7 Things To Do Before Buying From A Property Advisor (Ep282)
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7 Things To Do Before Buying From A Property Advisor (Ep282)

Before buying an investment property from
a property adviser, a property mentor or a property marketer, it’s extremely important
that you go ahead and do your research. In this video, I’m going to share with you
7 things that you should do before buying property from a property adviser. This is
especially important if property adviser is offering you their services for “free”. I’ll
explain in more detail how they can go about offering those free services. But it is very
important that you do your research because a lot of these properties are overpriced and
you can get stuck with a property that is overpriced and that won’t rent for what you
were promised. Before I get into the specific research techniques,
I first want to explain how these free services actually work. What happens is, there’s a
lot of developers out there who have house and land packages or units or what they call
“property stock” – they call it “stock” in the industry – that they need to sell and
they need to get rid of. And often it’s very difficult for them to sell this stock and
so they need some help doing it. Generally, a normal real estate agent has trouble selling
this so they enlist the help of property advisers, property marketers, property mentors to do
this. And generally, property advisers are getting
a large commission on the sale of that property. Like a real estate agent gets a commission
but this commission tends to be a lot higher than a real estate agent. Where a real estate
might be 1-2%, a property marketer’s commission might be anywhere from 6-10%. It is very discretionary
and it does depend. The lowest commission that it’s ever going to be is about $5,000
but that’s very rare. Generally, we see commissions around the $20,000 to $40,000 or higher range.
So there are very large commissions going into this deal. And so even though they offer, they say their
services are for “free”, what is happening is they are getting paid by the developers.
So they’re incentivised to sell this property stock to people because they only get paid
when they sell stock. And they only have a select list of items that they’re actually
going to get a commission on. And that’s with the developers that they’re working with.
Generally, there’s developer aggregates; so they bring together all these different developers.
You then get – as a marketer – you get a stock list. And so I’ve been provided these, here’s
a stock list of the properties that we have and that you can sell. And so, as a property
advisor offering free services, you have this list of properties you can sell. You then
get customers in, offer your free services, and then you try and sell them one of those
properties. So that’s how it generally works. It will
vary depending on the particular property advisor, mentor or marketer that you’re working
with but that’s kind of a broad overview of generally how it works in the industry. Another thing that you need to know when you’re
going into this is that the capital growth reports sometimes they come from reputable
sources like RP Data and stuff like that. But the pretty reports, they way that they
have been done are generally provided to the marketers by the development companies. So
you can see the conflict of interest there; the developer is providing marketing material
saying how good this area is they’re then providing that to you. There is a conflict
of interest there in terms of the reports that you get. So always take those reports
with a grain of salt. Another thing I want you to keep in mind throughout
this video; is just because an area is a good area to invest in, doesn’t mean that the property
that’s provided for you is a good property to invest in. If you’re investing in an area
that is growing but you’re paying $40,000 more or $50,000 more for property than what
it’s actually worth, it’s going to take you years and years for the market to actually
catch up with what your property is worth. So just because an area is growing; they provide
you with reports that say this area is growing and going up in value, that doesn’t mean that
the property they’re giving you is going to be a good investment and move you towards
your financial goals. That’s something to keep in mind throughout
this video and as we talk about this stuff, just know that just because the area is going
up in value and has all the right signs, doesn’t mean that the property isn’t overpriced, doesn’t
mean that the property is a good deal. Now, I’m going to go into the 7 things you
should do before buying property from a property advisor. And the reason that I recommend that
you do this – look, not all deals out there are bad but there are a lot of bad deals out
there. There are a lot of properties that people are buying that are overpriced and
I have multiple friends who have actually gone through this process. Purchased properties
that were completely overpriced; we’re talking $30,000, $40,000, $50,000 overpriced and 5
years later, the property still isn’t worth what they paid for it. And they need to hold
that property because if they sell it, they’re going to take a loss. So before you go into
this, it’s important that you do your research. The first thing that you should do when you’re
working with a property advisor is find out exactly how much commission they are getting.
They generally make commission in a couple of different ways. The main way is through
the developer like I discussed. The other ways are through their mortgage broking services;
so they’ll make a commission on the mortgage broking fee and also through insurances and
sometimes through the setup of self-managed super funds if you’re going down that route.
But the biggest commission is going to be from the developer. Now, to find out how much commission you’re
getting. It’s actually not as easy as you would hope. Generally when you ask a property
advisor, how much commission are you making on this deal? They’ll throw out something
quite arbitrary, oh, we make similar commission to what a real estate agent makes; oh, you
know, it’s not that much. It’s just a fee for our services. But it’s very important
that you find out exactly what this figure is. Because this figure is generally a significant
amount of money. And generally, I’m not actually 100% sure if they need to disclose that figure
to you but I’m pretty sure that they will need to disclose it some way. It’s going to
be hidden in the fine print somewhere. But before you go ahead, it’s important that you
understand how much are they making out of this deal and are you comfortable doing that? To give you an idea, a buyer’s agent – which
is someone that you would pay out of your own pocket to help you find a property – they
generally charge between about 1% to 3%. And so you’re looking at about $5,000 to $15,000
or $20,000 for a buyer’s agent. And that’s someone with no conflicts of interest, generally.
Not always but generally because they’re getting paid by you and working for you and generally
it’s to buy existing property which these developer cuts and developer commissions,
they’re not available in existing properties. So, to give you an idea, you’re looking at
the $5,000 to $15,000 range for a buyer’s agent. So to find out what commission your
property advisor is getting, you can then compare that to a buyer’s agent and you can
say, well, really, this service isn’t free. They are getting paid this amount of money
and am I comfortable with them receiving this amount of money for the deal and for the service
that I’m getting? So that’s the first thing. And look, if they
don’t tell you how much commission that they’re getting and they’re too scared to tell you,
that should be a big red flag for you. If they’re too scared to say, look, we’re making
$22,000 off this or we’re making $30,000 or $40,000 from this and we make it in these
ways. If they’re not comfortable to tell you that, then you should be worried. You should
look into that in more detail and don’t just take their airy-fairy response that, oh, yeah,
just a service [inaudible 7:29] fees or similar to a real estate agent; because you need to
know. That is my number one tip and that’s the easiest way to find out what you’re actually
getting and what they’re actually receiving. I think that’s very important. The second thing to do is find out if they
offer rental guarantees on their property. Now, a lot of the market rental guarantees
is a way to get people through the door. You’re investing in property, it’s a big risk, you’re
putting a lot of money into it. A rental guarantee on the outset looks like a great idea because
you’re getting a guarantee that the rental income is going to come in. Now, these rental
guarantees usually last for 1 to 2 years. And then what happens, it’s been well-documented
that this is kind of a scheme in the industry that they offer these rental guarantees to
be able to sell the property at a higher price. They then rent out the property and then whatever
the deficit is between what they can actually rent it for and what the rental guarantee
is, they pay that out and then after 2 years they disappear and you’re left with the property.
Generally, what happens, if you see them offering rental guarantees, immediately, that is a
red flag. If a property is well-priced for the market
and it’s going to be rented for the price they’re advertised, you shouldn’t need to
offer a rental guarantee. If you’re investing in Sydney, you’re going to know that there
is high demand for those sorts of properties. You’re going to know that the vacancy rate
is really low and so in terms of rental guarantees, you really shouldn’t need that. And if you
see it, it’s a red flag. I’m going to talk about more about the research you can do around
the value of the property but also the rental value in one of the next steps. But, yes,
if you see a rental guarantee, be red-flagged. Consider that a warning sign and look into
that in extreme detail if you see that. Because that rental guarantee is being paid by someone
and it’s generally being paid by you. And it’s added to the purchase price of the property.
Even though it’s not “technically” added to the purchase price of the property, that money
has to come from somewhere. Okay, third thing is to look for similar existing
properties in the area. One thing that these property marketers and these property advisors,
the reason that they exist is there’s a lot of people who want to invest in property but
they don’t actually want to go to all the effort of understanding an area and knowing
which area is good to invest. So they rely on these advisors to help them. But one of
the things that you should do – because as we discussed earlier, these reports are often
provided by the developers; which is a big conflict of interest. So you actually want
to look at; well, what is going to be the purchase price of this house and land package
or unit? or whatever it is that you’re buying. What’s going to be the end price that you
end up paying? Well, now, go on realestate.com.au or go to
domain.com.au and look in the area that you’re purchasing and try and find properties that
are similar to the one that you will end up with. You want to find out how much are these
properties worth and you want to find out whether that is similar to the property that
you’re going to be getting. Is your property a lot more expensive than ones that you can
buy and what’s the difference in those types of properties? So go in to the area and if
it’s a 4-bedroom, 2-bathroom house with a double garage or a single garage that you’re
investing in in an area, well there’s going to be some of those in the area already. So
go on realestate.com.au, find out how much those properties are selling for; compare
it to the package that you’re getting and see if there’s a difference there. Another thing to do is the same but in the
rental market. So if you’re getting a rental guarantee on this property or you’re getting
a rental estimate provided for you on this property, go on to realestate.com.au, look
at the rent section and find similar properties and find out what they’re asking in terms
of rental price. You know, with the purchase price of a property,
it can be difficult because some areas like Syndey are very hot and things are going for
way beyond what they’re marketed for and then other areas aren’t as hot and are probably
as marketed for a price and actually ends up going for a discount. So, the purchase
price can be a little bit difficult but you can find out pretty roughly what a property’s
going to be like. But in the rental market, that negotiation really takes place. So whatever
a property is advertised for, it’s generally what it’s going to be rented for. This is
a good way to understand how does the rent compare to what they’ve told me. So this is
all about doing your own research and understanding what is on offer, what are they offering you?
And how does that compare to if you actually went to the market yourself and just purchased
a property in the same area. So if they give me all these reports saying
this area is a great area to invest in and you understand that and you think, okay, that’s
great. I want to invest in that area. Well now, you need to consider your options between
should I buy a package from the property advisor or could I just go out there and buy an existing
property? What’s going to be better value? That’s what you want to understand. Because
if you decide the area’s good, you want to buy the best property for that area for the
best price. The next thing that you should do is get advise
from a local real estate agent. Local real estate agents know the area better than anyone
else. What generally happens is, people call up the real estate agents 3 or 4 or 5 years
later and say, look, I’m looking at selling this property and they’re like, what did you
pay for it? Like you paid that for the property, you got stung by one of the developers or
whatever. They know what’s happening in the area. They know how much people are paying
for these developments, they know how much properties are selling for. And so when you
get your package from your property advisor, go to a third-party real estate agent that’s
unrelated to the developer or to the advisor that you’re working with and say, hey, look,
I’m really interested in this area. I’ve been offered these sort of development things.
What do you think about this? Can you talk to me about the pricing of this property,
when this property is built? If I want to rent it out or if I want to sell it, what’s
it going to be worth to the rental market? What’s it going to be worth to the sales market? They know, if you develop a 4-bedroom, 2-bathroom
house to these specs, they know what it’s going to likely sell for. They know what it’s
going to likely rent for. And so you can get that opinion from them; which is going to
be extremely useful. They could then also point you in the direction of properties in
the area that may be better deals. Or they could say, look, this is a great deal. The
property’s going to be worth probably $30,000 more than what you paid for it, if you’re
lucky. They’re going to give you that advise and they’re going to give you that input. So it’s very important to not just take what
the property advisor is giving you at face value. Because the fact is, they generally
do have that conflict of interest. They’re getting paid by the developers to sell stock.
They’re not getting paid by you, they’re getting paid by the developers. And so to get a third-party
opinion and to understand, well, is this actually in my best interest, not just theirs? Is very
important. The fifth thing that you should do is to Google
the heck out of the company that you’re looking into. There’s a lot of forums like propertyinvesting.com
or somersoft.com. Generally, people go on there and say, what do you think about this
company? And people would give you responses. So just go in to Google and search for them.
Put in their name with “review”; put in their name with scam; put in their name just generally
or put in their name with the word “forum” attached to it as well. So do a lot of Googling
around them and go in to these forums. If you can’t find anything on Google about this
company – maybe it’s a new company or something like that – go into one of these forums. Go
in to propertyinvesting.com, go in to somersoft.com, S-O-M-E-R-S-O-F-T .com and ask in their. Join
and then ask, look, I’m looking to invest with this particular company. Has anyone heard
of this company or what do you think about them? So first, Google the heck out of them, try
and find some reviews out there. And if you can’t find reviews, then join the forums and
ask yourself and get people to give you feedback. It’s going to be vital feedback that will
be very important. The sixth thing that you should do is talk
to people who’ve invested with this company 5 years ago; 3 to 5 or more years ago. If
you’re talking to people who’ve just invested, they don’t actually know what the value of
their property is, they’ve gone through the buying experience and, yes, that’s well and
good to know. But someone who’s 3, 4, 5 or more years down the track, actually understands
the value of their home more. The chance that they’ve re-valued their home is more likely.
And you can see, well, have they actually achieved the growth that was promised to them?
Was the property overpriced? Try and get in contact with these people. Now, if you’re going to ask the property advisor
for people that you can contact, they’re generally going to give you their best clients. Look,
I run a membership site. If someone wants to say, can I talk to someone about their
experience? Of course I’m going to point them in the direction of someone that loves my
service. If you can, find people on the internet who have purchased property with these people
years ago and find out their experiences. See if you can get in contact with them, see
if you can email them or find them on Facebook or something like that and get in contact
with them. That’s a good way to do it. That’s a hard task to do, so I don’t expect many
people to do that. But if you are serious and you are curious, try and find those people. And the last thing that I recommend that you
should do is actually consider a buyers agent instead of a property advisor. So someone
who offer their services for free has to be paid by someone, generally, it’s the developer
and I see that as a big conflict of interest. You may, you may not. That’s up to you. With a buyer’s agent, you’re generally paying
them out of your own pocket. Generally, a percentage of the purchase price or a set
fee of about $5,000 to $15,000. But they’re then working for you. They’re getting paid
by you and it’s in their best interest to help you buy a good property because they
want you to come back and purchase more property. So they’re going to work harder for you, they’re
going to do what’s in your best interest. Especially if they’re purchasing existing
property and don’t get those developer kickbacks. Again, not all buyer’s agents are the same.
So, always go back to these steps and find out; are they getting a commission from the
purchase apart from what I’m paying for them? You want the answer to be “no”. You want to
be paying them and you want them to receive no other commissions and that way, their source
of revenue is just from you and they are, therefore, inclined to help you out and do
the best by you. So tip number seven would be to consider a
buyer’s agent instead of a free property advisor, property mentor or property marketer. So, I hope that this has given you an overview
of how this business works. There’s a lot of people who have been stung by this. There
are some good deals out there. There are some great deals out there, where you can get instant
equity. They do exist. However, there’s a lot of bad deals out there and I want to help
you understand what’s a good deal and what’s a bad deal. And so these 7 steps should help
you do that. Step number 1 was to find out how much commission
they are making and ensure that you’re happy with that. Step number 2 was to find out if
they offer rental guarantees; and if they do, that’s a big red flag. Step number 3 was
to look at similar existing properties in the area; both in the for sale market and
in the rental market to find out, with the price you’re paying, how does that compare
to what you could buy in the market right now? Step number 4 was to get advise from
a local real estate agent and to find out what they think about the package that you’re
purchasing; what it’s going to be valued once it’s finished; what’s it going to rent for?
Get in contact with them because if you can find a good real estate agent, that’s going
to help you out when you finally do get a property. Because they can then help you rent
that property. Step number 5 was to Google the heck out of the company and if you can’t
find anything about them, join the forums and ask about them. Step number 6 was to talk
to people who’ve invested with this company over 5 years ago and find out what their experiences
were. And step number 7 is to consider paying a buyer’s agent out of your own pocket; which
I know seems hard but they will work in your best interest. And if you’re interested, I’m going to create
a printable checklist of these 7 things that you should do and you can check them out.
Just go to onproperty.com.au/282 and you can get a copy of this printable checklist over
there. Again, that’s onproperty.com.au/282 for episode 282. This is a printable checklist that you can
use to go through these 7 steps and to make sure that you’ve ticked everything everything
off, make sure that you’ve done your research and make sure that the deal that you’re buying
is a good deal. So I hope that this has helped you. 7 things
to do before buying from a property advisor, a property mentor or a property marketer. I’m Ryan McLean from onproperty.com.au. I
hope that this has helped.

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