With low interest rates continuing to heat up some property markets around Australia there seems to be an ever increasing number of real estate spruikers or “property specialists” (as they’re calling themselves) coming out of the woodwork to push their wares.
Just this week we received a snazzy email from a slick looking company offering us a list of high commission investment properties. What was the list for? Here’s what they said:
“We source and provide comprehensive lists of investment packages from all over the country, all of which are available by your clients and return industry leading commissions to you.”
There was plenty more blabber where they talked up their research and how they can tailor their property solutions to every client, but boil it down and they expect us to buy a list of investment properties from them, push one of those properties on you and then collect a juicy commission from any sale.
Needless to say that won’t be happening!
That email illustrates the reason why these companies are so dangerous for investors. Privately they email and tell us, the financial planner, they’ll pay us great commissions. While publicly, they advertise how they’re out to help you, the investor, find a great property that achieves your wealth building dreams.
Notice how the first conflicts with the second? If they’re paying us a great commission, that commission will inevitably be plonked on top of the price you pay. Remember, the company selling also have their profit margin built into the sale price. With these properties being new there’s little transparency on their actual worth, but with all these fees built into the price, it’s inevitably a lot less than the first buyer pays.
If we were to think of this in terms of a professional sprint race like the Stawell Gift, your investment property would be starting 10 metres behind the scratch mark! You have to hope you generate some serious capital growth to get back to starting line. And only then can you think about actual investment growth.
Unfortunately most people who buy from these companies don’t realise their handicap until they later have the property valued. Generally that’s several years down the track.
An example came from a reader who recently wrote in to Scott Pape’s weekly News Ltd column.
Four years ago I paid $330,000 for a one-bedroom flat in southeast Melbourne. Now I would like to sell and move to a bigger place, but I’ve just been told by the real estate agent that it’s now only worth $310,000!
What the heck was the point of being a homeowner for the past four years and paying more than $40,000 off my mortgage when I won’t get back what I paid for the unit? I am single with no debts other than the mortgage, with a salary of $78,000 a year. What should I do?
I expect to start getting a lot more questions like yours, though not until the market begins slowing down! It sounds like you may have purchased off the plan. If that’s the case, the developer’s profit margin was wrapped up in the price you paid (which is why I don’t advocate it, in most cases).
We don’t advocate it either and we continue to talk about it because we don’t want to see anyone go down the same path.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.