October 9, 2023

PROPERTIES I’D NEVER BUY

8 POINTS TO HELP YOU STAY SAFE AND PROSPER

by Neil Jenman

Reading time: 3 minutes

Imagine owning a property that even agents don’t want to sell.

That’s what happened to one owner recently. Four years ago, he bought an apartment off-the-plan from one of those expert “investment advisers”. He paid $550,000.

Today, he’d be lucky to get $400,000.

In the suburbs of most of our capital cities, the sad experience of this owner is a tale that’s now repeated thousands of times. It’s like a hidden epidemic of property losses that’s rarely discussed. To most owners, it’s too embarrassing and too painful to talk about. They bear their pain in silence, hoping – if they hold on long enough – that prices may one day increase.

How terrible to be making a loss in real estate – and a capital loss – while everyone else seems to be rolling in wealth from the biggest property boom in history.

But despite all the slick sales lines and common cliches, buying property is not an automatic ticket to great wealth. Sometimes, indeed many times, it’s a one-way ticket to the poor house.

Here are eight brief points that may help you.

Some people are going to disagree with much of what I say – especially salespeople who are trying to sell you real estate. If someone is earning a commission – or a large profit – when you buy something, be careful. Their advice is normally in their best interests not yours.

POINT 1. OFF-THE-PLAN MEANS OFF-YOUR-MIND

Yes, I know, some people have bought properties off-the-plan and done well. Just as some people run across busy roads and don’t get run over.

I prefer to cross at the lights.

If I was buying an apartment off-the-plan (I have never done so), I would only buy under certain conditions.

I would make sure I bought in a small development.

I would make sure I bought in an area where there were not thousands of similar properties.

I would make sure that there was no ‘sunset clause’ where the developer could pull-out if the prices rose.

I would insist on paying only a small deposit.

I would insist on a clause limiting my loss (should I not proceed) to the amount of the deposit (most developers will not accept that condition. If so, I would not buy).

I would only buy an apartment that I would be prepared to live in myself.

I would never buy an off-the-plan apartment.

POINT 2. AVOID INVESTMENT EXPERTS (AND THE LIKE)

The more someone professes to be a property investment expert, the more likely they are to be selling sub-standard properties.

Property developers are often closely tied to investment experts. The developers pay massive commissions (as much as $100,000 per property. Yes, you read it right) to those who can find ‘suckers’ to buy their properties.

In my life, I have seen many people I once deeply admired, sell their souls for the mighty dollars they can earn from property developers.

I remember one person – who I once treated as a friend – and who was so conscientious about always “doing the right thing”. The more he was trusted, the more he was wooed by property developers. They offered him huge sums of money. He always resisted.

But then he got into financial trouble, mostly because of a relationship breakdown. His former partner bled him dry. It was sad. One day he asked me, “What about if I was to form an alliance with an honest property developer?”

Today, this man is knowingly “in bed” with developers and buyers’ agents who he knows to be dodgy. He has seen evidence of inexperienced investors who have lost hundreds of thousands of dollars through dealing with the people he now recommends.

I would never buy an investment property – of any sort, in any area, at any time – from any so-called investment advisers. Or from an accountant. Or from a financial planner.

If you are tempted, please – at the very least – ask this question: “How much are you going to be paid if I take your advice and buy this property?” Do not buy unless you get the answer in writing.

I would never buy property from a “property expert” or an accountant or a financial planner.

POINT 3. AVOID HOUSE/LAND PACKAGES

There is now an entire industry devoted to ripping-off naïve investors. They build hundreds of poor-quality homes in outer suburbs of major cities – and between the Gold Coast and Brisbane.

And the profits, oh, the profits these guys make. It can be hundreds of thousands of dollars per property.

Their profit is almost certain to be your loss.

I would never buy a house-land package.

POINT 4. SAY NO TO ‘COOKIE-CUTTER’ PROPERTIES

What makes properties good investments is their uniqueness. The less unique – in other words, the more common – the less likely they are to appreciate. Indeed, if you a property that is surrounded by identical properties you are at the mercy of other owners. If one owner – with a similar property to yours – decides to sell their property at a bargain price, that price soon becomes the “comparison price” for your property.

I would never buy a cookie-cutter property.

POINT 5. NEVER BUY WITHOUT INSPECTING

It’s called buying “sight unseen”. The fact that even the term is grammatically incorrect should be enough to warn you that something’s wrong.

You should never buy any property without inspecting it. It’s sheer negligence (and laziness) to buy properties without inspecting them.

And yes, I know, some people do it – and do well. And yes, it may seem “cool” and make you feel like a multi-millionaire. It doesn’t change the fact that you shouldn’t do it.

Getting away with doing the wrong thing does not make it right.

What does a property cost? At least $500,000.

What does an airfare cost? About $500.

If you buy a property without inspecting it, you are taking an unnecessary risk.

And always meet the neighbours. I once appraised a property when I was an agent. The neighbour was Ivan Milat.

Check out the area. Get a feel for the property and the place.

I would never buy a property without inspecting it.

POINT 6. LOVE IT OR LEAVE IT.

This has always been one of my favourite rules for buying (or not buying) property. If I am not willing to live in it myself, I don’t buy it.

If you buy properties because they are “only an investment” and yet they are in bad condition, you will be beset by on-going problems. From bad tenants to bad agents, bad properties must be avoided.

If there’s one thing I have learned about property in all my years, it’s this: Quality is so important. The best properties I have ever bought have been like the best people – I love them.

And still do.

I would never buy a property I didn’t like.

POINT 7. BUY NORMAL.

What’s the best investment most people ever make? Their family home, of course. And they didn’t need an investment adviser or an accountant or a property researcher to discover this great investment.

No, they just bought a normal home in a normal area in the normal way – from a local agent.

Often, when I talk to people about their family home, I will ask a rhetorical question: “Don’t you wish you’d bought two such homes?”

Of course.

One of the best statements I have ever heard about investing in property is this: Buy a boring home in a boring suburb from a boring agent. And wait.

I will always buy nice family homes in nice areas.

POINT 8. ASK A FRIEND

Finally, no matter how much experience I obtain, no matter how much I like a property, I always get a second opinion.

If you are ever buying a property, you are welcome to email and ask my opinion. At the very least, I will tell you whether it’s a property I would accept or reject.

I always ask a friend before I make a major decision, such as buying a property.

In Summary.

I sure hope these points help you. As we say when choosing an agent, “It’s better to spend three or four weeks searching for the right agent than spend three or four months stuck with the wrong agent.”

Well, when buying a property, it’s better to spend a few months looking for the right property than to spend a few years stuck with the wrong property.

Stay safe. Take your time. And please remember: It takes no intelligence to buy property.

But it takes prudence and time to buy the right property.

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