Ep. 303: Avoiding Property Investment Traps – Off-the-Plan Risks, Market Timing & Spotting Property Spruikers
Ep. 303: Avoiding Property Investment Traps – Off-the-Plan Risks, Market Timing & Spotting Property Spruikers
0.53 – Dave kicks off the episode with a great listener question.
4.00 – Cate’s uber driver’s poor investment story
12.01 – Melbourne’s growth gap: Sarah wants to know when to anticipate Melbourne turning the corner.
26.24 – Sneak peek into next week’s episode: Boosting borrowing capacity!
27.00 – Sarah asks “Will we see a turnaround in apartments? Or would you stick to houses instead?”
36.30 – How do you identify the start of FOMO?
Dave hosts this episode with Sarah’s great listener question. Sarah writes in;
“Melbourne will need to turn around at some point after underperforming. With this, there’s been an increase (or at least it seems like it) in marketing/spruiking around purchasing off-the-plan luxury apartments targeting down-sizer owner occupiers. I know someone who has bought into the Jam Factory complex with an SMSF after being lured in by the prospect of huge gains over the next decade. The same is happening in Brisbane where people are being told there’s still plenty of growth ahead of the Olympics. Should buyers be wary or will the eventual turnaround see apartments outperform? OTP or established? Or would you stick to houses instead? How to identify a spruiker over a genuine buyer’s agent, and how we identify the start of FOMO.”
Lastly, Sarah asks, “When is outer suburban a better investment than inner city or fringe?”
Cate shares a sad experience that her uber driver talked to her about on a long drive. He had been encouraged to purchase an SMSF investment property by a mortgage broker who recommended a commercially-zoned, off-the-plan apartment. There were many red flags for this investor who received some very poor advice.
Dave reminds our listeners that in this scenario, the buyer was not receiving any independent advice, and this is crucial.
When will Melbourne turn a corner? Melbourne is showing early signs of a market turnaround, but we encourage her to revert to our Melbourne episode we recorded recently on whether mean reversion was a reliable theory for investors to rely upon.
Cate agrees with Sarah’s concerns that there has been an increase in marketing and spruiking in many of our markets. She offers some reasons for this, touching on some lucrative developer incentives and hard conditions for high density developments.
Sarah’s example of South Yarra’s Jam Factory complex is a case in point. Cate and Dave delve into the reasons why this investor’s purchase was less successful than planned. Scarcity counts for so much, and Dave implores investors to conduct thorough pricing research before they sign on the dotted line. Mike discusses the sub-optimal precedent set on valuations as other investors in the same block sell, and he also discusses the risks associated with struggling rents in a high density building.
Limited visibility into recent historical prices is a key threat to accurate pricing analysis for off-the-plan purchasers. Understanding this invisible section of the property market is essential for those who are circling off-the-plan.
Will apartments turn around? “There are apartments and there are apartments”, says Cate. She explores some of the apartment types she favours and lists some of the important apartment criterion she adheres to. From outdoor space to orientation, there are many points to tick off the list, however a very important task relates to following up the strata manager.
How can buyers identify a spruiker? Mike has some clever tips and questions for the investor to ask their advisor. A red flag also appears when the advisor is reluctant to work with any of the other professionals in the investor’s circle. If the advisor is insisting on using only their professional contacts, this could be a red flag.
How do you identify the start of FOMO? The Trio share some of the leading indicators to look out for. But is it artificial heat? How can a buyer get in before the herd? Tune in to find out…
And lastly, Sarah asks, “When is outer-suburban a better investment than inner-city or fringe?” This is a big question, and it comes down to so many factors. An experienced property planner and/or an experienced buyers agent can walk an investor through this important decision.
Thank you to Sarah for providing us with such a diverse range of great questions for this episode!
Resources:
Related episodes:
Ep. 16 Unpacking land to asset ratio
Ep. 58 Off the plan purchases – Everything you need to know. Part 1: purchase through to settlement
Ep. 59 Off the plan purchases – Everything you need to know. Part 2: The financial drivers
Ep. 60 Why established properties outperform
Upcoming episode – Ep. 304 – How to Increase Borrowing Capacity— Strategies to Maximise Your Property Budget, Refinance, Access Equity & Grow Wealth with Smart Spending