There’s nothing quite like a bright shiny thing for catching attention. It’s human nature for a shimmer off the surface to draw your gaze.
You see it everywhere. Necks crane as a high-end automobile whizzes by. A new architectural home emerges and suddenly the street is filled with carloads of gawking voyeurs.
The attraction of the bold and beautiful is ingrained. It can be pleasant and harmless in the right circumstances, but under some conditions, a cursory glance at a shiny exterior can be dangerous.
This is particularly true in the world of property investment.
Lurking beneath that bright surface is a dark danger that can leave your hard-earned pool of wealth in tatters.
Here’s why ignoring the devil in the detail can result in financial damnation.
Marketeers with horns and pitchforks
As a property investor, you have access to funds and are ready to invest. You signal your intention to grow wealth by going out into the investment industry and actively seeking vehicles that offer a path to financial security.
But this patent display of your objectives can attract unwanted attention.
Marketeers and spruikers are essentially those individuals who will convince you to invest in substandard property investments at above-market prices so they can earn extraordinary fees, trailing commissions or developer’s margins.
They are the sort who will sell you on the sizzle, not the steak, and they apply several tactics to help separate you from your hard-earned money.
Often, you’ll be placed in a high-pressure scenario such as a ‘free investment seminar’. Some will do one-on-one consultations designed to subtly, but certainly, wear down your reservations.
Another part of their sales process is to present you with a range of what seems to be convincing figures and metrics. They’re usually in glossy brochures that will promote the incredible upsides and benefits of buying their particular property or adopting their specific investment strategy.
High Return risks
Another favoured technique of the spruiker is the push toward purchasing investments that offer a high rental return. This looks great on the page. They’ll say you’ll receive many percentage points more on your money than anywhere else by buying through them.
This is designed to have you think the opportunity is too good to pass up.
But it isn’t, and here’s why.
High return properties are full of risk. The fundamental reason they offer high returns is they normally deliver below-par capital gains… and capital gains are where real wealth-building happens.
High return properties might include dual-income dwellings, NDIS housing, student housing or short-stay accommodation. Of course, the top-line figure on all of these looks good – five to 10 per cent gross return on your income – but dig deeper and you’ll discover the truth. These properties are littered with risk like exceptionally high operating and maintenance costs, and limited tenant pools. They will also be far more difficult to offload to buyers when you want to sell.
Unfortunately for the untrained eye, spotting these risks can be tough and that can lead to terrible financial outcomes for the investor.
Rental guarantee pain
Another classic trope is the rental guarantee. This is where the seller will guarantee a certain rental return for the first year or more of your ownership even if the property is vacant.
This sounds great – totally stress-free. Your rent will come in, the mortgage will get paid and you can just wait for the capital gains.
But dig deeper and you’ll find mud in this arrangement.
Firstly, the future rent will be factored into your purchase price, so the seller will never be out of pocket– particularly if you’re buying remotely and don’t know the market. The rental guarantee is simply you paying yourself back some of the extra money you outlaid for that overpriced investment.
Secondly, when the guarantee ends, you’ll be in for a shock. There’s every chance the actual rent you can get will be substantially less than the guaranteed amount. Worse still, you could be in a dud market where decent tenants are rare. There’s just not enough renter demand! This is the start of you having no rental income while still making mortgage repayments.
Or on the flip side, a rental guarantee can be offered below what is achievable in the market and the agent is not motivated to get you the highest rent. We often see subpar rental guarantees riddle with lower than market expectations along with high fees. Had the investor engaged a quality property manager would have achieved higher yields.
The only person who makes money with a rental guarantee is the person offering it in the first place. Read the fine print and do the analysis on the market carefully.
I implore you to stay safe out thereby ignoring the sizzle and looking deeper into each investment option. The best way to do this is to have a professional advisor by your side.
These experienced specialists have the skills to look at all aspects of an investment option and provide advice geared toward your financial wellbeing. They are certain to deliver support that will keep you safe from spruikers while providing guidance on building an exceptional portfolio of outstanding assets.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933