First published 12/04/2012
There’s a time for sharing your insight and a time for putting a lid on it. Max Paige reveals three gems of property wisdom that haven’t simply had their time – they were ridiculous to start with.
I’ll never forget the first time I went to a professional property advisor – mostly because it reminded me of the first time I went into surgery.
The operation was to have my wisdom teeth removed and I still can’t decide which experience was more painful.
After arriving at the offices of a major real estate agency in my area, I was lead down a long corridor to a boardroom where they sat me down. Across the table, a tall-sided swivel chair slowly turned around, like in a meeting of James Bond villains, and I got a glimpse of my very own Dr Evil.
He had gelled back hair and a beaming grin, with teeth I surmised must have been brushed with industrial strength tile cleaner. He sure did sparkle.
He asked me what I wanted to achieve through property investing and we started to discuss what would or wouldn’t be possible with my salary, level of interest and risk appetite.
It didn’t take me long to realise that my best course of action was to ignore everything he said. It wasn’t that he didn’t know what he was talking about – he certainly knew a lot about property – it was a sentence he kept repeating that really got to me.
“This isn’t a game for wussies,” he would say, flashing his teeth to reflect the light. “You’ve got to follow what Nike says: Just do it.”
What he meant was that I should be prepared to simply take the plunge. He said that inaction was the enemy of property investors and that getting bogged down in stats and figures was a mistake.
I always found this argument rather amusing. What did he expect? Had I saved up $40,000 on a deposit, just to throw it away, totally randomly and without research, on some property he suggested?
Since then, I’ve found a lot of property professionals dishing out the same advice. I get the just of what they are saying – that you’ve got to reach a decision at some point – but behind the advice, you know exactly why they say it. How else are they going to sell houses?
With this in mind, I’ve put together a list of tips that many property professionals commonly put out – whether well intentioned or not – that, for the benefit of property investors, they should please, please stop saying.
Only buy in inner-city areas
“I only buy houses within 4km of the CBD,” a prominent real estate advisor once told me. He admitted that it was conservative, but that over time it made sense.
“These areas aren’t the flavour of the month, they’re always in demand and there’s nowhere left to go if you want to be close to the CBD, so it’s the best place for growth,” he said.
It’s an argument that stacks up to common sense. I’m not disputing that it’s true. However, I would like to point something out to anyone that advocates this argument: have you seen how much it costs to buy 4km from the CBD?
In Sydney you’d be hard pressed to find an inner city area where median houses prices are below $800,000. In Perth that figure is probably about $600,000.
If you want to know what $800,000 can buy you – the answer is a lot. You could buy three houses in more modest locations for that. You might not get the same capital growth, arguably, but you’d spread your risk. You’d also have better cash flow.
I do understand that some investors can afford this strategy, for the rest of us, the best it can be is wishful thinking.
Mining towns are dangerous
I can’t believe how many seminars I’ve been to where the host has balked at the idea of buying property in a mining town.
Yes, there is some risk, but then there’s also the fact that properties in these places are often cheap, they have excellent returns and they’re growing faster than a gym junkie on steroids.
The arguments against them are that one day the bubble is going to burst and that these towns will cease to exist anymore. Your property, we're told, will become a feature on a dust swept desert plain, populated only by gun-touting hobos and rats the size of hobbits.
We’re all grown ups. If you’ve done your research and picked out towns with a sustainable economy, I really don’t see what the harm can be in going the way of the resources town.
Land appreciates, buildings depreciate
This is one the real estate agents love. The argument is that you shouldn’t be buying units, because houses have much better capital growth.
For me, this borders on the totally ridiculous. A simple browse through stats and performance charts shows that in many markets, units outperform houses. Enough said.
Max Paige is a property investor and occasional blogger, in between munching bar nuts, and watching the Gold Coast Titans have a lousy season.