Repeating Trends

17 July 2015

With the collapse of the housing and financial markets  in the last few years we saw not only a lot of pain but we actually saw some good things happen.  Primarily the disappearance of some not so good operators in the industry.  However we have noticed the reappearance of some of these outfits and wanted this article to highlight the dangers that are emerging.

DEBT REDUCTION AGENCIES:  These agencies charge substantial fees by arranging a product they claim is guaranteed to reduce your mortgage in a very short time.  It is revolving credit and is available through most mainstream banks.  Research shows that this loan product significantly reduces the time it takes to pay off a mortgage for approximately 12 – 15% of the population.  But that means it generally fails the other 85 – 87%.  Our recommendation is if you want to try this product see if your existing lender is able to offer it.  Don’t pay the high fees and if the product does indeed work for you great but if not then no harm done.   

INVESTMENT PROPERTY ADVISORS:  These organisations can offer guidance and mentoring to potential property investors but  some of their practices resulted in some clients being put at great risk of financial ruin.  Some of these organisations worked  off numbers only – ie the expected rental income exceeding the  expenses of the property but they didn’t take in to account the desirability of the property for tenants to want to rent.  We saw one property finder associated with these organisations recommend a rental that neighboured a known gang headquarters.  So while technically the figures stacked up -  the ability to rent the property would have meant that the income derived from the property was likely to be negligible.  

Another practice encouraged by these advisors was the purchase of as many properties in the shortest amount of time possible.  This resulted in some clients making the same mistake over and over again in a short time frame.  

These advisors also advocated a “One size fits all” formula for wealth creation on investment property.  But many clients wanted to create wealth from property in different ways and different time frames.  

Then finally they would advocate clients borrowing the maximum that they could.  None of these clients envisioned that property values could drop and when that happened many were stressed with trying to meet the outgoings of the property.  They couldn’t sell their houses because they owed more than the value of the house.

Some of  the lessons that we learned as a result are as follows:

1) If you want to try a revolving credit product try your existing lender.  You don’t need to pay large fees to try and see revolving credit is suitable for you or not

2) If you want Investment property advice – don’t go for a mentor programme that relies only on one formula.  You need to know what you want out of your investment and what time frames you expect that.  

3) Don’t rely on just the figures – know where you are purchasing and what the risk factors to the rental income from those properties are and how they could be handled.

4) Don’t be afraid to NOT buy.  Be prepared to walk away.

5) Don’t purchase a lot of properties all at once – start off slow and build your confidence and experience

6) Don’t overcommit yourself and don’t rely on the best case scenarios.  

7) Make sure that you have equity or a buffer either in cash or credit available so that when the unexpected happens you are prepared.

 

 

Published In Whakatane Beacon

This post was written by

Trish Marsden - who has written 96 posts

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