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Real Estate Industry

March 24th 2011

HOW TO INVEST IN PROPERTY (Part One)

RULE 1: Stay away from the con artists.


by Neil Jenman.

Fear of poverty is one of our greatest fears. Fear of growing old is also a great fear. Therefore, together, the fear of being broke and old is terrifying for thousands of people.

And this is how thousands of people are being caught by the property con artists.

It's a well known ploy, and it's used by almost all the Australian property spruikers. They'll give you some twaddle about people being broke at age 65. Their aim is to scare you and then con you. In the world of cons, it's called making you aware of a problem and then claiming to have the solution to the problem.

No, it's the con artists who are the problem.

Trust me, almost every person who begins a talk by talking about how poor you're likely to be in your old age, is a person who's likely to: a) take thousands of dollars of your money to buy a knowledge course (or a series of seminars) that will claim to give you all the secrets you need to get rich in real estate; or b) sell you a property (without you realising that it could be over-priced by as much as $200,000!).

If you want to make money by investing in real estate then, believe me, your first and foremost goal must be 'stay well away from the property con artists'.

As the American billionaire, Warren Buffet says, "The first rule of investing is don't lose money. The second rule is to refer to Rule One."

How, therefore do you recognise the property con artists? After all, there are quite literally hundreds of people who will give you everything from a raw deal to a full-scale total con (where you lose your family home).

The property con artists all have a number of characteristics which are, unfortunately, also common to honest and legitimate property advisers.

Just be sure of one fact, however: the number of dodgy property operators probably exceeds the number of honest operators by a factor of at least ten to one. That's right for every honest property advisor, there are at least ten dishonest ones. In the property industry, the majority (dodgy rogues) give the minority (honest advisers) a bad name.

One of the surest signs that you are about to be ripped-off is when you meet someone who claims to "do it all for you". They often call themselves "one-stop-shops". You will almost always get a lesser quality deal when you fall for the "one-stop-shop" line.

You see, two of the essential protection points of investing in property is first, to use your own lawyer and second, to use your own valuer. Please, no short cuts on these two safety requirements.

Thousands of investors would have collectively lost millions of dollars simply because they used the lawyer recommended by the spruiker and they were told something like, "You don't need a valuation. If the property is not worth the price you are buying it for, the bank will not lend you the money." Rubbish.

When most property investors invest in property they have to offer their family home as security in addition to the investment property. This is a sure sign that the investment property is over-priced. If not, why would you have to offer your home as additional security? If the property is not good enough to be a 'stand-alone' investment, do not buy it.

When it comes to property investing, most people feel out of their depth. They are hungry for knowledge - and this makes them easy prey for the spruikers and con artists who make a series of wild and fanciful claims which cause wanna-be investors to part with thousands of dollars.

If ever you meet anyone who offers to teach you the secrets of property investing and they ask you to pay them more than, say, five hundred dollars, run a mile. Spruikers will charge what they can get away with. Some charge upwards of $25,000. They all justify their huge fees by saying that, with their information, you'll reap hundreds of thousands in profit. Baloney.

You can be almost rock solid certain of one immutable fact: If someone wants to charge you multiple thousands of dollars for a property information course, that person will be making more money out of 'course fees' than he (or she. There are now several dodgy female spruikers doing the rounds) ever made out of property investing.

I have never known any spruiker to publicly provide their tax returns or their profit & loss statements to prove the veracity of their claims.

So, look-out. Stay well clear of anyone who wants you to pay a lot of money to learn how to become a property investor.

It gets even worse, however, when you meet the another type of property spruiker - the one who claims to be able to teach you about property investing and then presents some "chosen" properties for you to purchase. This is by far the most common way that would-be investors get stung.

Open your eyes, look around you. Ask some obvious questions. Those hotel function rooms are expensive (it can cost around $10,000 to hire just a small room in a ritzy hotel).

And those full page advertisements. Some spruikers spend hundreds of thousands of dollars in newspaper ads.

And all those people (who claim to be volunteers or supporters), they usually earn thousands of dollars in commissions. All this money, this huge expense, has to come from somewhere. And, guess what? It ultimately comes from the hapless investors who buy property that has been 'loaded' up with expenses, commissions and profits. Stay away from the rah-rah crowd - please!

Okay, now that you know what not to do, what should you do? Well, I agree, the first thing you need to learn about property investing is the basics on how to do it. And, believe me, it's a lot more basic than you think.

Investing in property is a long way from rocket science. The two most important mathematical points you need to know when investing in property is first, the current yield and, second, the likelihood of capital gain.

Ideally, a good property investment will stand alone. It will support itself. In other words, the income from the property will more than cover the costs of holding the property. Be very careful of being told that the losses you make from property are tax deductible. A loss is a loss, whichever way you figure it. Some investors have such huge losses on their properties, that they struggle to make ends meet in their every day lives. This is madness. Property investing should improve your life, not ruin it.

In your quest for knowledge about investing in property, be sure to keep everything very simple, as basic as you can make it. For example, money in should be more than money out. You can't get much more basic than that.

There are a few good books that have been written on property investing. A Kiwi, Duncan Balmer, wrote a book called 'The Truth about Property Investing' (I am not sure if it's still in print). The Aussie lady, Margaret Lomas has written several good books about property investing. Get them all and read them all.

One of the most genuinely knowledgeable people in the property world is the journalist, Terry Ryder. Terry is a friend of mine; for years I have urged him to hold talks for property investors. But Terry refused to do what spruikers do - and hold seminars.

Finally, however, I am thrilled to say that Terry is now holding a series of "classes" (three-hour talks) to help new (and experienced) property investors. You can get more information at his web site: www.hotspotting.com.au.

This has been a brief introduction to the world of property investing. More information will follow in further parts; however, right now, if you heed the advice offered so far, you will achieve the number one goal of investing - staying safe.

Take care.



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