As a property investor, you want to work with the most reliable and trustworthy people to help you build up your portfolio. But how do you know who’s in your corner or who’s out to get you? Miriam Bell explains
Trust: it’s just a five-letter word and such a simple concept, yet it’s abused and maligned all too often. And when it comes to property and the significant funds involved, the results of misplaced trust can be catastrophic for investors.
Unfortunately, whenever the markets pick up, a multitude of scam artists, fraudsters, shady self-described “experts” and dodgy advisors come crawling out of the woodwork. While anyone presenting or selling property
advice and information should have the best interests of their investor clients at heart, these disreputable types do not.
For this reason, investors have to be careful about who they listen to, and take advice from, in every part of the property investment sector. Whether they are seeking advice from a mortgage broker, a buyer’s agent or an accountant, it is essential that they can trust the expert in question. The many tales of lives shattered thanks to bad, or even fraudulent, advice attest to this. So, to enable you to separate the wheat from the chaff and build a team of reputable professionals, here is Your Investment Property’s guide to vetting property experts.
Seeking general knowledge
Every professional requires some specific vetting, but there are some overarching general criteria to look for in any type of expert you approach. Destiny Financial Solutions founder Margaret Lomas says firstly it is critical to ascertain whether the expert you are considering is a property investor themselves.
“Until you have been there yourself, many times, it’s simply not possible to guide someone else well,” she says. “Always be sure to make your first question ‘do you own investment properties yourself?’ If the answer is no, then don’t waste another moment.”
Secondly, where buyer’s agents, property advisors and property coaches are concerned, it is essential to establish how they get paid. Lomas says if they are paid via commissions on properties they introduce investors to (eg by a developer), then they can’t be independent. “Nor can they be really guiding you toward the most appropriate property for you. All they are doing is selling you a property from the stock they personally have access to.”
If you are paying them, you need to make sure they disclose any other related commissions they might be receiving, Lomas says. It is important to note that, currently, there is no law that forces them to disclose such information to you. This means you need to ask them directly.
Lomas says it is important to make sure there is more in the deal for you than there is for the professional involved. “Watch out for free seminars as they are almost always a front for the sale of something, usually a property; glossy brochures which are full of promises, big financial incentives, and also rent guarantees.”
Digging deeper on advisors and coaches
Anyone providing property investment advice should have a formal qualification to do so, according to Property Investment Professionals of Australia chair Ben Kingsley. While this applies to all experts, investment advisors and coaches are often the centrepiece of investor strategising and decision-making, so having proof that they are genuinely qualified to give advice is crucial.
Kingsley is frustrated by the number of unqualified self-described property advisors currently in operation. He says, along with finding out whether an advisor has a valid qualification, you should find out exactly what that qualification covers.
Further, any reputable investment advisor or coach should have comprehensive knowledge of, and experience with, the full spectrum of investment strategies
and theories. You don’t want someone who has only practised one strategy, nor do you want a one-size-fits-all solution, Kingsley says.
“Rather, you need to be mindful of what is appropriate for you. An advisor needs to consider every client’s individual risk profile and personal circumstances – including cash flow – and then advise them appropriately.”
One particular red flag to take note of is ‘act now’ advice. A sense of urgency to complete the recommended transaction doesn’t indicate an advisor has your best interests at heart, Kingsley says. “If the deal is good it will stack up in the long term anyway. You don’t want any unnecessary pressure.”
Some other warning signs are the offering of big discounts and/or incentives, smooth talking, undeclared extra costs or charges, and bad responses to rejections.
When vetting any type of professional in the property realm, Lomas recommends asking the following general questions:
Lomas emphasises that the best way to check a professional’s credentials is to ask for the names and contact details of some of their happy clients. Also, if possible, referrals from people you know and trust are a good way to verify whether or not a professional is reputable.
- Do you have any investment properties yourself?
- How long have you been investing for personally?
- How long have you been helping others to invest?
- Do you receive any commission for helping me?
- Can you provide me with some referrals so I can talk to some of your happy clients?
- Are you a member of a recognised industry association, such as Property Investment Professionals of Australia?
On top of the basic questions to ask (see box, p47), Kingsley suggests thinking about the following issues when considering any potential property advisor or coach:
- Do they have a formal qualification?
- How extensive has their own property investment experience been?
- Are they willing to discuss their own successes and failures?
- What is the motivation for their advice?
- Is their advice independent?
- What does their fee include and how long does it last?
- How does their fee reflect the value of the advice they are offering?
- Have they paid genuine attention to my risk profile and circumstances?
- Will they provide referrals, with contact details to follow them up?
- Do they have a disputes or complaints handling process in place?
Kingsley says an advisor should always be forthcoming with a documented schedule of both fees and referrals. “If they are apprehensive about providing them, be suspicious. But if they are happy to provide them, it says a lot about their service.”
Vetting your mortgage broker
Checking your broker
- How long have they been in business?
- Do you feel they’re being transparent?
- Do you feel like they are pushing you to make a decision quickly, or are they are going at your pace?
- Do they have support staff such as a PA working with them? If they do, it’s a good indicator they’re busy, which suggests they are good at their role.
- Do they operate from home or have they committed to office space? An office shows commitment to their craft.
- Check their ABN at the Australian Business Registrar. If is it registered for GST, their turnover is greater than $70,000. This again shows they are busy and thus good at their job.
- Are they a company or a sole trader? If they are a company it indicates greater commitment and a bigger turnover. This, too, suggests a level of success.
- Do they charge an additional commission?
- If I refinance later on, will they charge me a fee for changing brokers?
- Do they understand the tax implications of borrowing for investment?
- Do they understand how to correctly structure a loan for tax?
Deanna Ezzy, from Trilogy Investment Property Funding, believes the best way to start your vetting of a mortgage broker is with a wide-ranging conversation. It should explore how they can help you, as well as their own experience in their current role and in the industry in general.
Post-conversation, think about whether the information you received made sense and was relevant to you – and also whether the broker was a good communicator. Your own personal radar does come into play, Ezzy says.
“It sounds a bit cheesy, but when you’re talking to this person, how do they make you feel? Do you like them? Some people might just be great at sales, but I think there’s something to be said for your gut instinct.”
Following your initial conversations with a broker, do some comprehensive research. Look online for reviews and information about them. Also, follow up their referrals, as these are the best form of endorsement, Ezzy adds.
“There’s a lot of trust that you’re placing in these people, so you want to make sure they’re the real deal, trustworthy and ethical.”
Selecting a buyer's agent
Try to meet your buyer’s agent before making a decision on their services, to ensure you are comfortable with them, says Jacque Parker, president of the Real Estate Buyers’ Agents Association of Australia (REBAA).
“What may look good in a glossy brochure may feel very different upon meeting. You have to be sure that the agent you choose is someone you are happy working with in a collaborative relationship.”
Identifying whether an agent is truly ‘exclusive’ or ‘independent’ is also vital to getting genuinely impartial advice, she continues. Independent agents do not sell real estate or accept any fees for doing so. Further, if an agent accepts sales commission from vendors or developers, then they are acting in the interests of the seller and there is a clear conflict of interest.
When choosing a buyer’s agent, Parker suggests working through this checklist:
Field and local experience: Look for agents who have a minimum of 12 to 24 months’ experience in the particular area that you are interested in. It is worth finding out about their most recent purchases.
Credentials: Check with the relevant state’s department of fair trading to ensure they are appropriately licensed and insured. They should also have the relevant qualifications. Also, if they have industry awards it is a sign they are well regarded.
Membership of the Real Estate Buyers’ Agents Association of Australia: If they aren’t a member, ask why not. The REBAA is Australia's only buyers’ agents association, and in order to become a member, agents have to go through a stringent process. Once an agent is a member, they have to adhere to a strict code of conduct.
Contacts: A good agent will have a wide network of selling agents to access properties off-market and earlier than the general public. They should also be able to connect you with representatives of complementary professions.
A solid track record: Ask for references from at least three recent clients who you can contact to discuss their experience with the agent.
Parker says once you have selected your agent you should remember they are working for you to find the right property for you.
“The following journey is as much about identifying and dismissing the ‘lemons’ along the way as it is about locating the gems.”
This means a good agent should keep you updated and well informed so that, when it comes time to assess and negotiate, you can be confident in their strategies and advice.
Settling on a conveyancer
The role of a conveyancer isn’t to give investment advice; it is to help investors successfully navigate the legal and procedural components of property transactions, says Australian Institute of Conveyancers (AIC) president Jeffrey Stevens. “While you are able to use a lawyer for a property transaction, you may be better served using a conveyancer who is a specialist in property transactions.”
The best way to go is to choose a professional, trustworthy conveyancer carefully and use them wisely, Stevens continues. Depending on the jurisdiction in which they operate, this means their services could include:
- Identifying problems and advising on potential risks
- Performing the necessary due diligence on, and verifying information provided in, the contract and disclosure documents
- Giving general advice on how to structure a purchase depending on the client’s situation
- Performing the verification of identity
- Preparing for and completing all the conveyancing matters necessary for transfer of title
Given the intricacies of the law, it is essential to employ someone who is qualified, accredited, experienced and up to date with the relevant legislation. A professional conveyancer will provide you with the correct information and documents to ensure all the obligations set out in the contract are met and settlement occurs on time.
Choosing a conveyancer who is a member of the AIC, which is the industry's professional body, is a good way to start, Stevens says. Members have to be licensed or registered in their respective jurisdictions, which means they have met the required professional indemnity insurance and educational standards.
“Also, there is a regulator to go to if a problem arises. Further, AIC members undertake regular professional development, and this training is managed by the AIC divisions for licensed conveyancers in each jurisdiction.”
Conveyancing fees vary according to the jurisdiction, situation and transaction, which means there is no standard fee. It is worth asking for a fee schedule, Stevens adds.
Sizing up an accountant
Seeking out an accountant who specialises in property is critical for any serious investor who wants to maximise the value and benefits of their portfolio.
Chan & Naylor partner Ken Raiss says to receive the best assistance you need someone who understands the nuances of property and who can provide services that are specific to property investment. Further, an accountant has to have both a national and a state understanding of the tax issues
relevant to property.
Therefore your accountant should be a trusted advisor who can provide you with strategic advice on a range of issues, such as tax, entity structures, asset protection, and estate planning, Raiss says.
To find one it is sensible to look for someone who has “third-party exposure”, he continues. For example, they write for newspapers or magazines, present at workshops, do keynote speaking, etc.
“It tends to indicate they are regarded as a bit of an expert in their industry. It’s almost like ‘third party’ accreditation or endorsement. Also, there will have been due diligence on the part of the organisation they are involved with.”
On top of the standard questions about qualifications, experience and professional membership, Raiss suggests asking the following questions when selecting an accountant:
Making a management decision
- Will they give you a fee estimate and will they do periodic billing for larger jobs? An accountant should be happy talking to a client about their bills and the progress of the work.
- Do they have a complete understanding of depreciation?
- Do they know about setting up development projects, joint ventures, and the like? You want deep knowledge, because even if you don’t need it now, you might in the future.
- Who will do the work? You want strategy advice from the firm’s principal, but operational work from the client managers.
- Will you be able to review the work at year-end?
- Is the firm growing is size? This tends to indicate that the firm is successful and reputable.
When selecting a property manager, it is best to adopt the role of inquisitor and simply work through a lengthy list of predetermined questions, Property Boss CEO Tamara Schiess says.
A property manager must be able to display several key attributes. These include good local knowledge of the area and its market; knowledge of, and access to, the full range of relevant systems, resources, tools and databases; and a solid local network of contacts and complementary professionals.
After establishing that they have these attributes, Schiess recommends working through the following questions when trying to find a trustworthy property manager:
- How many properties do they have on their books? Too many and it will impact on the quality of the service.
- The industry standard is about 120 properties per property manager.
- How many vacancies do they currently have across their rent roll? How many years have they been managing properties in the area? And how long have they worked for the agency they are with?
- How do they manage tasks like tenancy renewals, finding and vetting tenants, rent setting and collection, dealing with tenancy disputes, and maintenance and repair issues?
- Do they have an understanding of the relevant tenancy law?
- Are they happy to give you references from clients, with contact details for you to follow up? Property managers who are proud of their service will do this willingly.
- Do they have a solid support team in place, along with provisions for cover if they are away?
What to watch out for in an accountant
Some final tips
According to Raiss, some warning signs to be aware of are:
- Unwillingness to give you an initial ‘five minutes’ of consultation for free
- The time slipping out and away, with costs to follow
- Bills that can’t be substantiated
- Your calls not being returned
- Lack of transparency
- An accountant trying to sell you property
- Lack of ongoing professional development
Finally, Lomas says it is tricky to estimate how much any professional might charge, as what you pay will differ according to your individual circumstances, how big your portfolio is and how much work needs to be done.
But she warns investors to be careful of $10,000 workshops or any fees that seem high in relation to the service or advice you are getting. “If you are adding 5% per property for getting guidance from an expert, then you could be starting behind the eight ball,” she says.
If you feel you have received bad advice, Lomas says in the first instance you should contact the professional or company and ask for your money back.
Should that not work, contact the ACCC or the department of fair trading in the relevant state. However, unless an actual law has been broken, you may have little recourse.
“It is important to know that, at this time, there are no laws in place to protect property investors or to govern how those in the industry operate.”