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July 18, 2018

How to recognise bad investment property advice

Bad investment property advice isn’t always apparent straight away. Remember, property is a long-term investment. Buy well, and your investment returns can be significant.

But if you don’t, a dud investment property could cost you a lot of money.

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For example, an investment property in a poorly chosen or oversupplied area could remain untenanted for long periods (denying you rental income), or its value could stagnate or drop over time (denying you capital growth on your investment).

You need to look out for the warning signs of bad investment advice before you buy any property.

The warning signs

Many people use the services of investment advisers or financial planners to help them secure their financial future. Investment properties are often integral to the financial strategies that they recommend.

There are plenty of advisers and property spruikers out there, and you obviously want to avoid the bad ones.

Here are the warning signals.

1. Your financial adviser isn’t licensed

Under the provisions of Australia’s consumer protection laws, professionals who provide financial advice must be registered by the Australian Securities and Investments Commission. Licensed financial advisers must be appropriately qualified. If your adviser can’t show you their current license, that’s a warning sign.

And here’s another tip. Don’t rely solely on investment property advice from well-meaning (but unqualified) family and friends. If they aren’t (or haven’t ever been) successful property investors themselves, don’t base your financial decisions purely on their advice.

2. Your adviser doesn’t ask you about your financial goals.

Think about it. How can someone give you good advice on anything if they don’t know what you’re trying to achieve? That’s especially true when it comes to investment property advice.

Different types of investment properties can suit different short, medium and long-term goals. For example, is your main goal of buying an investment property to generate:

rental income,

capital growth,

or a combination of both?

And how long are you planning to keep an investment property? The answers to these questions should influence the type of property you buy and where you buy it. If your adviser gives you advice without clarifying your goals first, that’s another warning sign that their recommendations mightn’t be in your best interests.

Instead, the advice you’re getting could be in the adviser’s best interests.

For example, they might be receiving kickbacks for referring you to other professionals in their network, like mortgage brokers (to help you finance an investment property portfolio) or accountants (to help you save tax by using strategies like negative gearing).

3. Your adviser isn’t experienced

Investment property advice is important.

Good advice will help you achieve your goals and secure your financial future. Bad advice won’t. Although inexperienced, qualified advisers may not necessarily provide you with bad advice, there’s a higher chance that they will.

It’s better to get your investment property advice from a professional with a proven track record. They should have plenty of positive referrals and case studies from past or current investment property clients that they can demonstrate to you.

4. Your adviser doesn’t understand the local investment property market.

Different investment properties can perform better or worse in different locations. It’s better to get your advice from a professional who is active and experienced in your market. For example, if you’re looking for an investment property in a specific market, talk to professionals who are locally based. They’ll know the trends in that area.

It’s also important for you to do your own research. These days, there’s an enormous amount of real estate information available online. You can see average rental yields and growth statistics for different types of investment properties in any location at the click of a button.

What you should do

The bottom line is that you should get investment property advice from people who have “been there, done that”, whether that be as licensed advisers to their clients, as property investors themselves, or a combination of both. It’s important to talk to the right people and to do your own research before making any investment property decision.

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