04 Mar Classic property investor mistakes – Patrick Bright Part 1
In part 1 of a two part interview with Patrick Bright we look at the classic mistakes property buyers make. In the first part we look at some mistakes made by property investors.
Kevin: This is a fascinating subject we’re going to pick up on now. We’ll do it in two parts, actually. Patrick Bright joins me from EPS Property Search.
Good day, Patrick. How are you doing?
Patrick: Well, thanks, Kevin.
Kevin: Good. I’ve asked you to tap in and spend some time thinking about the classic mistakes you see property buyers make, and you came back to me and said “Look, it’s in two categories. There are owner-occupiers and there are investors.” So, let’s do it in two parts.
Can we look at the investor side of it first, Patrick?
Patrick: Absolutely, yes. Let’s go for it.
Kevin: So, where would you start?
Patrick: I think in no particular order, these are the top things that I see people do who make mistakes. Buying sight unseen is quite common; I hear that a lot. It’s not really a great idea to be doing that.
Kevin: Yes, because people think now with the Internet you get so much information that you can do it at an arm’s length. You’d advise against that?
Patrick: I do. I’ve actually seen people recommend that who you would probably consider professionals, who would be seen that way in the marketplace. But I don’t understand it. They’ve tried to convince me that it’s okay to do it with Google Maps and all the rest of it. But there’s nothing like visiting it yourself, getting a feel for the area, getting a feel for the suburb, the street, the neighbors, the apartment building, whatever you’re buying into. That’s really important, I feel.
And if not, get in a professional. If you’re paying a professional who you’re retaining to do that for you, that’s like your eyes and ears, so you can do that. But don’t be buying something sight unseen, certainly unless you’ve engaged a professional to do it for you.
Kevin: Yes, get your feet on the ground. What’s the next one?
Patrick: Buying because of celebrity endorsement. I see cricketers, ex-newsreaders, radio DJs, shock jocks –all that – lend their voice and endorsement to marketeers and developers for a fee. They’re not property experts; they’re getting paid to provide that ad and that endorsement. If they were that good at property investment, they would be doing it full-time for a living.
When I’ve asked people “Why did you buy this property?” when we’ve looked at it, and they said “I felt comfortable buying it because of the endorsement.” It happens a lot, and these are things that I see.
Just to give you some context, I’ve been in real estate 25 years as a sales agent, an auctioneer, and I’ve been a buyer’s agent for the last 18. So, I’ve seen hundreds of people’s property portfolios. A lot of them come to me to help them buy another property or a property, so I’m always looking at what they’ve done in the past and then we’re assessing it. And this is where I see these things that have gone wrong in the past and investigated them.
Kevin: So, get your feet on the ground and make your own decisions about these things. That’s pretty important.
Patrick: You’ve got to do the research or engage an expert in the field. And research them to make sure they actually know their stuff, because there are people running around claiming that they know their stuff but they don’t always.
Buying a property off a brochure or buying off the plan is one that’s really fraught with danger. This is where I see a huge volume. Percentage-wise, it’s probably up there with half the mistakes.
It’s always been risky to buy off the plan. And I’ve done it myself, but I haven’t done it for a long time. And it really became a lot riskier since 2008, after the GFC, when laws were changed to allow foreign investment here. And that’s an increased number. Before, there was a restriction that 50% of a development must be sold locally and the other 50% could be sold to foreigners. That changed to being 100% could be sold to foreigners. But they’ll still sell locally too, but what that meant is they could actually ratchet the price up.
Because you have to keep in mind foreigners aren’t usually buying with their checkbook and calculator; they’re buying to get their money out of their country or to buy a piece of Australia. So just understand that.
The numbers pre-2008 GFC, anecdotally around 2% of new property was bought by foreigners. In 2016/17, we’re talking 24% to 40% depending on what eastern state capital city you’re buying in. It’s that big. It’s huge, and that has an influence on the market. There’s a rub-off there. So, the Sydney/Brisbane/Melbourne markets are the ones that are mostly bought up.
If you don’t believe me, just Google this and the stats are there, all reported by credible property journalists with sources such as the big banks. So, they track this stuff. That’s quite concerning.
Kevin: That’s great, mate. What’s next?
Patrick: Now, if you really want to increase your chances of buying a crappy deal off the plan, just buy one through a financial advisor or an accountant or a mortgage broker, because 99% of the properties that I’ve assessed for clients via any of those channels that they’ve purchased them were either over-priced or in a crappy location, or both. So, just understand that.
Running off hot tips is another one that people do. The real big money is always made by the developers and the land bankers before they create the market. They are the ones who are making the big coin. Don’t think you’re going to get a hot tip and run into an area that’s been written up in the media or “This is the hotspot” and make a buck.
You look at the top 100 that was talked about this year, then the top 100 that’s talked about the next year, and you’ll find that very few… In fact, a couple of years ago, I did exactly track this. There were 18 that were written up as top 100 the second year that were also in the year before. And then you track them a few years later, a majority of them were actually some of the worst performing markets. So, the big money is made early on, and you’re not likely to get into that.
Buying overseas, buying foreign properties. I see a lot of people, but I’ve not met one person who was not selling, promoting, or connected in some way with a property purchase in another country who was happy with the purchase five years later and would do it again.
Keep in mind if the deals are so good, the locals would be buying them. But because they’re not, they have to go and find people in another state or another country. Just keep this in mind. Have some perspective.
Kevin: It gets back to what you spoke about right at the start of it, getting your feet on the ground and becoming familiar with those local areas, whether they’re in Australia or overseas, Patrick.
Patrick: Yes, exactly. I’ve even had clients who said to me “Oh, we haven’t got rent for three months.” Where’s the property? It’s in America. I said “Right, do you know the laws there? How are you handling that? What’s your agent like?” “Oh, they’re really a bit sloppy getting back to me.” This is the stuff… Then you’re playing a currency exchange as well, you’re playing in a foreign country with foreign laws. It’s a whole different ballgame.
I remember a decade ago seeing a 60 Minutes report that found over 250,000 people lost money buying new or off-the-plan properties from marketing companies and developers just on the Gold Coast and Sunshine Coast alone. And five to ten years later, most were still in negative equity. So, this happens, and it happens a lot.
Kevin: Yes. Very timely warning there. Patrick Bright is my guest. Patrick is from EPS Property Search. We’re going to come back after a very short break, and we’ll take you into the classic mistakes that Patrick has seen property buyers make when they’re buying an owner-occupied property.
Patrick, we’ll catch up again in just a moment, mate. Thanks.