Investors Beware of Property Spruikers Warns Mortgage Lender

Mortgage House of Australia CEO Ken Sayer explains how to spot a dot.com “property spruiker” and warns investors to give them a wide berth.

KS: A real trap for investors are ‘property spruikers’.

If you validate the price of a property through an independent or bank valuation it’s hard to go wrong and you’ll reap the benefits over a ten-year cycle.

But if you are ‘influenced’ into a sale by a property spruiker it is highly likely that you will lose money.

Q: Can you elaborate on the term property spruiker?

KS: There are organisations that market themselves as residential property experts.

If you consult with a property adviser always check out to see if they are selling property or simply researching it.

Researchers are kosher but if they are the primary catalyst in closing the sale on an investment property invariably they are spruikers and you should give them a wide berth.

Under no circumstances use property spruikers.

Q: Do many investors use them?

KS: They were very popular in the 80s and 90s and the first half of this decade. The GFC has fortunately worked against them and many have been forced to close their doors because they are usually parasites to property developers. When property developers are in full flight they will engage with these so-called specialist marketing companies. When property developers are out of business these parasites go with them.

At the moment property developers in Australia are becoming extinct so the spruikers are turning to the net. Emerging and dodgy dot.coms are selling American foreclosure properties to unsuspecting Aussies. Some are selling Aussies $1,000 properties for $40,000.

Investors should avoid these offers like the plague.

Q: Are there traps for property investors when it comes to choosing location?

KS: There is a myth with respect to Sydney waterfront properties versus the suburbs. The myth is that if you buy on the water – lower north shore or on the eastern suburbs – you can’t go wrong: whereas if you buy in the west you can.

The same myth is applies to other capitals.

Investment punters usually talk themselves into what they want to run with.

The secret to good investing is to take all personal preferences including the postcode out of the picture.

In all instances the most significant factor is supply and demand. Investors should look at trends of investors and industry moving to that postcode. Ditto schools and infrastructure like police, hospital, shopping centres and make a decision on that basis.

Q: Should investors be looking at suburbs that have a high rent yield?

KS: Not necessarily. Usually the higher the capital gain the lower the yield. Conversely the lower the capital gain the higher the yield.

I suggest making a decision based on your investment strategy. That is, if you’re an executive earning $250,000 and paying too much tax you should consider buying somewhere like the eastern suburbs of Sydney or lower north shore where the capital gain is huge but the yield is low and claim tax deduction.

If you’re a blue collar or mid-range white collar worker I suggest looking out in the west where the capital gain is less but yield is higher.

Q: How will the responsible lending requirements (part of the National Credit Code package) impact on potential investors?

KS: They will have a direct impact on investing because it’s deemed to be the next acceptable cousin. Lending for investment properties is considered less desirable by mortgage lenders and ratings agencies than lending to a couple wanting to purchase a family home.

Q: What therefore should investors be aware of and how can they work with this prevailing attitude?

KS: Their strategy ought not to change. They just need to be aware that they can’t domino investment properties. In other words, they can’t buy a new property every year and treat it like an easy journey.

Q: Because they’re going to strike problems with their lender?

KS: Yes.

So buying an investment property for the next three to seven years will not be seen as another widget.