HOW TO INVEST IN REAL ESTATE SAFELY
Avoid “experts”! Choose agents!
by Neil Jenman
Reading Time: APX 7.5 mins
If you think real estate agents are dodgy, you obviously haven’t met property investment advisers, they are mostly worse than dodgy, they are deadly.
Real estate investment advisers can ruin your life. As they are ruining lives right now.
Okay, maybe you may have found a property investment company that’s giving you great hope for your future. They may be saying the right things. Their information may be very good. And what about those wonderful testimonials on their website? How could all those happy people be wrong? Yes, it’s called “social proof”, you see others happy and you think it’s safe. It’s not.
DANGER!! I have never found a property investment company that I would feel comfortable recommending. Not one.
Let me tell you their scam in one short five-word sentence. THEY SELL MASSIVELY OVERPRICED PROPERTIES.
These so-called experts pocket as much as one hundred thousand dollars for each property they sell – and sure, that’s an extreme case. Normally, they pocket at least $40,000 – and that’s on a property on the outskirts of say, Melbourne, near places like Werribee.
If a typical real estate agent sold a property for $400,000, they’d earn around eight thousand dollars. So, someone who’s getting five times as much as an agent, well, that money must come from somewhere. And it does, it comes from the properties being ‘loaded up’ because developers are paying such huge sums to these experts.
Five times as much as agents!! Surely, it’s obvious what’s going on. Well, you would, but these characters never tell you what they get paid. In many cases, they also charge you to “source the right property”. The classic double-dip – paid by the seller and the buyer.
By “massively overpriced” I mean properties that are ‘loaded’ by at least fifty thousand dollars. I have seen some investment companies sell properties that are overpriced by as much as a quarter of a million dollars. But, again, that’s the extreme. Most are around fifty thousand dollars over-priced. And, in case you think it doesn’t matter if you are paying, say, ten per cent too much for a property as capital growth will look after you, here’s another fact with these sorts of properties that “experts” sell: They have very poor capital growth. Some people hold these properties for ten years or more with no appreciation. Some even crash in price. They are poor quality properties, often in areas where hundreds of other naïve investors have been stitched up with similar properties.
It’s an investing maxim that, to do well, you should buy well. Good property investors know one of the secrets of investing: “You make your money when you buy.” That’s if you can buy a property that’s under-priced instead of over-priced which is what these investment companies are flogging. Some experts convince their victims that their properties are so good – meaning so far below market value – that you will get “instant equity”. Bunkum! If that was true, they wouldn’t be selling these properties, they’d be buying them.
The reason these companies look credible and sound plausible is because that’s how they are supposed to sound. Sure, some of what they say is good. Why? Because they have probably stolen information and ideas from good people.
Margaret Lomas is a best-selling author on property investment. Rogues read Margaret’s books and quote what she says and then, presto, they seem credible. But if you asked Margaret if you should invest with one of these companies, she’ll scream a loud NO. “Run for your financial life!!!” she will tell you.
Do you know what’s common to con artists? They are perfect. Everything is so good, so correct, so proper. They seldom make mistakes as honest people do. These perfect people are perfect deceivers.
As for those glowing testimonials from investors who have bought one or more of their properties, here’s what you never read about: They never talk about how they bought a property and sold it again and made a huge profit!! They only talk about how “easy” the company was to deal with and how they answered “questions” and how they were “friendly”. Every time I read testimonials about property investment companies, it reminds me of people who think they are in loving relationships but don’t know their partners are cheating. The pain is coming.
If you are thinking of buying a property from one of these investment companies, here are two quick questions to ask: 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? Oh please, do you know how easy it is to have someone else who seems trustworthy recommend someone who is not trustworthy? I know a real estate researcher. I once considered him a friend. He does good work and runs a popular website. He recommends other companies that he says are honest and ethical. That’s not true. I have warned him on several occasions that one of the companies he recommends, a buyers’ agency service, is very much on the nose.
I have seen some of the worst losses of my life from people who have dealt with this so called “award winning” and “ethical” buyers’ agent. Try this for size: Investor buys a property recommended by this “trusted” expert whose motto was something like, “The right property in the right place every time”. He paid $405,000 for a highly 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. And that’s just one property. He bought two and the other is also a disaster with a huge loss.
And, remember, he is one investor. There are thousands more. Sometimes it can be years before they discover they have been conned. They don’t know they paid too much until they try to sell. Until they go to the people they should have gone to in the first place, the local agents.
What? Am I recommending buying from local agents? Absolutely I am. I cannot believe how local agents in many areas are aware of these property investment con artists and yet they rarely say anything publicly. Maybe they are frightened. Most property investment companies go to inordinate lengths to cover up their scams or threaten and intimidate critics.
If they ever let a person “out” of an agreement, they make them sign a ‘gag clause’. The burnt investors are not allowed to tell anyone what happened to them.
A couple of months ago, I was contacted by a young couple. They had been caught by one of these big, brash investment companies. They had not yet completed their purchase. I spoke to the boss of the investment company for more than an hour. I declared that I was recording our call. He made astonishing admissions and, of course, was soon tied up in knots with my questions. With the help of some excellent lawyers (thank you Slater & Gordon) we managed to extricate this couple from their nightmare deal last week. 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 getting caught.
Stay away from investment experts. Property investing is not complicated. It’s easy. I can give you a safe formula in just one sentence and I hope you follow it. Just go to a boring agent in a boring suburb and buy a boring home – and wait.
If that person I mentioned earlier who paid the buyers’ agent to locate him a property which he bought for $405,000 in 2010 and sold for $180,000 in 2019 had followed my “boring” advice and stuck a pin in the map of an outer Sydney suburb, his $405,000 would have grown to as much as $900,000. So, by dealing with the bloke who calls himself something such as Australia’s most trusted or awarded buyers’ agent, he effectively lost three quarters of a million dollars! He lost the money on the property he bought on the expert buyers’ agent’s advice, plus he lost the near certainty of buying a “boring property in a boring suburb” that increased in value by half a million dollars.
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”.
Two weekends ago, my beautiful daughter and her husband went to a boring (but very beautiful) place and met a vivacious real 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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