Wednesday, 3 September 2014

Who influences your property investment decisions?

Who influences your property investment decisions?

Family, friends, the media, your next door neighbour or your hairdresser…
Everyone has an opinion about property investing. A lot of our clients that come through our doors seem to be making property investment decisions without accurate information.

There is also a lot of misinformation out there.

Take one of our clients for example. He had some general questions about positive cash-flow property. It quickly became apparent that he had been sold on a story that doesn’t address his needs and goals, but was a good and compelling story none the less.
If he went ahead he might have a property that was going to put a few dollars in his pocket each week but if it did not grow in value (or even went down in value) over the long term what had he really achieved other than to tie up his borrowing potential and expose himself and his family to risk of a change in circumstances?

And then I realised that therein lies the problem, a lot of the misinformation about property investment is based around what are quite compelling stories. But those stories leave out crucial pieces of information or don’t address the real needs of the client.
It is the compelling nature of the story that gets people hooked. And then it is hard for them to see the truth without being embarrassed.
I guess that “spin” has found its way from Government and Politics and into property investment, and that is a real shame. (Safety Cameras... Ha! they are just Cameras the rest is "spin")

Take NRAS for example; thankfully it is gone now, but when it was being promoted the marketing material said that these properties were aimed at providing affordable rental accommodation to service industry worker like Teachers, Police Officers and Ambos etc.
But the bit they glossed over was that the maximum income an NRAS tenant could earn was less than about $50,000 per annum for a single person and a bit more for married and families. The only Teachers etc. that would earn less than that income would be working very part-time. So who was it really aimed at?

What NRAS really was, is social housing. The Government wanted to get out of providing housing to those that can’t afford it. The cost to them in unpaid rent and damaged properties was overwhelming their budget. So to pay $10,000 pa to get someone else to take on the problem was a bargain.
I am not saying that every NRAS property was a disaster. There are some very nice people renting NRAS properties but we have been told by some of the Property Managers that there is a higher than average number of NRAS properties that are significantly in arrears with their (discounted) rent and similarly large number that have been badly damaged. These were brand new houses, and unfortunately a lot were in areas that will not experience much growth over the long term. Particularly given the high numbers of NRASs that were built in some suburbs. So they could be hard to sell in the future and by the time you repair the damage will be over capitalised if they are not already.

But on the other side of these transactions were very high commissions paid to the sales agents in a lot of cases as encouragement to “sell the story”. It is a bit like I heard that Malaysian Airlines were paying Travel Agents double commission if they could get people to fly with them. Is that the right way to sell a product or to fix a problem?
This is just a couple of example of the misinformation that is guiding people into making poor investment decisions.


What we do is look at your circumstances and your needs and goals.
Then we establish a budget of what you should spend on a property in both total price and a net cost per week.
We then locate properties that fit into that total price budget and do some extrapolations as to what growth should be achievable from that property given the history of the area and what upcoming economic factors we know about that might affect the future.
We then compare that to the net cost to determine whether it is a worthwhile investment. Sounds simple when you put it like that!
What we wish for is that all property investors were able to get more accurate and reliable information before making a property decision?
So email me your questions and I will do my best to get back to everyone.
All the very best to you...

Graeme Clark

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