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BUYING BARGAINS - FAIRLY

BUYING BARGAINS - FAIRLY
Be a smart investor, not a grubby predator.

by Neil Jenman

Back in 2004, while driving with a friend from Melbourne to Sydney, I stayed overnight on a farm at Wangaratta.

During dinner the farmer mentioned he had received a letter from someone who wanted to purchase his shares. All he had to do was sign an acceptance of the offer and place it in the reply-paid envelope. He would then receive $35,700.00.

He would also have been ripped off.

The offer was from a company called Australian and New Zealand Exchange Proprietary Limited and the name on the envelope was 'National Exchange'. The man behind this mob was the notorious share market predator, David Tweed.

Tweed is a grubby coward who makes millions out of 'legally fleecing' decent, honest, hard-working and trusting Australians - the backbone of our country.

Over the years, Tweed has preyed on thousands of people looking for those who don't realise the true value of their shares.

As I sat with this kind farmer and his lovely wife, I thought, "These are the sort of people Tweed rips off." Each time I hear about Tweed (or see him on TV) I suppress a strong urge to squeeze his scrawny neck.

I despise these grubby predators.

About the same time as I was with the farmer and his wife, I recalled a book co-authored by one of the property industry's equivalents of David Tweed, a New Zealand predator called Philip Ronald Jones who runs a mob called Richmastery.

Fortunately for Aussies, Phil Jones has barely set foot in our country since we exposed him back in 2003. [Don't even think about doing seminars in Australia again, Jones].

One of Jones's suggested ways of buying cheap properties is to find "dummies (people who don't know how much their property is worth)". It's the Tweed system transposed into real estate.

Grubs like Tweed and Jones may not be doing anything illegal with their tactics (although one wonders how they sleep at night), but to prey on the ignorance of others (especially the elderly) is, to most people, morally disgusting.

So, is it possible to buy properties cheaply and with a clear conscience? Of course.

There is a big difference between taking advantage of a situation and taking advantage of a person.

Australia's greatest ever land-owner, Sid Kidman, took advantage of situations. Kidman - who neither smoked, swore or drank (and was still great company) - was revered as a fair and honest man. He gave lie to Plato's saying, "To be at once exceedingly wealthy and good is impossible."

Sid Kidman knew how and when to buy property at the lowest price. He would not buy in the booms, that's when he'd be cashing up. When booms busted or droughts came or rabbits plagued the land, Kidman moved in and bought, often from those who had not managed their properties well and were forced to sell.

He would pay a fair price under existing market conditions. He didn't have to prey on people in the manner of say David Tweed or Phil Jones. No one was tricked into selling to Kidman. He didn't con people or banks. He played it straight. Tough but straight.

Yes, right now, times are tough for a lot of people who bought at the wrong time. And yes, there are sad situations in today's market place.

But, if you are not the cause of a seller's situation then, of course, it is not unethical to buy their properties at less than they may have paid during the boom.

As one of Australia's most ethical financial experts, Noel Whittaker says, "Savvy property buyers spend every waking hour researching the property market in their area so they know where the trend is heading, and so they will recognise a bargain when they finally come across one. The results of investing time in this manner are that you will know more about the market than the majority of buyers and sellers. The reward will be that one day you will strike a situation where a desperate vendor has a property for sale in a great location. You will be the one who will be able to buy the bargain."

One of the most common questions we receive these days is, "How do we find mortgagee sales?" Noel has answered the question. You have to spend time in the area in which you wish to buy.

In Sydney, a company calling itself Property Secrets (I am always 'sus' of those who use the word 'secrets' unless they really deliver secrets!) has copped some bad press lately (see link below).

The founder of the company, Paul Giezekamp, seems to have a fair enough concept - just go to suburbs where prices are falling and buy.

In Sydney, that's the western suburbs.

But a comment from Giezekamp's representative, Jennifer Reeves, offended a million Sydneysiders. She told an attentive journalist, "Nobody works out here so there's nothing else to do except breed and rent houses."

For a finder's fee of $5,000 and another fee of $5,000 to arrange renovations (not the actual cost of the renovations) and another fee for the loans, Giezekamp, who has reportedly arranged to buy more than 200 properties in the past year, appears to be doing nicely.

In principle what he's doing seems to be simply business opportunitism (it was the disparaging remarks about the people in the area that caused the trouble, not the methods being used).

But you don't need to fork out thousands to Paul Giezekamp to do what Paul Giezekamp is doing (indeed, if what he was doing was not more profitable than what he asks his clients to do, he probably wouldn't be doing it. Think about that tongue-twister carefully).

If I was looking to buy bargains in today's market (and there was a time in another life where I bought many bargains without ever once doing a Tweed or a Jones on the seller), I'd want some professional help as well as putting in my own efforts.

But I wouldn't want to pay thousands if similar help was available for hundreds.

Under no circumstances would I go within a thousand metres of anyone running property-flogging seminars (no matter how much money they claimed to be giving to charity).

Believe me, if you buy from these sharpies you are "the last link in the food chain" (more on that in another article, but I am sure you can grasp the meaning).

To decide on which area to buy (and to know the values and sales prices in these areas), I'd contact Australian Property Monitors. I'd also use the services of Terry Ryder's Hotspotting concept (which, in my opinion is a bargain).

As for what sort of property to buy, if it was a house, I'd look for good structural soundness with bad cosmetic appearance.

If it was an apartment (and there are some good bargains to be bagged in apartments), I'd look at being the second-tier buyer in a quality project, with the condition that the price I paid was below the original price at which the property was sold by the developer.

Recently, in research for my next book, I saw sales figures from past projects of a big developer who is currently spruiking properties all over the country (and in England). I found many examples where people had bought from this developer and then re-sold at a huge loss a few years later (and this, by the way, applied to those who bought before the boom and sold after the boom. Ouch). Pity those who are buying today.

With this developer, many of the early (first-tier) investors have been losing money for years.

But many of the investors who had bought from the original investors later re-sold for handsome profits.

Therefore, I repeat it. I'd look at being the second-tier buyer in a quality project where my buying price was below the original price paid by the first-tier buyer.

As for which is better, houses or apartments, be careful of that trite sales line from one spruiker (whose aim is to sell houses!) - "land appreciates, buildings depreciate, therefore buy a house on land."

Remember, that's what he's selling.

Oh, dear, so often I wish there was a property course called Common Sense 101.

Go and check the stats with someone independent, competent and trustworthy such as Australian Property Monitors (or even the Australian Bureau of Statistics) and you'll see that, over time, apartments and houses appreciate at much the same rate. And apartments are usually a lot less of a headache than houses, that's for sure.

Finally, whatever you buy, don't be pushed by anyone - be it a spruiker or a zealous agent. The real estate market is not likely to boom for a long time. And, in some places - such as Perth - it's likely to fall sharply, so you should have plenty of time to find a bargain.

And just remember, all smart investors know that good deals are like buses - there's another along in a moment.

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Further reading & information:

Hotspotting.com.au -
http://www.hotspotting.com.au

Australian Property Monitors -
http://homepriceguide.com.au/

Property Vultures Swoop -
http://www.theaustralian.news.com.au/story/0,20867,21223306-25658,00.html

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This article was taken from the Articles page of the Jenman website.



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