Most us take a while to earn enough money, or have enough equity growth in our home to invest in property. As a result we expect our funds to work hard. We want our investment property to increase in value faster than inflation and create true wealth for us.
There are several professionals we can use to assist us to find an investment property for performance. We can go to a real estate agent, a buyer’s agent, or a property investment advisor.
Real estate agents (vendor’s agent) have a business that searches for listings or properties to sell. They have legal agreements with the seller to promote the properties and get the best price and terms for the seller. If we go to a real estate agent for property investment advice it would be difficult for them to work in our best interests as they are already working for the seller.
Real estate agents are also allowed to add sizzle to their pitch when they describe a property they have listed. They can exaggerate the features and appeal of the property to attract and excite potential buyers. This is not a suitable business standard for property investment where we need to assess the facts and compare opportunities for their ability to meet our goals. How can you tell you are working with a real estate agent? There are no fees paid for the services provided to you. So how does the real estate agent get paid? By the seller or developer.
Buyer’s agents are real estate agents who work for the buyer. They are legally required to ask you for a description of the property you wish to purchase. Their job is to find and buy the property of your choice. They often have strong negotiation skills to deliver the property at a better price or better terms.
Any other services they provide are not real estate services and are not covered by their standard professional insurance policy. Why is this important? If they have given you advice about what to buy and there is an issue you don’t have an easy way to get compensation.
How can you tell you are working with a buyer’s agent? You pay for all the services you receive. They usually charge an engagement fee of about $4,000 and have a success fee on settlement of your purchase starting from about $8,000.
Property investment advisors are a newer professional and provide a personalised strategy for you to invest in property. They work with you to identify your goals; your current situation and your risk profile, and from this information they create a suitable plan for you. The plan starts with the exit strategy, and works backwards through the holding and entry strategies. Should you wish to proceed and implement the plan, they then work in your best interests. This would typically to be to identify where to invest for strong and sustainable returns; when to invest in that market for strong returns; and, what to buy to meet the local demand for property.
This plan has considerable depth. For example, to enhance the resale appeal they assess a number of key factors that include: To provide better economic diversity there are usually no properties in towns or cities under 100,000 people. To provide strong resales demand properties are preferred to be close to median price of the suburb or LGA and of a style that appeals to the local population. To enhance capital gains potential they may present an area that is currently a tired and is undergoing a revitalisation through a changing demographic.
How can you tell you are working with a property investment advisor? They will inform you up front that there is a fee for the advice, fully disclose any other fees they might receive and any rebates to you. They will give their advice in writing with suitable factual information to enable comparison of opportunities. They will let you know that their advice is backed by professional indemnity insurance.
If you want your money to work hard for you where would you take your advice?