Whether you are starting out as an investor or are well into developing your portfolio, the plan is something that most investors do not do. Michael Yardney will explain why this is crazy and he gives the 4 best pieces of advice you are likely to hear about formulating a plan.
Kevin: No matter whether you are just starting out as an investor or if you’re a seasoned investor, the words of advice really don’t change. The man who I always turn to, Michael Yardney from Metropole Property Strategists, joins me.
Michael: Hi, Kevin.
Kevin: It doesn’t matter – does it? – whether you’re talking to a seasoned investor or a new investor, the need to create or formulate a plan is very important.
Michael: It is, but interestingly, Kevin, most investors don’t have a plan and that’s why they never get to where they were hoping to go – because they don’t even know where they’re heading. The first word of advice for all investors is understand what you want to achieve and even more importantly, why. Then in your plan, is it a cash flow strategy or is it my favorite strategy, capital growth?
Kevin: Is it a matter, too, of writing all of this down to start to formulate your plan?
Michael: It’s been shown over and over again that if you write it down and then you annually review how it’s going, then you’re much more likely to get there. If you don’t know where you’re going, any road can get you there but any road can get you lost, also.
Kevin: One of the things you and I have talked about on a few occasions, too, is just who you should be listening to and being very careful about that.
Michael: Sure, Kevin, because when you start investing, everyone is going to give you advice – well-meaning friends, well-meaning relatives – but it’s important to only listen to people who have already achieved the financial independence that you want.
Kevin: A number of the people who you’ve put me in touch – and these are seasoned investors or people who are just putting their portfolio together – will tell me that they actually read a lot of books, yours included.
Michael: Sure, there’s good advice in books, there’s so much on the Internet, but the big problem is you have to be careful who you’re listening to, first of all, that they’ve achieved it and kept it through a couple of cycles and also that they’re not a salesperson.
There’s a big difference between salespeople and advisors, but today, many salespeople are cloaked as advisors and they suggest they’re representing you when, in fact, they’re representing the seller or the property developer. There’s nothing wrong with them being a salesperson but at least they should be honest about what they’re doing.
Kevin: Is that the warning sign? Is that what you should watch out for – if they’re representing a particular property as opposed to giving you advice?
Michael: That means they can’t be independent. Now, that doesn’t mean that you don’t buy from an estate agent or you don’t buy from a developer – sometimes it’s appropriate – but just understand who they’re representing and that they’re not on your side – they’re on the side of the developer – and maybe you need somebody on your side to level the playing field
Kevin: I guess that’s the point, isn’t it? They’re more salespeople; they’re not advisors.
Michael: Exactly right. They’re salespeople. That’s the point I guess I was trying to make, maybe not as well as I could have, Kevin. Be cautious and understand who are salespeople and who are advisors – because for advisors, you usually have to pay them yourself so there’s nothing wrong with having good accountants, good depreciation people on your team, good property strategists on your team or even a buyer’s agent, and be prepared to pay because in the long run, it actually saves you money.
Kevin: No such thing as a free lunch?
Michael: There isn’t. The other cliché is that not everything that glistens is gold. Just because it looks nice, pretty, shiny and new, not every property is a good investment. That’s why it’s important to have a plan and make sure every purchase you make gets you one step closer to your end goal.
Kevin: Going back to your earlier point there about being prepared to pay for advice, that would include things like buyer’s agents. I know that this is becoming more the norm in Australia. I know it’s very much the norm overseas, particularly in America. What does it cost to actually have a buyer’s agent represent you?
Michael: Usually there is a small – maybe $1000 – upfront fee to get them to give you as an initial strategy and then they charge a success fee, which is in the order of 2.5% of the purchase price of the property.
Some people would say, “Why should I pay that?” The answer is they can save you time by knowing the market, they can save you lots of time by doing the research for you, they can save you money by negotiating well, and they can save you hassles, also. In many ways, it’s paying for your apprenticeship and getting yourself into a good property.
Kevin: Yes. It’s also someone who you can sit down with as a partner and say, “What do you really think about this property? Or what’s good about that?” They don’t necessarily have a vested interest apart from helping me get the best property.
Michael: They don’t have a vested interest; they represent you. It’s their job to do their best for you to buy a property – as opposed to a seller’s agent. You’re right, Kevin, in what you said a moment ago. There’s a large proportion of investors now using buyer’s agents and interestingly, an increasing proportion of homebuyers are now recognizing the benefit of having somebody on their side leveling the playing field.
Kevin: That point you made, too, about not everything that glistens is gold is like if it looks like a duck and it quacks, it probably is.
Michael: The problem is beginning investors don’t have much perspective. They haven’t been around long enough, so they can’t tell the difference. Good buyer’s agents have had 15 or 20 years of experience in the real estate market. Many of them are experienced real estate agents who have now gone on to help buyers.
If you’re an investor, you should be choosing a buyer’s agent who is already a property investor themselves. They have a gut feel, but that’s from years and years of experience, while the average investor, when they have a gut feel, that’s nerves; that’s butterflies in their tummy.
Kevin: Bottom line there from Michael Yardney is make sure that you listen well and seek out the people you want to listen to, make sure you know the difference between a salesperson and an advisor, be prepared to pay for advice, and not everything that glistens is gold : if it looks too good, it may just be too good.
Michael, thank you very much for your time.
Michael: My pleasure, Kevin.
Kevin: Michael Yardney there from Metropole Property Strategists.