How Do You Spot a Property Spruiker?
I’ve been in this Property Investment industry for over 16 years and I’m often asked this question, “How do you actually spot a Property Spruiker?”. Lots of people talk about property spruikers but what actually is it? In my view, there’s actually three, I guess, people that you can take your information from in this property investment industry. The first person is the Salesperson who is not pretending to be anything other than a salesperson that’s being employed by the developer to sell their product. They sit typically in the sales office, they invite enquiry and they try to sell one of the developer’s product whether it is an off the plan apartment or a house and land package, they are very very clear on what they do. On the other side of the equation, you got the advisor. The true property investment advisor who has no stocklist, no agenda, they want to find out exactly what is going on for the investor so they can work out what tailored solution they need to provide on behalf of the property investor. And then you’ve got this grey area in between. Because the sales person is not pretending to be anyone they are not and the property investment advisor is not trying to pretend to be anyone else that they are not but this person in the middle often masquerading as an advisor but they really are a salesperson. That’s the property spruiker. The reason they are doing that is because there’s extraordinarily high income on offer for any salesperson who can actually get a transaction done in the real estate part. So the challenge I have is not whether you are buying it for one of this three people but it’s about masquerading something that you are not.
Property spruikers really prey on ignorance, fear and greed.
That’s their tool kit to try entice you into buying one of the products that they are going to be paid very handsomely on if you facilitate or they facilitate the transaction. So the analogy that I would like to think of is imagine you enter into the doctor and you sat down in the consultation room and the doctor didn’t ask you a single thing about your circumstances and they just start writing the script and handing it over to you, sort of ushering you out the door, having never talk to you at all. You would feel pretty ripped off in that circumstance but unfortunately, in the property investment industry, that happens all the time. People come in and say, “What’s the best property investment for me?” and the spruiker will go, “Actually, this one will work really well for you”. For me, I would be thinking, you haven’t ask them any questions about how old are they, how much income do they earn, what’s their ability to repay the debt, are they fearful of debt or are they open to debt, how long until retirement, are they in the accumulation phase or are they close to pension age? There are so many questions that you need to understand about a person before you even come close to recommending bricks and mortar. So again, those are the things that really set a spruiker apart from a salesperson and a true advisor.
So some things or some signs that you can look out for if you are dealing with a spruiker is the first one, they are recommending properties that have been heavily marketed away from the local area. So for example, it’s a property that is being built in Melbourne for example and they are flying to Perth or Darwin or Brisbane, filling up a room, trying to talk about those properties. You got to ask the question, “If they are that good, why aren’t the locals buying them? Why are you coming interstate to actually sell these properties?” That’s really the number one sign that I can recommend to spot a spruiker. The second thing they do is they prey on areas where the principal place of residence (PPR) that they person is living actually seems more expensive than the investment property. So for example, they might target an area where principal place of residence is typically somewhere between $550,000 – $600,000 but they are recommending investment property at $450,000. That actually seems really cheap and because of that, you don’t actually notice all the big sales commission that are loaded in the price.
Another sign is rental guarantee. To me that is a huge warning bell. Cause if you are buying an investment property and it is in demand by tenants in the local area, why do you need a rental guarantee? But again, if we think about them playing on the ignorance and fear, it kind of gives people that warm feeling that I’ve got a tenant for the first two or three years. But after that three years period of rental guarantee, you are on your own. It’s up to the local market conditions as to whether or not the tenant is prepared to get what you were getting before the rental guarantee runs out compare to what you’re getting after the rental guarantee runs out. So in my view, that’s a huge alarm bell. The other one is when they suggest that all properties that they’ve got are positively geared. Now, make no mistake. You can get properties in this country that are positively geared. But if all of the properties, anyone that you choose can be positively geared? To me again, that raises a few alarm bells and you need to look under the bonnet a little bit more. That’s probably an extension of my next point is, if there is a stocklist in place, chances are they are a spruiker. Cause a true advisor doesn’t necessarily have a pre-determined property in mind that they want to recommend to you before they go through a whole bunch of steps understanding your circumstances to understand what is best for you.
Another sign is a heavy emphasis on tax. Now, don’t get me wrong. I’m a degree qualified accountant and I love tax benefits just like everyone else but essentially, they are not the reason why you are getting into property in the first place. They are a nice bonus and a nice benefit to help your cash flow in holding these properties but essentially, when you get that tax-free fund back, you are putting it straight towards the upkeep and holding of the property. So it’s not as if you are going to a shopping spree with it. So don’t necessarily get seduced by the tax, just see it as a bit of a bonus. The other thing they tend to do is in their presentation, they put lots of clips up on the screen regarding favorable media messages to the local area. That’s kind of a selective research in my view, you need to be able to do your own research for that. As a Buyers Agent, when I’m buying on behalf of buyers, I am negotiating on everything. Price, terms, conditions, settlements dates and everything but quite often when you are buying a property from a spruiker, nothing is negotiable. The price is take it or leave it. I would say that is another sign to look out for as to whether or not you are dealing with a spruiker cause typically speaking, in a free market place where you are chasing a willing buyer vs a willing seller, they should be some sort of settling to where real market value exist not just having a spreadsheet and say, “That’s the price you should pay – no correspondence entered into”.
So I guess that’s the few things to look out for as to whether or not you are dealing with a property spruiker but ultimately remember the one thing that is always true and have been told by your parents and your grandparents: There’s no such thing as a free lunch. So if you are getting free advice, you’ve got to ask yourself the question, “Why am I getting this free advice? What’s in it for them and is this actually in the best interest of me as a Property Investment Advisor.” If you keep your eyes wide open for all of that stuff, chances are that you won’t get stung buying an investment property from a spruiker.