Investment property snake oil

Housing Market Written by John Bolton, Jun 21 2009

I'm so excited... Making money is easy! According to industry gurus the recipe for success in today's property market is to attend a seminar, pay a mentor $25k to learn their secrets, buy property through a finder (at a mark-up) and then put it into an elaborate trust structure. Yeah, right. 

First up - I love investment property. If you are new to investment property join the NZPIF and talk to other people that are doing it and ask them about their early lessons. There are some great investors out there and some eccentric ones.

Buying investment property can be financially rewarding and it’s fun, too. That said, over the past 18 months I've come across a number of people who have lost money in property so it's not all one way. If you are 30 that's not a problem because you can absorb the lessons, pick yourself up and go again. It is a completely different story if you are 60.

I shouldn't have to say this but there are some really simple traps to avoid - if you go to a seminar question the motivation of the speakers. Are they ethical?  How do they make their money? Are their interests genuinely aligned to yours? What other businesses do they partner up with? The simple motivation of these seminars is money. There is nothing altruistic about it, at all! Making money is all about finding ways to make other people give you theirs. If there is one thing better than owning investment property, it is doing seminars about investment property. Part of the industry is almost evangelical. Honestly I've seen some bizarre stuff.  You can buy a device that will help you remove "negative thoughts" about money. Then there are the seminars that look like they are straight off TV infomercials. One of the pitfalls of investing is surrounding yourself with advisers who are not independent – or in other words, part of the circus.

As a business owner I've always valued advisers and mentors who are prepared to disagree with me. Do your advisers (lawyers, accountants, brokers, property finders) feed off seminars? Are they advisers, or are they part of the product? Do they receive commissions or payments to promote a particular investment? Successful people ask these questions. Don't get me wrong - advisers need and deserve money too. From my perspective it is simply making sure they are earning it by working in your best interests and not theirs. One of the biggest failings I see is advisers selling stuff to clients that clients do not need. Trusts and LAQCs have become the Ginsu knives of property investment.

As an example, I came across a wannabe investor encouraged to set up a trading trust structure (cost $7k+) when all he could afford was one section, which he bought two years ago and now cannot sell. Final note: Harold turns up to an investment property meeting - 20 attendees. There were eight investors, three groupies, three mortgage brokers, two lawyers, one accountant, a valuer and two real estate agents. You're probably thinking that you don't get groupies at your meetings! The point however, is that there is an entire service industry behind property investors;some of it good, some of it not so good. Learn to be discerning. When you talk to an adviser, the result should be that you both make money from the advice – rather than the adviser taking your cash and leaving you in exactly the same position.

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