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HOW TO SMELL A BAD INVESTMENT

This is a stinker!


My husband and I are looking into the property market with a view to reducing the amount of tax he pays.

Many of the comments you have made ring alarm bells with me. For instance the "other people's money" incentive and also because we are buying directly from the developer before the house is on the market.

My husband is of the opinion that as our bank is involved, it will not lend the money if the property is not worth it.

After reading your comments, I am now not so sure. How can I find out the property's true value?

I have checked out recent sales in the area and they have sold for a similar price.

Any advice would be gratefully received.


RESPONSE

Understand a major point about property investing...

Investors who are stitched into a dud property investment don't realise they are being stitched. If so, they wouldn't go ahead.

Of course, everything seems good at the time of purchase! It's only later, when you come to sell or when the returns are far less than you were promised, that you realise you have been stitched.

Often, it is years before investors discover that their investments are duds.

A quicker way to discover whether or not you have been stitched is to do your research soon after you have purchased. This is what lots of investors do - they sign the contract, pay their deposit, get a loan and then, once they are legally committed, they do some research.

Oh, the gut-wrenching shock of discovery.

It's like paying for a car and then taking it for a test drive and getting a full mechanical inspection only to discover you have bought a bomb.

Do you research BEFORE you sign anything.

But, be careful that you understand what "research" means.

In your case, you may think that the price you are paying seems okay because other properties in the same area (or development) have sold for similar prices.

Well, here's what that can mean - lots of other people have been stitched and you are about to join them. In investing it's often called "the more fools theory".

Just because lots of properties in a new development are being sold, it doesn't mean the buyers are smart. Often it means they are the victims of slick sales spiels. And don't think that because the company is big or well-known that this means you're safe. There are lots of big property stitchers around.

After three decades of studying property, I have developed a nose for what is a good property investment or what's a bad 'un.

I am not saying, for sure, that you are about to be stitched into a dud. But I am saying that my nose is detecting a repugnant odour. No, it's worse. This is a stinker.

In your case, you are using one of the world's best investment detectors - female intuition. As is often the case with investing -she's right and he's wrong but she goes along with him. Don't.

Your husband's belief that the bank will not lend the money if the property is not worth the price is a belief that has trapped thousands of investors.

I'd be prepared to bet that the bank is also taking your own home as additional security or you are being asked to pay a large deposit.

Now that I have told you the "bad" research signs, I will give you a good one - in fact, it's probably the best. It answers your question about true value.

Before you make any decision, before you sign anything, you MUST engage the services of a qualified, competent, reputable and independent valuer.

Never ever use a valuer recommended by the company selling you a property. And never believe a valuation shown to you by the company selling you the property.

If you want to be financially independent, then the most important step is to seek independent advice. Both from a valuer and a lawyer.

Do you want to know the best real estate investment you can ever make? Spend a few hundred dollars with a qualified, competent, reputable and independent valuer. If the property turns out to be a dud, you'll lose a few hundred dollars on the cost of the valuation. Which means you will save a few thousand dollars by not buying a dud.

An investment in a good valuer is always a good investment.


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This article is taken from the Questions and comments page of the Jenman website.


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