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Bryce Holdaway Blog post by Bryce Holdaway

Five tips to get property advice

Its always an interesting discussion you have with someone who’ s planning a wedding. They spend this huge amount of time in the lead up to the wedding. What they’re going to have at the reception, what dress, what the groom is going to wear, where are they going for their honeymoon.. It’s just so much planning that goes into this very one day but then the criticism is often, well how much planning is actually going into the rest of your life once you actually do get married? And a lot of people don’t put a lot of time, energy and thought into that. And I think that analogy sort of overlays on investment property as well because a lot of people want to buy an investment property. They put a lot of thought into it. Should I shouldn’t I? And they burn a lot of mental and emotional fuel getting to the decision of buying a property but not a lot of time and thought has gone into – Ok, I brought the property : What happens next? And what about the performance of this property?

And I think that was highlighted to me recently when I was chatting to a client during the week, who’d previously bought 2 investment properties. Now by his own admission, he wasn’t very financially literate. He’s very good at his job, he’s very good at paying off his family home which he’d totally reduced the mortgage down to zero. But when it comes to investments and finances – he self confessed – just wasn’t really that person in the space. So in the absence of that knowledge, he just outsourced the understanding. Instead of working out how it works, he just said I’ll go and find someone who can solve the problem for me.

But that leaves you very very vulnerable because if you actually go to someone who doesn’t have the right agenda for you? You can, sort of, listen to their advice but it might not be the best advice. So I thought I might give a few tips for someone who’s thinking of buying an investment property and what they should think about before they actually sign and commit to buying an investment property.

And my 1st tip is potentially a little bit controversial but I think it should be fee for service. If you’re going to get advice on property investment you should pay someone for their advice because potentially its very independent then. Versus someone who’s prepared to give you free information because there’s no such thing as a free lunch. So you’ve got to question, where are they actually getting paid and if they’re giving me free information, how much are they getting paid? With that scenario of the person I chatted to during the week, they bought two brand new properties that were off the plan and the person or advisor was getting paid very handsomely to make that recommendation. So effectively they were buying from a stock list rather than having some independent advice. So my first tip to anyone who’s wanting to buy an investment property is go fee for service. Pay someone for their advice so that you can get the independent advice that actually comes back.

My second tip is around strategy. It’s really important. I’ve said it on many videos that people do property first, suburb second, strategy third. Whereas I think it should be other way around. Get the strategy right first then choose the suburb then choose the property. Now a lot of strategy that people get is – ok you’ve got some equity in your family home, you’ve got an income, lets buy an investment property. You can see the advisor’s eye’s light up. But I think we need to unpack that a lot more. You need to have a strategy that understands the implications to your mortgage. Because let’s be honest, anyone with a material income, generally in this country, will put their income into their principle place of residence. They buy a home and they want to pay that mortgage off as quickly as they possibly can. They’ve also got to have a really thorough understanding of all their expenditure and where their money goes. We need to know if there’s any surplus left at the end of the month. Or do you have too much month left at the end of the money? Because it’s not just good enough to say I’ve got some equity, let’s go and buy. I need to know what the spending pattern look like under that household. But also not just today, what about tomorrow and the next day? Are we having maternity leave? Are we going to reno the kitchen? Do we want to upgrade our car? Are the kids going to uni? There’s got to be a whole range of things that are taken into account into with our strategy, not just – do you have equity – you should buy. And so the second tip I give is get a very thorough strategy in place that cash flow down to the month so you can see what impact investment property will have on you because a lot of the people who are promoting investment property always talk in the big picture. Capital growth, you’re going to make money, look at all these wonderful things you do when you actually achieve a portfolio that gets some growth?

But at the end of the day, you are the person that’s left with the property at the end of the month and you have to make sure that it’s cash flows. So number two, get the strategy right.

Number 3, is the advice needs to be independent. And by that, if you say to the person who’s giving you the advice, “I want to buy a property.” – and they can give you and answer today, chances are it’s a stock list. It’s already predetermined. And then they’ll have some information that will surround why that’s a good one. OK, so there will be this research that they’ve pulled together to say this is a great one. Whereas I think it should be totally independent. Look for something with no stock list whatsoever. If you’ve asked the adviser for help? They should understand your needs, go away digest it, go and see whats in the marketplace then make some recommendations and present them to you. And that can only happen if their independent.

My fourth tip is to go with specialists in each and every one of the fields. Now again, I’ve talked many times about asset selection, borrowing power, cash flow management and defense. That’s the ABCD of property investing. But it’s really dangerous if you have someone – one person, who covers all 4 things. Because each and every one of those disciplines requires many hours of understanding, experience, training and repetition to get it right and then bringing them altogether so that they have cohesion. It’s actually not that easy to do. So having one person who covers all of those things, in my view, can leave you a little bit vulnerable. Whereas the alternative is you go to a specialist who understands the asset selection – buyers agent for example. Then you go to an investment savvy mortgage broker who can get the structure of your lending right. Then you go to property wealth planner who can take into account, your full strategy – cash flowing it month by month to get the strategy right. Then the last one, you go to a financial planner – looks at your circumstances, see where the risk is and help defend the portfolio. So it’s really important, in my view, that you go to a specialist rather than a generalist.

And my fifth tip here is a call to all property investors to NOT be lazy. It’s really in the form of outsourcing your understanding. So if you don’t understand finance, it’s probably not good enough to actually just go, I’ll give that over to someone else and they’ll look after it for me. You have to have some base understanding of what you’re about to embark on before you buy an investment property. Because I’ve seen way too many people get burnt by outsourcing the understanding. It’s OK to outsource the process as long as you don’t outsource the understanding. You still need to understand what actually is going on. You need to understand the risk that you’re about to embark on. You need to understand the rewards that you’re about to enjoy.

So taking those five things into account, fee for service, get the strategy at a very detailed level, make sure to be getting independent advice, talking specifically to specialists not generalists and the last one, making sure you don’t outsource you understanding. Those five things alone will make sure that you don’t get burnt by a property investment advisor and if you get those five things right, chances are the person that you are taking advice from is acting in your best interest and the outcome for your portfolio will be a superior result.

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