How to avoid it and stay safe.
by Neil Jenman
Reading Time: Apx 5 minutes
Thousands of naïve investors are buying (or have bought) the worst type of real estate. In doing so, they have done tremendous financial damage to their futures.
In some cases, some people have financially wiped themselves out. They will now be broke for life. It’s horrible. It’s despicable. The rogues responsible are vile creatures.
I mean, seriously, how could you possibly make yourself rich by making others poor? What do you see when you look in the mirror?
And these people, their victims, they are some of the nicest, most decent, and most trusting people in our country.
It breaks my heart to know that thousands of people are buying the worst type of real estate.
So, what is the worst type of real estate?
Well, almost universally, it’s real estate that is not bought through a typical real estate agency.
Yes, you read that right. People who do not buy property investments from typical real estate agents are almost always buying the worst real estate.
The worst type of real estate rarely increases. Instead, it drops in value.
I see it all the time – people who bought properties in far-away places for $450,000 and then re-sell them years later for $250,000. Or people who bought an apartment (often off-the-plan) in a block of identical apartments and now discover it is worth a couple of hundred thousand dollars less than they paid.
That is the worst type of real estate.
Sure, I am critical of typical real estate agents. For years, I have outlined hundreds of their tricks. But the people that typical agents most hurt – at least financially – are home-sellers.
When it comes to buying real estate – especially for investing – then, by far, the safest and best place to buy is from a typical real estate agency. Yes, the sort of agent that holds auctions, open-for-inspections and is always urging sellers to sell and buyers to buy.
Well, buyers, I wish you would buy investment properties from these typical estate agents.
And I wish you would stay away from so-called real estate “investment experts”. I wish you would never buy house-and-land package deals on the outskirts of major cities and towns. I wish you would reject all these ‘advisers’ who claim to be able to show you how to “pay less tax” or how to “pay off your home faster” or how to “build wealth through property”.
The only people building wealth are so-called experts flogging over-priced real estate in out-of-the-way-places. The sort of people who refer to themselves as a “one-stop-shop”, the sort of people who claim to be helping people set themselves up for retirement.
Most of them are setting themselves up for their retirement at your expense.
These are the sort of people who charge you a “sourcing fee” to locate “high growth” properties. At the same time as they charge you to “find properties”, these charlatans charge the sellers – usually property developers – tens of thousands of dollars to sell their properties.
In the modern real estate era, there are two real estate worlds. The traditional real estate world where family homes are bought and sold through traditional agents.
And then, there is what I can only call the ‘scam world’ where the worst type of properties are being built en-masse for the sole purpose of ripping off naïve investors.
So, how do you recognise the worst properties?
Stick with traditional agents and avoid wealth creation experts (or whatever slick name they give themselves). The safer they look, the more dangerous they are likely to be. If they are not a traditional real estate agent, be careful.
Yes, I know. These wealth experts have wonderful testimonials from people who say they are now on the path to wealth thanks to the ‘Solid Wealth Company’. And yes, some people have bought multiple properties from these companies. And yes, so much of what they say seems to make such good sense. Of course it does. That’s how they catch you. They seem credible.
But remember this: It takes no intelligence to buy real estate. Anyone can sign-up to a real estate contract and get a loan – especially using their family home as security.
Now, there’s a huge clue that you are buying the worst property – the fact that the lender wants your family home as security. If the investment property was any good, it would be good enough for security on its own.
Be careful buying ‘cookie-cutter’ properties – that means where multiple properties are identical. If just one person gets into financial trouble and sells for a cheap price, it drags the price down for all the similar properties.
One of my friends has two simple rules for buying properties. First, he always buys from traditional agents. And second, he always buys properties where there are many other buyers wanting to buy the same property for close, the same, or more than the price he paid.
Consider what happens at a crowded auction. And yes, it’s true, I don’t like auctions, mostly because they sell properties too cheaply. But while that means auctions are bad for sellers, they are often great for buyers.
Look at the winning bidder and then look at all the other bidders slightly below the winning bidder. Sometimes there are dozens. In a few years – often less in a hot market – those under-bidders will still want to buy that sort of property.
I’m talking about the typical family home in the typical city suburb. I am not talking about house-and-land packages built to be sold to “investors”. Try selling one of these properties a few years after you bought it. You’ll be lucky to get your money back. People lose thousands of dollars on such properties.
Finally, let’s take a look at the person selling you an investment property. Whether it’s a typical real estate agent (as I strongly suggest) or whether it’s one of these wealth creation experts, here is one question you must ask (and be impressed by the answer) before you buy.
How many properties have you sold to investors that increased greatly in value after you sold them? Please give me full details.
Any real estate agent will be able to give you hundreds of examples of investors (or family home buyers) who bought property from their agency that has since soared in value.
As for those wealth creation companies, well get this: I have worked in real estate for almost 50 years. I have never seen a wealth creation company that sold properties that have soared in value. Never. Not one.
A few years ago (circa 2007), I was doing a story for television about one of these wealth-creation companies selling the worst type of property to investors. I confronted the “wealth guru” and made some strong accusations. He then attacked me. I spent a week in hospital.
He said his company had only been going a few months so there was no time to judge him. He said time would be proof of the worthiness of the investment he was selling.
Well now, more than a decade has passed. All the properties have dropped in value. Every one of the “investors” has lost their money.
Forget these “experts”. In almost all cases, you could stick a pin in a map of suburbs of any Australian city and you’d do better than buying from real estate investment companies. And watch out for those who are seemingly “endorsed” by people you trust. I am shocked at how people I once thought credible are now accepting money from real estate rogues. Not only can you pay many people in the real estate world, it’s also clear that you can buy them too. Integrity is now for sale by some people. Shame on you.
Let’s realise a powerful point about property by asking a simple question:
What’s the best investment most Australians make in their lives?
It’s their family home.
The family home – bought from a local suburban real estate agent – is about the safest and best real estate you can buy.
Anything else likely falls into the category of the worst type of real estate.
Avoid it at all costs.
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