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Bryce Holdaway Blog post by Bryce Holdaway

Four Ways an Investor will Pay

It’s always interesting the psychology of property investor when I’m chatting to them the idea of if they are to pay for advice or whether they get the advice for free. Cause in my view, you are going to pay in four ways.

First way is to pay through buying the wrong assets, and that is not an egotistical statement. That’s actually from experience in seeing hundreds and hundreds of property portfolio over the last fifteen years of doing this and seeing the decisions that people make in terms of what investment property they buy. I think the challenge is that residential real estate is the only investment market in the world that’s not dominated by investors. It’s actually dominated by owners occupied who have emotional and practical reasons for buying a property. So it’s easy to think that anyone can buy an investment property just because they live in a house, it’s common and it’s known to us. Where as most people can acknowledge that shares is harder and they need a stock broker to do it or if they talk to a financial planner, for manage funds those sorts of things. With real estates, there is this false security that comes from, “I lived in a house therefore I know what to buy”.

But I guess from my experience seeing what people have done, and having the opportunity to look in the rear view mirror of their portfolio, in my view, quite often they buy the wrong assets.

By that I mean I see the result of what they have got today, maybe from what they bought ten years ago. Quite often I only see 4% or 5% compound growth when typically it’s not that hard to get 7% or 8%, and in some cases even outperform those averages. So, I guess the first way that I see people paying when they buying property investment, or getting a property investments is through buying the wrong assets.

The second is through procrastination, and that the story where someone says to me , “You know, I have been meaning to do this for 10 years” or maybe as simple as saying, “you know, I have been researching this for 18 month”. The challenge is the market waits for no one. It’s going to go up with or without you having a name on the title, and ultimately the more that you procrastinate, the higher it is that you are going to pay to get in to the market, and the opportunity cost of what could had been. The compounding effect of that is quite great the longer you leave it.

So, wrong assets, procrastination, and the third one is paying too much. Let’s be honest, if you are dealing with a real estate agent to buy a property, one of the skills that they have as part of their, I guess, a toolbox in what they do, is to be good negotiator. And if you are not used to negotiating, all day and everyday as part of your job or have some negotiation skills, chances are the real estate agent is going to out negotiates you. So you are probably going to pay a little bit too much or you are going to buy something brand new, and quite often property investors are entice by buying brand new property or off the plan apartments as they are told that shinny taps get really great depreciation and the tenants love it. In my view, there is a developer’s margin, there is builder’s margin, there is marketing margins, and there is marketing materials that is all build in to the price. Typically to get that shine of the new property you are paying a little bit more than you would have if it was just a standard establishment property. So again, that’s how you are potentially going to pay too much.

And the fourth way that you are going to pay, is through actually getting advice. Quite often that is a barrier because the first 3 can often happen as the result of getting some sort of free advice from someone who is maybe selling something to you as compared to if you go to someone like a buyer’s agent, who charges a fee to client to act on their behalf. At face value it actually looks like a big fee compare to getting the advice for free, but if we break it down, for most people who used a buyer’s agent for example, they usually use the borrowing from their equity to pay for the buyer’s agent fees. Which is not too dissimilar to paying a higher price for the fees that are sort of hidden within that purchase price. So ultimately, you are borrowing to pay for the fees. But if it’s brand new, quite often you are going to pay up to 6% – 10% of the purchased price as sales commissions.

So again, there are the four ways that I think property investors is likely to pay, buying the wrong assets, procrastinating, paying too much or getting professional advice. Clearly in my view, I think it’s a great thing to get independent professional advise cause if you could actually buy a property that does 1% – 2% better that what you could have done yourself, the compounding effect of that over 10, 15 or 20 years is absolutely enormous and it certainly makes the money that you pay for the professional advice in the early days seem quite insignificant. So in my view property investors should really look at where they are getting their information from or where they are getting their advice from, so that they can choose which of the four ways that they want to pay for investment property.

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