargain at auction.
RULE 15. INFRASTRUCTURE.
Most people can’t spell ‘infrastructure’, but they can count the effect on your property. Some of the most successful investors say that ‘infrastructure’ is the most important word in property investing. Especially future planned – or better still, approved – infrastructure. Check it out for yourself and watch what happens. Infrastructure plans are announced, and property values rise slightly. Infrastructure construction commences and again values rise slightly. But then, once the infrastructure is complete, values soar. Infrastructure is perhaps the most important word in property investing, especially if you are seeking capital growth.
RULE 16. RESEARCH, RESEARCH, RESEARCH.
If you’re going to spend several hundred thousand dollars on an investment property, for goodness’ sake, spend a few hundred dollars on reputable research. Two of Australia’s best and most trustworthy researchers are Louis Christopher of SQM Research and Terry Ryder of Hotspotting. Both these men have saved (and made) a lot of money for investors. Researching before you buy is just common sense. Unfortunately, as the saying goes, “common sense is not very common” these days.
RULE 17. DON’T SELL.
If you own a great property in a great area, guess what? It will get better. Almost every person who sells a good property wishes they’d kept it. There is nothing wrong with debt if the cost of that debt is covered by the income from a property. So, if it’s not costing you anything and you can afford to keep it, do so.
If you need money, consider re-financing – then you get some money and you keep your great property. Yes, you can often have your cake and eat it too.
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