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Property Investment Analysis - Articles

How to Avoid Bad Property Investment Advice – Our Top 3 Tips

Date: 22/12/2014

superannuation fundI recently read a story about ASIC cracking down on a company that specialises in promoting the use of a self-managed superannuation fund (SMSF) to buy investment property.

ASIC is taking them to court to prevent them from continuing their “unlicensed financial services business.”

It sounds like the same ole story, really. A so-called property guru holds seminars around the country offering information on the benefits of buying negatively geared properties.

They then teach how to structure the deal to buy within an SMSF. As Steve recently wrote about here and here, there’s a heap of cash lying around inside SMSFs. What developer wouldn’t want a piece of that action?

While I admit that I’ve never been to one of this company’s seminars and they may very well offer some sound advice, it’s crucial that we are aware of what’s going on behind the scenes. Avoiding bad property investment advice is really not that hard. If you just arm yourself with a few simple principles, you can save yourself from a world of financial pain down the path.

Here are my top three tips to avoiding bad property investment advice:

1. Find Out How Your “Advisor” Is Incentivized

findings in their researchFreakonomics is a really cool best-selling book about how economics is essentially a study of incentives. One of the most eye opening findings in their research was related to real estate agents.

They were trying to answer the question, “Does your real estate agent really have your best interests in mind?” You can watch the authors talk about their findings here. Take a moment to watch the video, and then come right back.

According to their data, when real estate agents sell their own personal homes, they get more money than they would if they sold the same home for a client. They found that agents tend to hold their properties longer, waiting for a better price. In fact, they leave their own homes on the market for an average of ten days longer.

Why?

As you saw in the video, there’s just not enough incentive in the deal for them to be compelled to encourage you to hold out for a better price. However, when it comes to their personal home, there’s massive incentive.

I’m not judging anyone. None of us can escape the reality and power of incentives. Even when we do our best to avoid conflicts of interest, we all tend to act in line with that which most benefits us. It’s human nature. Those encouraging the purchase of negatively geared property in a superfund are no different.

However, here’s the harsh reality. Many of these property spruikers are receiving commissions or referral fees from developers in the order of 8 to 10 percent. How can a developer afford to pay this? It’s simple, really. They just add that to the top, and inflate the sales price. The only reason they can get away with this is because there are investors who don’t know any better.

But as a PropertyInvesting.com member, you can and should know better. Before any property transaction, do your own research of comparable sales to determine the property’s true value.

2. Be Aware That Some “Educational” Seminars Are Just A Front To Promote Over-Priced Properties

training seminarI recall a coaching conversation from earlier this year with an attorney in Sydney. She was enrolled in Steve’s property training course, and she compared what she was learning from him with another training seminar she had participated in previously.

With the other training seminar, she went home with a packet of training materials that were shallow, at best. Then she received a call about buying an “off the plan” property in Gladstone.

Thankfully, she knew enough about the area to do some of her own research. She went on to say that she appreciated how Steve is purely an educator and reported he never asked her to buy a property.

Awareness of incentives helps us to hear investing education and advice in the proper context. Whenever someone is giving you their opinion, or sharing their strategy, it’s wise to stop and ask yourself, “What’s in it for them?” In fact, why not go ahead and ask them, “What’s in it for you?” When you know what they’re actually selling, you’re able to see through the smoke and mirrors, and act with confidence and clarity.

When dealing with anyone, check their expertise and experience, and then think about their possible motives. If their motives are flawed, then their information will be more likely to be flawed, too.

3. Educate Yourself, So You Don’t Need To Rely On Property Investment Advice And Opinions Of Others

When people don’t really know what to do with their money, they end up either doing nothing, or they rely inordinately upon the opinions of others. The problem with following someone else’s investment advice is that the person giving the advice carries none of the risk in the deal. That risk is all on you.

Educate Yourself

I’ve never had a real estate agent offer me a guarantee that if I buy their “good investment,” they’ll compensate me for any decrease in value. Property professionals make many claims, but it’s up to you to discern which ones are valid – and which ones are not.

You are the most qualified person to make a decision about your money, because you are the one carrying the financial responsibility for your investment.

But before you have the confidence to make those decisions, you need to have competence in finding, buying, managing and selling property deals. You can either learn the hard way through trial and error – which can be very expensive and time consuming – or you can learn from another experienced investor.

I’ve coached many students in Steve’s Property Apprenticeship who tell me they wish they had done the course before purchasing their last deal. It’s always best to invest in your education first. Then invest in property once your vision and strategy is clear, and you’ve created a foundation of knowledge to keep you from making painful mistakes.

Take a moment now to register your interest in Steve’s course, and let’s talk more about whether his training is right for you.

Summary

Avoiding bad advice is really not that hard. If you arm yourself with a few simple principles, you can save yourself from a world of financial pain down the path.

Profile photo of Jason Staggers

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.

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