by Neil Jenman
READING TIME: 4 minutes apx
There’s a nasty breed of character in the real estate world. The property investment adviser. If you think agents are dodgy, these self-titled “investment advisers” are deadly. They make agents look like angels.
DANGER!! I have never found a property investment company I could feel comfortable recommending. Not one.
Here’s their scam in five words: THEY SELL MASSIVELY OVERPRICED PROPERTIES.
These “experts” pocket as much as one hundred thousand dollars for each property they sell. Normally, they make at least $40,000.
If a typical real estate agent sold a property for $400,000, they’d earn about eight thousand dollars. So, someone getting five times as much as an agent, well, that money must come from somewhere. It comes from the properties being ‘loaded up’ because developers are paying huge commissions to these “experts”.
By “massively overpriced” I mean properties ‘loaded’ by at least fifty thousand dollars. I have seen some properties that are overpriced by a quarter of a million dollars. And these properties that “experts” sell: They generally have very poor capital growth. Like ten years or more with zero appreciation. Some even fall in price. They are poor quality properties often in areas where hundreds of other naïve investors have been stitched up.
Experienced investors know one of the secrets of investing: “You make your money when you buy.” Some of these “experts” convince their victims that their properties are so far below market value that buyers get “instant equity”. Bunkum!
If you are thinking of buying a property from one of these investment companies, here are two quick questions to ask them: Has anyone made a good profit by selling any of the properties they bought from you? All you want is a yes or no answer. You will get lots of “deflection answers”; they will avoid the direct question. For instance, in answer to the “has anyone made a profit” question, they will say, “Oh yes, their properties have gone up in value.” Makes you feel safe doesn’t it? But they did NOT answer your direct question: Has anyone SOLD for a profit?!
Here’s another question for a property investment adviser: “Have you bought any of these properties yourself?” No way. These properties are meant for selling not for buying.
I could write a book on how to avoid getting ripped off in property investing, there is so much to tell you. What worries me the most is that you may be reading this and thinking, “The investment advisers I am dealing with are not like that?” Really? How do you know?
Were they recommended by someone you trust? But do you know how easy it is to have someone who seems trustworthy recommend someone who is not trustworthy? I know a real estate researcher. He does good work and runs a popular website. He recommends other companies that he says are honest and ethical. I have warned him that at least one of the companies he recommends, a buyers’ agency service, is very ‘sus’. He ignores me.
I have seen some of the worst losses of my life from people who have dealt with this so called “ethical” buyers’ agent. Try this: Investor paid $405,000 for a recommended investment property in 2010. He sold it this year for $180,000. That’s a loss of $225,000. Plus expenses. His total loss is closer to $250,000. That’s just one property. He bought two and the other is also a disaster with a huge loss.
He is one investor. There are thousands more. Sometimes it can be years before investors discover they have been conned. They don’t know they paid too much until they try to sell. Until they meet the people they should have met in the first place, the local agents.
What? Am I recommending buying from local agents? Absolutely. Buy your investment property from a normal estate agent, not one of these investment experts.
Recently, I was contacted by a young couple. They had been caught by one of these investment companies. They had not yet completed their purchase. I spoke to the boss of the company for more than an hour. I declared that I was recording our call. He made astonishing admissions and was soon tied up in knots with my questions. With the help of some excellent lawyers we managed to extricate this couple from their nightmare deal. It was a stressful time. And yet I was not the buyer. I was simply the rescuer. But if I feel such stress trying to rescue victims from these scams, imagine how the victims feel. I don’t want more people getting caught.
Stay away from investment experts. Property investing is not complicated. It’s easy. I can give you a safe formula in one sentence. Just go to a boring agent in a boring suburb and buy a boring home – and wait.
The great investor, Warren Buffett, says there are only two rules for investing. The first rule is “Don’t Lose Money”. The second rule is, “Always remember the first rule”.
Last month, my beautiful daughter and her husband went to a boring (but very beautiful) place and met a vivacious estate agent who showed them a boring house in a very boring street in a mind-numbingly boring suburb. They bought it. My daughter and her husband are so happy. They paid $360,000. Let’s see what happens in ten years. I’m sure they’ll be safe. As you will be if you follow the suggestions in this article.
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