Everyone’s an expert. But some experts are far more ‘expertier’ than others. How do you know who to trust?
Absolutely everyone is an expert in real estate, but the common misconception is the notion that I know what a house looks like, therefore I know how to invest. This is wrong, and you should be quite careful with who you get your information from.
Often, you’ll hear a lot of information from your friends, which in some cases can be useful. Most cases, they are not. Be careful also what that person’s role in the transaction is. Chances are, they have a vested interest in the process.
Analyse the information
You will receive a multitude of information from a range of sources, and the biggest error would be to discount them all entirely. But it is important to correctly identify and analyse the information for yourself. An example, a Real Estate Agent may provide you a rental appraisal of the property he is selling. Now sometimes, this data can be accurate and correct. However, you may find that the data is skewed in an attempt to sway your decision.
Maybe the agent is quoting a price of $650 – $700 per week for rental return. In every case I’d take this information, jump on the relevant portals and analyse that information. This is easier if you’ve been through the home that has had that appraisal attached. Adjust your search criteria for a rent of $650-$700, and find out what you are competing against. You may find that the properties in that price bracket are similar and comparable, therefore the data is more likely correct than not. However if you find that there are more bedrooms, or bigger homes for that price point, you’ll be able to deduce the information may be inflated.
Even at that point, I’d reclarify with the agent, present your evidence. They may have some data you haven’t seen that may support their quote. Discuss your viewpoint. Don’t trust the agent that says “yeah we will get that for you no problem,” but rather trust the agent presenting evidence showing how and why they will.
“Find out from the agent if now is a good time to get in the market. It often is! … Also ask the agent if it’s a good time to sell. There’s a good chance it might be both!”
A very funny line, but it holds some real property truths. Of course it’s in the agents’ best interest to tell you it’s a great time to buy, and also if it’s a great time to sell. Chances are, they don’t actually understand the market dynamic or drivers enough to tell you with any certainty about either.
In the industry, agents who are worth their salt call it, ‘buying your business’. An agent, or property manager, will effectively tell you what you want to hear, to secure your business. I mean, if you didn’t know any better, you’d go with the agent who declares to you that they’ll get you more than everyone else. Why would an agent lie right?
A real estate agent is not qualified in any capacity to give you any sort of investment advice, and are most definitely not qualified to provide you with information like market analytical data or economic drivers. Yes, an agent can provide information about what buyers look for, or what renters are looking for, and what they have in their experience had success with. But beyond infrastructure knowledge, an agent has a vested interest (see previous point), and actually doesn’t know.
A kick in the guts for any agent I’m sure, but they aren’t paid to analyse the market, and often, know less than many savvy buyers out there in the marketplace. Property and Investing isn’t an exact science, not at all. History has proven that we often get it wrong.
Friends and family are great. But lets be real. Most of them know absolutely nothing about real estate. The common misconception with the general public is that because you’ve lived in a house, know what it looks like, or know an area, doesn’t mean you know how to invest. In fact, those factors all combined can often you mean are even less qualified to pass judgement on those factors. With areas, or aesthetic aspects, bias is far stronger. Emotional connection or emotional drivers are the last thing you want involved in property investment. You need to separate the emotional connection to an area, or a colour scheme or style, and invest where the data points you. At the end of the day, you aren’t living in it.
Friends can be a useful asset, in getting assistance with renovations, maybe with small tidbit information about a suburb, or particular agents. They can also form great tools for referral toward professionals who can give you great advice, or provide a great service. Don’t discount that. But just because your mate bought in Bourke, doesn’t mean it’s the best investment option. As with the property manager example, listen, analyse, and judge for yourself, or find someone else to validate the data.
Even if I knew, I wouldn’t recommend any particular location to anyone about investment, as in where, or when, or any specifics. If I was asked, I’d point people in the right direction, provide the data, the analytics, if I had them ready that is. But I’d never tell anyone about a particular project, location, as if it were a sure thing. Because it never is. Plus, why would I want to make myself liable?
Which comes to my final point. What information are these experts you are talking to providing? Hard data forms the premise for a lot of the points presented in here. When dealing with an agent, advisor, expert, or even friend, and they present a point, analyse why, and directly ask. I’d be wary if they hadn’t already presented hard evidence to back up their claim, but always question. Ask why the numbers work, ask for the evidence behind that prospective sale price, find out exactly why the agent thinks they will achieve that rental return.
Know the information inside out. Know the suburb data, the demographic studies, and find out where they got the information from. When they conducted Scenario Assessments, were they conservative, or generous? Question everything with an open mind, and make sure you understand their view point. That is important.
Don’t be afraid to seek a second opinion on a matter, or even check and validate with other sources, information points or someone you trust.