Just would like to share a recent article I wrote for Brisbane Times here. Let me know what you think.
Anyone, regardless of their experience and qualifications, can give you advice on how to spend a considerable amount of money to buy an investment property – and you could be left totally unprotected.
That’s the warning from Margaret Lomas, who heads up the Property Investment Professionals of Australia.
These people can also make a commission from the sale and charge you for their advice, but there is currently no legislation that offers any protection against shonky advisors.By contrast, the finance investment industry is arguably over regulated.
“If you have $20,000 cash to invest, your financial planner will be regulated to the wall in regards to how they can advise you on its investment, but mention you are looking to buy $500,000 worth of property and every shonky man and his dog will come out of the woodwork to help you part with it – and you will be left stranded when it falls in a heap,’’ Ms Lomas said
Real estate agents are very wary about giving any assurances about property investment purchases, and rightly so because for the best part they are not qualified to give investment advice.
Having said that, the real estate industry and its licenced operators are heavily regulated and carry professional indemnity insurance, which offers some protection to consumers.
The real problem exists with property investment advisors who sit between the finance and real estate industries, but the federal government seems to be blind to the risk of consumer exposure and financial ruin due to a lack of regulation.
“The fact remains as a property investor, you currently have no right to be protected in your dealings,’’ Ms Lomas said.
‘‘If you receive bad advice which you act upon, you have no recourse. Further, your advisers are unlikely to even have professional indemnity insurance as the underwriters will not insure unregulated professionals.
Kevin Turner | RealEstateTalk Host
Property Academy Sell your home quickly without an agent
[email protected] | Twitter: @RealestatetalkHi Kevin,
This issue has been a thorn in Margaret's side for quite a while now and kudos to her and the other people in PIPA and PIAA who are endeavouring to get some regulation into the property advisory marketplace. Be great if the two organisations could combine forces and realise their common goal.
I was recently in discussion with a Financial Planner in Sydney and he suggested that the FPA was endeavouring to bring property investment advice into their sphere of influence. Their position, rightly or wrongly, was that property, when purchased as an investment, is really a financial product and is therefore under their imbrella.
Clearly we could argue the merits of the position until the cows came home but I wonder if the apparent brickwall and reluctance PIPA seems to faced with is because the FPA is in Shorten's (?) other ear and making more noise.
I find it very interesting that the Federal Government established the NCCP guideliness under ASIC and yet there doesn't appear to be an appetite to address property investment advisors.
PS. I am a member of PIPA btw – part way through my accreditation.
Derek wrote:I find it very interesting that the Federal Government established the NCCP guideliness under ASIC and yet there doesn't appear to be an appetite to address property investment advisors.Good point – I agree.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Derek wrote:I wonder if the apparent brickwall and reluctance PIPA seems to faced with is because the FPA is in Shorten's (?) other ear and making more noise.I should clarify that – I don't for one minute underestimate or demean the efforts of those people in PIPA and PIAA but rather the comment is more a reflection of how 'easier' it is for more readily recognisable professional bodies to get into the ears of our politicians even above those with less, but nonetheless, equally empowering right to lobby.
I like how the FPA will put its hand out as if property is just another ‘financial product’ from which to garnish fees. So were all those great mortgages they onsold to investors/smsf/councils etc prior to the gfc.
Property, unlike many financial products require intensive management, they require physical maintainence, repairs, payments of outgoings, suffer periods of zero cashflow (vacancy), depreciate in value, are illiquid, and may even suffer losses. That’s what agents are for.
Hi Scott,
Adding to your question.
A 'few' years ago I grabbed a 'Become a Franchisee With Us' DVD set from a large financial planning organisation when I had a bit of spare time.
At one point the DVD explained small FP's struggle to get their heads around a broad range of financial products due to compliance requirements. The DVD went on state that because of this the 'smaller' FP's couldn't really provide you with a product or strategy that really suited you personally, rather they provided you with the product strategy that best suited you from their 'available range'. The same DVD went on to say that because of the legislative requirements smaller scale FPs could really only be across ~6 products.
Now I am sure some of this information was a bit of a pitch – but if there is a semblance of truth in them…………………………….
I do admire PIPA and PIAA et al for their efforts to create some accreditation process for propertty advisors. To me it is a step in the right direction – now to go and get that next exam out of the way.
Here's a recent article about the topic in the Age – http://theage.domain.com.au/home-investor-centre/beware-of-the-false-profit-trap-20110909-1k0ek.html
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Investing in Real Estate is no different to other types ov investment, but I certainly agree that compared to other industries, there is a BIG gap in legislative requirements.
Real Estate assets are usually the largest and most expensive 'investments' a consumer will make in their lifetime.
Just like the financial planning industry, that contains MANY ex insurance salespeople that have 'grandfathered' their way through the education process (and subsequently should not be allowed to offer advice to a house cat), there are a lot of cowboys in the RE industry also.
The solution, I believe, would seemingly be pretty straight forward.
A higher level of education/qualification and a separate professional certification for RE agents that are able to sell to investors.
Each state currently requires that the purpose of the property be stated at the time of purchase to determine stamp duty etc ie Owner occupied OR Investment use. If the Investment box is ticked, then the agent should be required to hold an 'Investment property sales' qualification.I have met countless agents that have no idea how to calculate a rental return, a yield or understand the difference between the two. That is honestly a disgusting situation, and should not be allowed to continue.
Even a basic 'cash flow assessment' should be provided, for the borrowers and agents protection.
I think that the ethical and experienced operators out there would welcome a higher level of training.
Tim, what do they say about fools & money?
Just because someone is an investor doesn’t make them any more astute than the next person. Most people are quite financially illiterate.
Don’t get me wrong, all agents should be trained to a higher standard not just those working with investors. The requirements for licensing is geared toward the lowest common denominator ie residential sales with scant regard paid to investment grade property (commercial, industrial, retail, hotel, special purpose etc) or to property management as a professional service.
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