How is your property advisor getting paid?

No one likes to talk about how much money they’re making, do they? So how is your property advisor getting paid?

 

When it comes to someone giving you property advice, you must ask that tricky question.

Why is that?

Well, their answer can sometimes be something that you don’t want to hear.

 

An independent property advisor is key

 

As I’ve written about before, unfortunately there are people out there who are giving property buying “advice” when really they’re just recommending you buy a property from which they’ll receive a commission for the sale.

Of course, that’s not advice and it’s not what independent buyer’s agents or professional property investment advisors do either.

We are 100 per cent independent and the only person we’re paid by is our client – either for buyer’s advocacy work or for strategic property investment advice tailored specifically to them.

We charge a fee for a service.

 

Royal Commission findings

 

Alas, as the Royal Commission into the banking sector has shown, there continues to be unscrupulous operators providing property investment “advice”, but what they’re doing is just lining their own pockets with money from their clients and from whoever is paying them an “incentive” to offload properties for sale.

Most savvy investors have a team of professionals they work with to ensure they’re buying the best properties every time.

This team might involve a buyer’s agent, a mortgage broker, a financial planner, an accountant and a property advisor.

Each one of these professionals have a part to play, but they also shouldn’t give property investment advice if it is not their speciality and especially where there may be an incentive, because of referral fees, to do so.

 

Industry associations

 

Associations like the Property Investment Professionals of Australia (PIPA) and the Real Estate Buyers Agent Association of Australia (REBAA) exist to provide practitioners with support and training in each field, but they also require adherence to a strict code of conduct for membership to be maintained.

I am proud to be an active member of both associations as well as being a committee member for the Buyer’s Agents Chapter of the Real Estate Institute of NSW (REINSW). We believe in following the highest professional and ethical standards in the industry, adhering to best practice, and most of all, providing the best available service to our clients.

As well as asking your “advisor” how they are being paid, consumers should also question which property investment industry associations they belong to, which is a signpost of their commitment to ethical practice and to the sector as a whole.

 

Expertise, not just advice

 

There is nothing wrong with mortgage brokers, for example, giving general property advice as long as they have the expertise to do so and are savvy investors themselves.

Even with new legislation coming into effect in New South Wales later this year, which requires anyone involved in taking a referral fee for a property transaction to be licensed, this situation is unlikely to change.

That’s because “advisors” will just apply for a real estate licence so they can continue to receive financial kickbacks from a developer, vendor, builder or a property marketing company.

While they might be legally required to disclose their commission that doesn’t mean that it will reduce the number of people who fall victim to taking the property investment “advice” of someone who doesn’t know what they’re talking about.

 

Which is why you must ask how your property advisor is getting paid.

If any of their fee is coming down the chain from a developer or vendor then you should be very cautious and question if there is a conflict of interest in their advice.

If there is a conflict, then it’s makes sense to delay making any decisions until you have clarity or, better yet, only work with an advisor who is being paid by someone you know very well – and that is you.

 

If you’re looking to get help with your next property purchase or investment strategy and would like advice from a professional, independent and ethical property advisor, then please get in touch with STRAND Property Group today: 

Why you need to plan for successful property investing

After a period of strong price growth like the one that Sydney has recently experienced, many people mistakenly believe that successful property investing is easy.

 

Sure, a lot of people have experienced price growth, but many are owner-occupiers who will ultimately have to buy and sell in the same market at some point in time, therefore they never really see the financial gains that they have tied up in their home.

What I mean by that is that while their home might now be valued at say, $1.5 million, if they were to sell and buy somewhere else in Sydney, they would need to spend a similar figure (or more because more people upgrade rather than downgrade) to secure their next property.

Smart investors, on the other hand, understand the benefits of leveraging the equity that they have built up, meaning they can potentially use the increase in value of their portfolio to buy additional properties.

 

The power of leverage

 

Sophisticated investors don’t consider the market as a game of chance or speculation.

Rather they have a plan or blueprint to guide them on their journey to financial security through property investing.

That plan involves the development of a property strategy to understand their lifestyle and financial goals as well as determining their preferred investment and property acquisition strategy.

And that strategy involves using leverage to continue to grow their portfolio over time.

 

Let’s consider someone who had $200,000 in either cash savings or accessible equity within an investment property or their own home.

If that money just stayed put and it grew in value by about five per cent per annum, for example, this would mean it would increase by $10,000.

However, savvy investors understand that if they used, or leveraged, those funds as a 20 per cent deposit to buy a $1 million property in a high demand area like Neutral Bay or Manly, the return could be significantly higher.

In fact, using a five per cent return again, the capital growth on $1 million would be $50,000 in one year – which is five times the return of $10,000.

Their original investment of $200,000 has grown to $250,000 in just one year, which is a return on investment of 25 per cent! This is the power of leverage and cash-on-cash returns.

 

We can then look beyond the first year and see what happens over the long-term when the annual return is compounded year after year:

 

Example 1 Savings Example 2 Property
(5% return) Balance (5% return) Balance
Today $200,000 $1,000,000
Year 1 $10,000 $210,000 $50,000 $1,050,000
Year 2 $10,500 $220,500 $52,500 $1,102,500
Year 3 $11,025 $231,525 $55,125 $1,157,625
Year 4 $11,576 $243,101 $57,881 $1,215,506
Year 5 $12,155 $255,256 $60,775 $1,276,282
Year 6 $12,763 $268,019 $63,814 $1,340,096
Year 7 $13,401 $281,420 $67,005 $1,407,100
Year 8 $14,071 $295,491 $70,355 $1,477,455
Year 9 $14,775 $310,266 $73,873 $1,551,328
Year 10 $15,513 $325,779 $77,566 $1,628,895
Year 11 $16,289 $342,068 $81,445 $1,710,339
Year 12 $17,103 $359,171 $85,517 $1,795,856
Year 13 $17,959 $377,130 $89,793 $1,885,649
Year 14 $18,856 $395,986 $94,282 $1,979,932
Year 15 $19,799 $415,786 $98,997 $2,078,928
Cash-on-cash Return $215,786 $1,078,928

 

When comparing the growth of the two examples you can see the real power of leverage used in Example 2.

The growth over 15 years on $200,000 in savings is around $215,000, but the growth on $200,000 leveraged into property is over $1 million!

While interest repayments on the $800,000 loan will need to be paid, rent from the property investment helps to offset this.

 

As part of their property investing strategy, smart investors also take a long-term mindset, which means that the returns on that original amount should continue to grow year after year because of the power of compounding.

 

Is financial freedom a realistic goal?

 

We hear a lot of about “financial freedom” in the property world, but what is it and is it achievable?

 

“Financial freedom is achieved when your passive income is greater than all of your expenses after tax.”

 

Passive income comes from investments, such as rent from properties, but you don’t physically have to work for that money.

Plus, it grows exponentially over time, which means it will cover more of your debt repayments on your property loans for example.

 

Income earned from a salary, however, will likely never increase at the same rate as it is usually linear and mostly only increases in-line with inflation or a promotion.

What I mean is that income from your job will probably never result in financial freedom, unless you use it to invest in capital growth assets.

The vast majority of Australians rely on the pension in their retirement because of this – even after superannuation is taken into account.

What’s equally depressing is that many Australians might actually outlive their money in their twilight years, due to the increase in life expectancy.

 

Imagine working hard all your life and then pretty much living in poverty during retirement?

That doesn’t have to be your story, though, if you’re prepared to take action today.

 

Superannuation or property investing?

 

Instead of just making voluntary contributions into super and hoping for the best, smart investors leverage into investments like property outside of super that can build their asset base as well as passive income later in life.

They do this because they understand that their money can work harder for them than just earning five to 10 per cent every year within super.

Property investing is a proven wealth creation strategy, which has the potential to create a significantly higher income stream in retirement than super alone.

Plus, it can provide a passive income earlier in life which means you could retire sooner if you so wish.

 

Of course, it’s important that you assess which strategy is right for you by seeking advice from a licensed financial planner and a property investment advisor.

Superannuation should still provide a cornerstone of building wealth but used in conjunction with investing in other direct assets, which also provides a level of diversification.

At the end of the day, Australia’s ageing and growing population means that the Federal Government’s ability to keep financing the pension is becoming strained.

In the years ahead, that may mean higher taxes for all Australians, which would further reduce their chances of saving for the future.

 

No one ever saved their way to financial success or freedom.

What they did was create a strategy and a plan to achieve it via investing in income-producing assets that do the heavy lifting for them.

 

If you want to get started with property investing or have an established portfolio already, STRAND Property Group can help you take the next step in building a more financially secure future.

As experienced property investors ourselves, we have the industry knowledge and tools available to assist you to map out your property and financial goals.

 

Contact us below to discuss developing a property investing strategy tailored specifically to your financial goals:

How to buy off-market properties

Off-market properties are often considered to be the pinnacle of property buying opportunities.

 

They are the properties that are not listed publicly or perhaps the owner has the intention of marketing it at some stage in the future but is open to offers from buyers right now.

 

Why do off-market properties exist?

 

It can be for myriad reasons such as they want to keep the sale off the radar or they need a quick sale because of a sudden change in circumstances.

The three Ds can often be an unfortunate cause for a quick sale, which include divorce, death or debt problems.

Perhaps they just don’t want the added expense of marketing costs or dozens of people traipsing through their home for weeks on end.

 

Whatever the reason, off-market properties do exist, and they sometimes can be secured for a good price – even under market value if the vendor’s motivation is a quick sale above anything else.

However, the thing with off-market properties is that most buyers will never know about them and therefore don’t often have the opportunity to buy one.

That’s because it is usually the selling and buying agents who are aware of what’s available off-market in their area.

Over the years, they’ve developed strong networks and relationships, so buyer’s agents are often the first to learn what’s on the market on the quiet so to speak.

 

A recent off-market purchase for our client

 

A prime example was a recent purchase we made for a client in Potts Point.

We had already worked with the client to establish her budget as well as the potential buying locations.

That is one of the must-haves when it comes to securing off-market properties – you have to be ready to make a solid offer quickly as well as have your finance pre-approved.

They are not called off-market opportunities for no reason after all.

 

We learned about the property, which ticked all the requirements for the client, from our existing relationships with selling agents in the area.

The reason why the property was off-market was that it was currently tenanted and originally the vendor was going to wait until the end of the tenancy before undertaking some cosmetic renovations and then sell it via the usual channels.

However, we managed to inspect the property before the end of the tenancy and were easily able to look beyond its minor wear and tear issues.

We then offered a solid price to the vendor, which meant they could avoid the costs of the proposed updates and marketing as well as the headache of listing and selling it publicly.

The vendor was happy with the price, so our client was soon the happy owner of a one-bedroom unit in Potts Point that may have been out of her price range if it had been on the market and therefore attracted competing offers from other buyers.

 

Pre-market opportunities

 

Sometimes a property might be “pre-market”, which means it is off-market until the vendor commits to all of the marketing costs and releases it publicly online.

Whether a property is pre-market or off-market, though, there is no question that they provide buyers with an opportunity.

They can potentially secure a good property for a reasonable price – especially if the seller’s motivation is privacy or a fast sale rather than price.

 

To be in the loop, though, buyers must develop good relationships with agents, have their finance organised, and be honest about their purchase budget.

That’s because, while a selling agent always wants to secure the best price for their vendor, they also usually want that to happen as quickly as possible.

If they end up wasting their time suggesting off-market properties to you that are clearly outside of your price range that goodwill will quickly dissipate.

The other option, of course, is to work with a specialist buyer’s agent who understands the local market, knows the selling agents in the area, and is one of the contacts that an agent will call when one of their listings is available off-market.

 

If you are considering purchasing a property in Sydney and would like the opportunity to access every property on the market as well as off-market properties, please get in touch with us below:

Buyer’s Agent or Selling Agent? Beware of the Double Agent!

New real estate legislation in NSW is likely to make it more difficult for property buyers to ascertain whether a “buyer’s agent” is working for the seller or the buyer.

 

Among a raft of proposed changes in the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 is a move to do away with the individual buyer’s agent licence by including it in an integrated licence model, which is likely to make the line between buying and selling agents extremely murky.

While many of the reforms are positive – including increased Compulsory Professional Development and education requirements, which will ultimately lift the standards within real estate – this one has the potential to confuse consumers and allow agents to cross an ethical line.

 

A buyer’s agent should only ever work for the buyer

 

Under the current legislation, a buyer’s agent means just that.

We work exclusively for the buyer and have no connection to any selling agent or sales agency whatsoever.

We are paid by the buyer only and we consider all properties for sale before recommending the best one for our clients’ needs and goals.

For example, if someone wants to buy a property in Manly or Mosman, we would investigate all the properties on and off the market, regardless of the real estate agency they are listed with.

With the Sydney market cooling, even before the proposed new legislation, there have been increasing instances of selling agencies offering “buyer’s agent” or advocacy services to try and increase their service offering.

Sometimes these services are being offered as “free” as the agent is still being paid by the vendor and sometimes they are being paid by the buyer.

The issue, in my opinion, is that if a “buyer’s agent” is operating within a selling agency there is a clear conflict of interest because which properties for sale do you think they’re more likely to recommend?

The ones that the selling agency has listed on its books, of course, because the agency is still being paid by the vendor to sell that property.

 

As a proud member of the Real Estate Buyers Agents Association (REBAA) whose accredited members follow industry best practice, our code of conduct requires that buyer’s agents are 100 per cent exclusive to the buyer and independent of any selling agency.

That means we act solely for the buyer and we don’t take any commissions from a selling agency, builder, developer or directly from a vendor.

We remain independent by searching every property on the market as well as off-market properties from any selling agency – therefore providing the very best opportunities for our clients.

Laws exist in every State and Territory that require all agents to act in the best interest of their clients, however, how can that happen when a “buyer’s agent” or similar is only recommending properties that conveniently happen to be listed by their agency – or worse by a developer who is offering commissions?

That is one of the clear differences between an exclusive buyer’s agent and someone within a selling agency who calls themselves a “buyer’s agent”, advocate or buyer’s liaison because they’re not beholden to the same code of conduct.

 

A buyer’s agent has a vastly different skill-set

 

The clear majority of sales agents and agencies do an outstanding job for their vendors as well as providing great customer service to buyers.

It’s just unfortunate that a few are offering services that are clearly just a masquerade of what a buyer’s agent would do.

There is also a significant difference in the skill-sets of a sales agent and a buyer’s agent.

As professional buyer’s agents, we have a strict process that we follow to ensure that we are always working in the best interest of buyers, not sellers.

We always consider which property, in which location, will be the best one for them for their long-term property strategy.

A buyer’s agent should be focused on the long-term outcome of the client and not just the immediate transaction that is taking place.

 

Without a clear definition being made in the new legislation, there is a distinct risk of conflict occurring with agents possibly acting for both buyers and sellers.

In fact, in Australia, it is illegal to operate on both sides of a transaction where the agent takes a fee from the seller and the buyer for the same property.

REBAA, in conjunction with the Buyer’s Agency Chapter of the Real Estate Institute of New South Wales (REINSW), is currently lobbying the NSW State Government to ensure that consumers have a clear understanding of whether they are working with a professional and exclusive buyer’s agent versus an advocate or buyer’s liaison who is being paid by the vendor.

 

The definition of a Buyer’s Agent

 

In our opinion there should be a clear definition of the term “buyer’s agent” in the Act, which describes an agent who is doing the following:

  • Working on behalf of the buyer only.
  • Being paid solely by the buyer.
  • Has a valid exclusive buyer’s agency agreement in place.

 

Time will tell whether we are successful in achieving these important changes – I certainly hope so – but in the meantime, it is vital that consumers are wary of any double agents out there.

A buyer should always ascertain how an agent who is offering to help them is being paid.

Many selling agents provide great customer service to purchasers and do genuinely help them through the process but remember that they are still being paid by the vendor.

If they are acting as a “buyer’s agent” but say their service is free because they’re being paid by the vendor, then you should run a mile.

 

Buyers should seek the services of an exclusive buyer’s agent only as well as one that is a member of REBAA to ensure that they receive a professional and independent service.

 

STRAND Property Group is proud to be an exclusive and independent buyers agency based in Sydney. If you are a busy professional and would like to save time, stress and money with your next property purchase, please get in contact with us below:

How to use your home equity to grow wealth

Remember in the “old days” when everyone spent decades paying off their home and then retired on the pension and then, well, departed this mortal coil?

 

It might be surprising to some that such a philosophy is still very much in the play for baby boomers and, unfortunately, some younger generations, too.

Of course, there is a much better way, which can not only improve your financial position but also ensure you don’t end up trying to survive on the pension in your twilight years.

 

Home is where the wealth is

 

Let’s consider a Generation X couple who bought in Sydney when they were in their late-20s.

They’re now in their mid-40s and thanks to two strong market cycles, their home is probably worth about $1.5 million or even more.

The thing is, they’re been diligently paying off their original mortgage over the past two decades so the debt on their home is now only $250,000.

So that means they have about $1.25 million in equity in their property that is not really working for them in any way – apart from looking good on paper – because they have no intention of selling anytime soon.

 

Sophisticated property investors understand that equity can be their best friend and they regularly access it to grow their portfolios.

Our Sydney-based couple, who probably have one or two children as well as being busy professionals, not only have equity money at their disposal, they are also the type of borrowers that lenders find attractive.

That’s because they have a strong, stable history of paying off their home loan, high incomes and staying in one spot, too.

 

Equity reality     

 

So, lenders are likely to look favourably on their application to extract equity, but before they submit the paperwork they need to understand how much they can withdraw as well as which locations might work best for their budget and their financial hopes and dreams.

You see extracting equity involves a calculation that many novice investors get wrong.

In our example, the couple has $1.25 million in equity but that doesn’t mean they can use all of those funds.

The maximum they can probably extract is up to 80 percent because of the current tighter lending restrictions which generally require the retention for at least 20 percent of the equity in the property.

 

In other words, accessible equity is the maximum loan available less outstanding debt or…

Property Value = $1.5 million
Maximum LVR = 80%
Maximum Loan Available = $1.2 million
Outstanding Debt = $250,000
Accessible Equity = $950,000

 

So that means that they could potentially use up to $950,000 for the deposit and purchase costs for a number of investment properties.

However, because this is their first investment, I would recommend they start with one property first – you never want to bite off more property than you can chew in the beginning!

Subject to getting help from an investment-savvy mortgage broker to ascertain their borrowing capacity, they could extract about $350,000 of equity. This would allow them to buy a great quality, two-bedroom apartment on the Lower North Shore of Sydney, perhaps in Cremorne, Waverton, or even Neutral Bay.

The money they have extracted will be enough for a 20 percent deposit as well as other buying costs such as stamp duty and legals.

Their outstanding debt on their family home would now be $600,000 but they own two properties with a combined value of $2.5 million or more.

In another year, if they wanted to keep growing their portfolio, they could potentially buy something else – and so on and so forth.

 

Financial nest-egg

 

Given they are investing in blue-chip locations, the portfolio’s potential capital growth in the years ahead will ultimately mean that when they come to retire – which they could possibly do much earlier than 65 – they could have a significant financial nest-egg to live off.

Conversely if they just continued to pay off their home, in 20 or so years, they might have a nice house that’s paid off and a roof over their heads – but one that’s too big for their purposes since the children have long since flown the coop – and very little cash flow to supplement their meagre pension or insufficient super payments.

 

I know which financial situation I’d rather be in.

 

If you would like to find out how you can release the equity in your home to buy an investment property to grow your wealth, please get in touch with us below:

Contact Us

If you would like more information regarding our Buyers Agency or Investment Advisory services, then please get in touch.

(02) 8324 7438

info@strandpropertygroup.com.au

Sydney CBD Office | Level 13, 50 Carrington Street, Sydney NSW 2000

Northern Beaches Office | Level 1, 404 Sydney Road, Balgowlah NSW 2093

GPO Box 575, Sydney NSW 2001

Strategic property buying for busy professionals.