Why Consider a Buyer’s Agent When Investing in Property [Part 1]

When you think of investing your money, you probably think of real estate as one of the cornerstones of any financial plan.

Yet somewhat paradoxically, like most people, you no doubt envisage going into a high value property purchase without any professional help by your side.

(And no, your uncle doesn’t count).

In what other high-stakes scenario would you fly by the seat of your pants like that?

Most people expect a doubling of value in a property within 10 years. However, this is rarely what occurs in practice, from what I have observed. I can’t recall how often I have seen disgruntled investors walk in with property portfolios that have cost them hundreds of thousands, if not millions, in opportunity cost.

What is a poor property, in my experience?

[Important disclaimer, I am sure there are properties in each of these categories that I will mention where investors have made money. It’s just that I have seen many more failures than successes regarding the examples.]

• Off-the-plan property - Typically, an investor has overpaid for the property and is sold the tax benefits of a shiny new object. It’s rare to see an investor time this market well and sell well.
• High rise development – Unless these are purchased in high-profile areas with stunning views, the supply of these properties tends to outweigh demand, pushing prices lower or growing at a rate less than inflation.?
• Regional property – Properties with generally good cash flow but few prospects for capital growth due to limited population growth and investment into the area. Covid has skewed the results recently, but this does not mean that regional property will continue its recent positive trajectory.
• Holiday apartments – Investors are sold solid capital growth with growing rental yields, coupled with the “sex-appeal” of attractive beachside locations.
• One-bedroom apartments – Typically speaking but not all the time, I have seen poor results when purchasing a one-bedroom apartment unless in a highly affluent area. Generally speaking, you only see an inflation-style return.

Buyer Beware

Most novice investors don’t have a reference point for a good investment and how the investment projects to perform against other types of properties. Because of this, a great salesperson is great at luring in investors who have had enough doing research and are now ready to decide. ?

Don’t forget, this type of real estate salesperson sells to people like you every day – they know all of your objections and how to appeal to your dreams.

Buying at the wrong end of the cycle

It’s typical for new investors to get caught buying at the top of the market. The frenzy of rising property markets, headlines, and the success stories of friends, leads to FOMO.

If you add in the mix of novice investing, poor timing, and great salesman – it’s easy to see why investors can make poor decisions.?The worst thing about property is most people feel strongly about holding property for a long time, and while this is true and makes sense if you have purchased poorly, no amount of time will recuperate your losses.?Your losses are what you could have made with a better decision.

Emotion

Far too many people buy investment properties with the type of emotion that should be reserved for a home they will be living in themselves. Property is an investment like any other – it needs to comply with your financial plan and meet the investment strategy you’ve set out to achieve.

Does it have the right timeline of growth profile? Are the cashflows appropriate for your needs? Are there any hidden costs you’ve overlooked?

Bringing emotion into the situation and being blinded by a charming property that you’d love to live in, can lead to pain after you’ve signed on the dotted line.

Why a Buyer’s Agent makes sense

Mitigating these risks is what strongly inclines my recommendation to use a Buyer’s Agent when property is part of your investment mix. A good or great Buyer’s Agent will significantly reduce the risk of buying a poor property by providing research and selection expertise, local knowledge, negotiation experience and an ability to remove emotion from the equation.

The probability of my clients buying quality property and, most importantly, achieving personal and financial objectives, increases greatly with this type of professional by their side.

In Part Two we will discuss how to consider / select a Buyer’s Agent most suitable for you.

Neelan Sornalingam