by Scott Pape - June 20th 2009
My wife has made me promise that I’ll limit myself to getting sued for defamation once a month. So says my mate, property consumer advocate Neil Jenman.
I wanted to stir things up a little, so I invited Neil to join me for my regular ABC radio gig on the nationwide program Nightlife.
He and I share the view that Australia’s property market is among the most overvalued in the world, and – should the law of gravity hold true – at some stage we will likely suffer the same slide as every other nation has experienced.
Talking down the market certainly wasn’t the aim (we’ll leave increasing interest rates, record debt levels and increasing unemployment to do the dirty work). Rather, it was to offer an alternate view to listeners across the country – one that wasn’t shaped by conflicts of interest.
Common sense investing
Unlike other experts, the only thing Neil and I were trying to sell was common sense.
One of the first points I brought up on the show was why I believe buying a home is the best investment you can make.
So long as you have a 20 per cent deposit, have factored in a 4 per cent jump in interest rates, and have asked yourself the what-if questions: What if I get pregnant? What if I lose my job? What if I get sick?
Here’s why buying a home is so important: the bedrock to mastering your money is spending less than you earn, borrowing conservatively and investing in long-term growth assets.
As a financial adviser I know of no other investment that inspires savings like meeting a monthly mortgage payment.
Get a mortgage and suddenly you’re not telling the 7-Eleven attendant to keep the change.
You may even find yourself brown-bagging your lunch. Either way you’ll have a goal of paying the damned thing off (and banks are happy to provide extra motivation by randomly jacking up your rate).
Mortgage-free living
On the show we also discussed the sense of pride and honour of finally paying off your mortgage, and being completely debt-free – and free of financial worry.
Yet it’s an accomplishment that fewer of us are achieving, partly because it’s not in the banks’ best interests – it’s far better to take the equity and borrow to buy more property. Or so we’re told.
Nightmare begins
For tens of thousands of families this is where their nightmare starts.
A common mistake many people make investing in bricks and mortar is to believe that living in a home translates into understanding investing. As a result, many end up overstating their returns and understating their costs.
Worse, waiting for them is an unregulated, unlicensed, shark-infested lake of wealth-creation spivs which, come to think of it, is where I first met Neil Jenman.
Beware slick sharks
In 2002, just as the boom was gathering speed, Neil was one of the few people publicly warning against falling victim to the sales spiel of a young slick property promoter named Henry Kaye.
In the years since, exposing sharks has become his obsession: he’s kicked, cajoled, Today Tonight’d and ACA’d many into submission.
Yet, like stomping on cockroaches, the more you exterminate, the more seem to appear. Today Neil is seeing the spruikers back on the march. And they have plenty of ammunition – worried Aussies who’ve lost a bundle on their superannuation, making them perfect prey for the property pushers.
Answers for everything
The dozens of people I’ve met who have collectively lost millions as a result of doing dud deals aren’t greedy. Most were motivated to secure their family’s future rather than become the next Donald Trump.
Spruikers know this, and have formulated their sales seminars to psychologically manipulate people into giving them money. They have an answer for everything:
Property doubles every seven to 10 years
That’s a lie. The average home in 1890 sold for $1446. Using spruiker stats, the average home today would sell for $189 million and seven to 10 years later it would set you back $378 million.
We’ll take the hassle out of looking for a place
This is often a trap. It’s called two-tier marketing and it works like this. Spruikers jack up a property’s price and sell it on to the suckers in their seminars, usually under the guise of doing the investment research on behalf of their clients.
Yet in many instances, the only research that’s done is finding desperate developers who will pay them huge kickbacks to sell their dud deals.
Don’t worry about losing a tenant – we’ll give you a rental guarantee
If you hear the words rental guarantee, run. It’s got nothing to do with the tenant, and everything to do with smoke and mirrors. It works like this. The developer guarantees you rent well above market rates, so they can sell you the property at a higher rate. The cost to the developer of guaranteeing the rent is more than made up by the extra you pay to buy the house.
Unlock your equity
Just like the sad stooges at Storm Financial, spruikers encourage people to free the equity in their homes and get rich – with the help of the taxman. Often it’s sold as costing a slab of beer a week to own a property, which, like property doubles every seven to 10 years, only ever works on the spruikers’ spreadsheet.
Never, ever sell
If you never sell, you’ll never know that you’ve been ripped off by a conman. Well, until interest rates go up and you lose your job. That’s when the slab becomes cement and knocks you out financially.
The irony is that many Australians held property throughout the biggest asset bubble in history, yet despite paying huge fees, they still didn’t get rich.
At a time when property prices were pushed to their peak, not only have many people failed to make any real gains but some will end up losing their family homes. Neither Neil nor I have met anyone who got rich from going to a property investment seminar (except the guy standing out the front).
In closing our hour on radio, Neil told of a close, elderly friend who was battling cancer saying: “When you’re old, so long as you’ve paid off your home, you don’t need much.”
Tread your own path!
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1 comment
your words are what I have been preaching to my kids for 30 years.and now there is another myth.ie;the one where you accept a deal on a house which is returning 2 to 3 % GROSS because the Agent assures you that “you will have ALL that capital gain “!! when a deal like this is done you actually are giving the Vendor the “possible” capital gain in advance!!