Cheap not always be best

05 Jul Cheap not always be best

With so many Australians wanting to dive into property investment to build wealth and move towards a goal of financial freedom, the focus is firmly on value for money.
That in itself is not necessarily a bad thing. Everyone wants a ‘water cooler’ story they can tell their friends and work mates about the screaming deal they got on the latest investment property they bought!
What does concern me is that inexperienced people are making purchases recommended by ‘property consultants’ (to use the term loosely) who really either work for a developer or who work through a financial planner. Secondly, would-be investors are making purchases with no advice whatsoever and just hoping for the best that, through their small amount (inadequate) or large amount (confusing) of research, they have ‘hit the nail on the head’. More often than not in both these scenarios the person has miss-fired, bent the nail and the damage is done. Have you ever tried to straighten a nail after bending it!
Recently I had a couple (let’s say 50+) from Sydney come to see me. They had been told through their financial planner that a ‘property consultancy’ firm in Sydney was recommending some inner Brisbane developments, essentially to be bought in an Self Managed Super Fund (SMSF). I met with them during their visit to Brisbane and answered the 101 questions regarding the general market, how I saw the developments from a positional, style, size and quality point of view amongst other things. While there seemed to be nothing wrong with the developments on the face of it, the reality will essentially (in my opinion) prove to be very different.
The couple were focusing on achieving a rental and after tax return as high as they could. Don’t get me wrong, that is certainly a good thing. But when it comes at the expense of capital growth and the purchase of a good quality property, that is not necessarily a good thing. The underlying fundamentals were that the developments were very large (many units), in a busy location (great for tenants), and were primarily being sold to investors. Despite highlighting all of that and providing advice on where best to buy, in established areas close to but not on top of retail and commercial, they were still proceeding with buying not one, but in both of the developments!
My point is that while rental return is certainly an important factor to consider, it is not the only thing. The fundamentals of property are unlike shares when comparing. Shares when bought and sold are done so with little or no emotion. Property on the other hand can evoke emotion, you can touch and feel it, it can be visually appealing or the complete opposite. Next time you buy, don’t get hung up on the initial rental return. Look at the product, who it is being sold to, who will use it now and who is likely to use it in 10 years time. Or I suppose you could just use a trusted advisor!

Scott McGeever, managing partner, Property Searchers 27/6/2013

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