QUESTION: Previously, you said TSA only does cash and equities portfolios, but that you would provide some tips for DIY property investors, so what are they?
ANSWER: Firstly, it is worth noting that despite realty being the largest asset class for most investors, it remains largely unregulated in most countries. For example in Australia, you don’t need a licence to advise someone to borrow $4.5m and buy a $5m house. However, you do need a licence to tell the same person to use $500 of cash they already have to buy $500.00 of stock: crazy but that demonstrates the vested interests in real property by real estate agents and banks/financiers.
(Note: in Australia property is taxed differently depending on whether it is the owners principle residence. Surprisingly, real estate agents and banks/financiers are also willing to give tax advice despite not being qualified).
Here are some tips, that may, or may not, suit your DIY plans:
- buy freehold property rather than lease hold or strata because there is more development potential;
- buy property close to government run transport, preferably trains, trams and ferries (buses less so);
- never tell a real estate agent (they want to maximise their commission and they work for the vendor) what your budget, financing arrangements, property us, etc will be: they are not your friends so err on the side of less information;
- assume the rental potential of the property is lower than the real estate tells you;
- do the buy v. rent analysis if you are going to be an owner-occupier;
- never offer a price to buy before auction or expression of interests close unless you know the vendor is in distress and will take a very low price;
- buy, or get your mortgage broker, to give you all there recently settled property transactions in the area so you don’t need to rely on the potentially dishonest or selective information by the real estate agent (who works for the vendor);
- always add 50% to any building work you estimate a property may need;
- don’t bid at auction unless the property is on the market (if you aren’t sure ask during the auction);
- if you are the highest bidder, don’t start to bid against yourself at an auction (this should be obvious, but it is now rampant in Sydney);and, finally,
- buyers have to try to be as unemotional as possible, it is also necessary to be an unemotional seller!
Realty is unique and its uses can be various, depending on who owns it, so it is something that requires on-the-ground research. It is a task an investor or owner/occupier must do separately on each property. In our home town, Sydney, it is one-day a week task to buy or sell. Good luck.
Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.