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Hi,
I have run my own real estate business for 15 years and have done the acquisition for these Investment groups. I am now retired and out of it.
My advice is to talk to an independent Financial Planner and pay for an hour of their time, there are plenty of reputable Planners out there doing the right thing by the their Clients.
These big groups use Telemarketing and gain an appointment by any means. The Companies are only interested in selling you property especially through SMSF. So you will notice the type of questions asked: 1 What is your income; 2 How much super do you have; 3 Let's have a look at your debt currently. If you are not earing over $100,000 combined and have around $150,000 in super they are not really interested. The advise stops there. If they cannot sell you a property then they are really not interested, doesn't matter how well they 'flower' it up.
They are primarily interested in selling a property to you because that's where they make their money. I will tell you how, as I have purchased land for them and also organised Builders, I know their profits.
They look at purchasing land from Developers either on a 'Call Option' (Queensland), Builder's Terms or better than Builder's terms. As they are trying to sell you a turn key property for under $400,000 then they are looking for land under $150,000 retail. They will negotiate at around $15,000 to $20,000 discount on bulk lots. By the time they settle the lots often in a rising market the price has already gone up. Remember Developers are always interested in locking in numbers as this helps them to secure funding from the Banks.
They then organise with a builder to build a turnkey home for a price often $30,000 to $40,000 below retail build cost. This is done in bulk with the builder offering a small range of house designs with mirror reverse designs included. Remember these homes are built to 'turnkey finish' which usually includes cheap tiles on floor, fans to bed rooms, air conditioner in open plan area, fencing, driveways, turf, often electric garage doors and letterbox. They need to make a profit so they sometimes cut corners to do so. I would prefer to give any profit to the Builder before anyone else.
So their total margin can range from $40,000 upwards. The reason more of these investment groups do house and land packaging is due to laws that are changing to stop large profits being made by these groups. Remember all commissions, marketing fees etc have to be disclosed on the contract. They have got around this by having a separate contract with the builder that does not have to be disclosed.
Is a picture starting to emerge. They get you in the office, often flying you in, so you feel obligated, dine you, often accommodate you for the night and try the hard sell at the end. Remember you have a 10 day cooling off period.
These people are after one thing and that is getting you into an investment property to make their money.
If you are concerned about the area they are offering, then do your own homework and ring the local agents and find out for yourself what the houses are selling for, how fast, what is the growth of the area, how far away are employment opportunities also what is the rental vacancy rate in the area (under 3% is acceptable) and what changes are foreseen. The local agents know what is happening, especially the experienced ones.
Don't get me wrong, I am not against investment properties but there are better ways without lining the pockets of these investment groups. My children are into investment properties themselves and I direct them away from these groups. There are distinct advantages, tax wise with a new property but an hour with an independent advisor and then an accountant will cost you a lot less in the long term. Let them explain negative and positive gearing without a hidden agenda. Property has proven to be a good wealth building tool but do you homework. These people who announce they have been investing for five years and have five properties and are now millionaires, BS, they probably owe as much as they own initially. Property wealth is build on long term investment letting the tenant pay for your investment. Statistics have shown 7-10 years houses double in price, ask your parents what they paid for their home and see what it's worth now.
Do your homework ! There are investor clubs around who band together and buy in bulk and you keep the savings. The price difference could be the difference between negative gearing and positive gearing. Good luck and I hope this helps.
