30 Oct The ‘blurry line’

What constitutes property investment advice and investment advice?

Topic – The industry from the inside out

Mentor – Veronica Morgan

• Do you really know what makes a good investment?
• Advice is given with all care and no responsibility
• Agents are ‘local experts’ with limited ‘bigger picture’ knowledge

Property Management Matters with Tara Bradbury – Why discipline is important in your property Management business.

Transcript:

Kevin:   As we continue to look at the industry and the need for change as we move toward a pathway to professionalism, we’re unpacking the industry, looking at it from the inside out. To try to look at ways that the industry can be improved overall, what’s going to be the future. Because no doubt, there will be change. There’s already change on the horizon. We touched on it yesterday. Joining me in these conversations this week, Veronica Morgan from Good Deeds Property Buyers and also co-host of The Elephant in the Room Property Podcast, which I’ve actually been on and I really enjoyed the experience. I thank you Veronica and good morning.

Veronica:   Hello.

Kevin:   Now, this morning we’re going to talk about investment advice. There’s a bit of a blurry line isn’t there, around what constitutes property investment advice and investment advice. Let’s talk about that this morning.

Veronica:   Yes, look this is one of my big bugbears, you know? If you are, in the financial planning industry for instance, it’s heavily regulated. You know, you have to have qualifications, you have to have certain registrations that you have to have, and it’s quite clearly delineated what you can and can’t say in terms of advice, or give in terms of advice. Whereas with property, it seems everybody’s got an opinion, and there’s no real litmus test or benchmark as to who’s right, and who’s wrong, and there’s no regulation around giving property investment advice. It’s a really dangerous area, because I hear sales agents, for instance, all the time and I would have been guilty of this when I sold, because you don’t know any better, right? They say certain properties are great investments.  On what basis?

Veronica:   I often ask them, on what basis are you making that claim? I do get blank stares and blinks, because I just think fundamentally they are not taught to actually think about property investing, in the way in which it really needs to be thought about.

Kevin:   Yeah, well I guess it is a very fine line, and it brings up another subject that’s in keeping with what we’re talking about this morning, and that is training of agents. I mean, to become a real estate agent in some parts of Australia, it’s simple as just taking a bit of a quick test, really. You may have to go to a course that goes for a day or two, or up to five, but it’s relatively easy. And then you’re put in a position of being able to be a trusted advisor to people about making the biggest purchase probably they’ll ever make in their entire life. So, there is a definitely need for more training, more qualification. If you make it harder to get in, you’ll probably lift the standard.

Veronica:   Well, yes, and look, when I first started in real estate it sounds like you know, when I was young, it was difficult to become a real estate agent, as in get a licence. You have to go to TAFE for a couple of years, and I had all these exemptions..

Kevin:   That’s to get a full licence.

Veronica:   Yeah, yeah.

Kevin:   Not to become a salesperson though.

Veronica:   No, no, exactly right. But you still had to work for a licenced real estate agent.

Kevin:   That’s right.

Veronica:   So, if you … In New South Wales it used to be that you get your certificate of registration, you can then work for a licenced real estate agent.

Kevin:   Yeah, same in most parts. But that didn’t take you out of the role of giving advice to buyers and sellers though.

Veronica:   Oh, absolutely. All it did, I mean that little course that you do to become a certificate holder, it basically just took you through the fundamentals of the contract, and..

Kevin:   Well, how to fill the forms out, basically.

Veronica:   Yeah.

Kevin:   Yeah.

Veronica:   There you are, and look I see it in print, it shows you an awareness. The very fact that they’ll actually put in print this is a good investment opportunity. It’s like, wow, because they just … When I ask them, “How do you determine what’s a good investment,” Oh it gets good rent. Or, well it’s house for the price of an apartment, it’s gotta be a good investment. Or, … Do you know, I mean there’s these sort of very, very faulty thinking that goes along with it.

Kevin:   Yeah, you see it’s not only agents who do this, and you and I we touched on this with Chris in our podcast, The Elephant in the Room. We talked about … We touched on spruikers, but we then talked about people who give advice like hotspotting advice, or this suburb is going to improve dramatically … in this advice to consumers. But there’s no accountability. No-one comes back in 12 months time and says, “Well, hang on. You told me that.”

Veronica:   Yeah.

Kevin:   It hasn’t turned out to be that way. So there is a tremendous lack of accountability, not only with real estate agents, but generally within the property advisory industry.

Veronica:   Absolutely 100%, it’s one of my biggest bugbears. You will find a lot of property spruikers, and you will even find some buyer’s agents for instance, talking about the next hotspots. People … because it’s like offering sugar … or candy to a preschooler. They’re going to go, “Yeah, thanks, I love that. I love that. I want to eat more. Give me more, more, more of this candy.”  But the reality is it’s going to rot your teeth and actually make you fat.

Veronica:   Property investors should go on a diet of looking for the next hotspot. They’ve go to understand you can only hotspot for so long. You need an exit strategy for hotspots for instance, and you need to watch that market like a hawk, and you get in and you get out at the right time, and that’s how you make your money. But anybody who’s studied the share market will tell you that the people get in and get out, with all the trading costs of getting in and getting out, and also the fact that no-one every time sit perfectly, those people that actually make money are the people that pick good assets, and then hold them for a long time. That’s a fundamentally very, very boring way of looking at property investment, but it is the way in which those that make the most amount of money do it.

Kevin:   Okay. Bottom line for today, really is about increasing the level of training, increasing the skill of the agent, or salesperson, so they become a lot more qualified to give this kind of advice.

Veronica:   Well, there’s that or there’s also raising the bar in terms of their understanding of their limitations, so that they don’t give advice when they don’t actually … or, when they’re … it’s not in their area of expertise.

Kevin:    Very good. Veronica Morgan, my guest. Tomorrow we’re going to touch on a really touchy one, and that is the role of the agent. Can a real estate agent act for both a buyer and a seller. Certainly in some parts of the world, they just simply shake their head and they do not understand how we do business sometimes, and try and represent the buyer and the seller. We’ll talk about that tomorrow. Veronica Morgan, my guest. We’ll talk to you then, Veronica.

Veronica:   Thanks, Kevin.