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How Are Property Advisor And Property Mentors Free? (Ep283)

How Are Property Advisor And Property Mentors Free? (Ep283)

How are property advisors and mentors free?
How do they offer their services to you absolutely free? There are a lot of property advisors
out there who are offering to help you move towards financial freedom; help you to buy
property; help to do all of the work for you and they’re not going to charge you anything.
Is there a catch? The answer is yes and I’m going to talk about how they can offer these
services for free and what the risks are to you in today’s episode. Hey, I’m Ryan from onproperty.com.au, helping
you find positive cash flow property. And I wanted to talk about this because a lot
of people don’t understand how these property advisors make money and how that actually
affects your buying decision and your investment property. It does affect what you buy. So, an example of a property advisor is someone
that will come to you and they say, look, let’s sit down, let’s have a strategy session,
talk about where you want to be financially and then we’ll go ahead and we’ll try and
map out how you can get there. And they will then map out how you can get there through
investing in property and the services they offer is that they will help source the property
for you. They will help with the contract of sale; they will help with negotiation;
they will basically do the majority of the paperwork for you. They generally have mortgage
broker services attached to that as well, so they’re going to help you get financing.
They might even help you get insurance and help you with a self-managed super fund, as
well. So, basically, you’re going to them, they’re
presenting you with some “researched properties” or some “shortlisted properties” that they
think will move you towards your financial goals. They then help you through the buying
process until you own that property and then you become the owner of that property. Generally, it’s going to be with new-build
properties and we’ll talk about why that is in a minute. But this is the process and they
market themselves as property advisors or they market themselves as property mentors
or even financial mentors. Generally speaking, they’re not a financial services and they
don’t necessarily need to be licensed as a financial advisor or financial planner. Because
property, in most circumstances, doesn’t come under that category and so you don’t need
that level of licensing. However, that does vary from deal to deal and from advisor to
advisor. So that’s what a property advisor is. It’s
someone that helps you source and buy property and they’re offering these services for free.
So how do they offer these services for free? Well, I’m going to talk about how property
advisors make money. Because let’s face it, there’s no such thing as a free lunch. They’re
not going to offer you these services for free out of the goodness of their hearts,
especially if that’s all they do. All they do is be a property advisor to people and
offer this service. I can understand that friends or family and you’re trying to help
someone buy a property. But when property advisors, that’s they’re job and that’s what
they do, they’re going to have to bring home the bacon somehow. They’re going to have to
make money some way. So, how do they make money? And this is very important because
it does affect what properties they will present to you; what properties you can buy; and it
can even affect the price of the property and lead to the property being overpriced.
Which means you’re paying more for the property than what it’s worth and so you’re starting
with actually a property that’s not worth what you paid for it. So property advisors generally make money
– and the majority of their money – from commissions from the developers. So what happens is, a
developer will buy land or blocks of land or they might buy land and build a block of
units and they now need to sell those units or sell the property; sell house and land
packages. There’s a whole variety of different areas. These can actually be very difficult
to sell. Most people looking for a house in the property market generally want to buy
an existing property. So, it can be difficult for these developers who have large blocks
of land, they have a lot of properties that they want to sell, it can be difficult for
them to sell these properties. They go through a general real estate agent, generally, it’s
very difficult for them to sell all of their properties. So, what they do, is they offer
out these properties to property marketers; which call themselves advisors to you for
a commission. These commissions are much larger than what
you’d see for a real estate agent in a lot of cases. Generally, we see 6-8% where a real
estate agent may be 1-2% of the commission. Or we see commissions that are monetary-based.
The lowest that I’ve seen in the industry, ever, is $5,000 and the highest that I’ve
seen is $80,000 to $110,000 in commission. Generally, from my understanding, commissions
tend to hover around that $20,000 to $40,000 or $50,000 mark. So, basically, what’s happening is; you’re
buying the land, you’re buying the house and land package or the unit or whatever it may
be. And in the building contract, generally, there’s a commission that is then paid to
your property advisor. So, that is how they make money. They make a commission from the
developer. Now, why does this affect you? Well, it affects
you in a couple of different ways. The first thing, is that because they’re offering this
free service, the properties that they can offer you to purchase are going to be limited.
They can’t say to you, look, come to me, as an advisor, I’m going to find the best property.
I’m going to look through all the properties in Australia and choose the best one for you.
What they’re actually saying is, look, come to me, the only properties that I am going
to offer you are properties where I get paid a commission from the developer. Now, you
can see that that limits your market a great deal instantly. Because now, you can only
purchase properties where the developer is willing to pay your advisor a commission.
And so that really limits the pool of investment properties that you can look in to. It also should concern you because it is a
major conflict of interest in my eyes. Because they are getting paid to sell property. They
only get paid when they sell property. They’re not actually getting based on your success.
So, if you buy an overpriced property, they’re getting paid by the developer. They’re not
getting paid by you. And so, their interest and their relationship and all their monetary
value is coming from their relationships with the developer, which they need to sell the
developer’s property on to people like yourself. So, there’s a conflict of interest in that.
Yes, they need you in order to make money but you’re not the person paying them so their
best interest aren’t necessarily out for you as the client. So, you do need to be careful
of that. The other thing that you need to be careful of, because legally, the commissions
aren’t technically “added-on” to the price, these commissions need to come from somewhere.
The $20,000 or $40,000 or $50,000 need to be paid by someone. Who do you think’s going
to be paying for that? When you’re looking at a deal of the property, do you think the
developer’s going to be paying for it? Well, they want to make a profit. Do you think they’re
doing it for free out of the goodness of their heart? Probably not. The fact is that this commission needs to
be paid by someone. It’s generally going to be paid by you and this often leads to overpriced
properties. Now, I talked more about the 7 things that you should do before buying property
from a property advisor, and I do suggest that you go through and read that or watch
that video. And you can listen to that over at onproperty.com.au/282. However, I will
put a checklist in there for the 7 things you should do before buying property from
a property advisor to make sure you don’t buy an overpriced property. I’ll put it in
this episode. So, go to onproperty.com.au/283 in order to download that free checklist. Now, property advisors also make money in
a few different ways. The bulk of their money will come from the developer and the commissions
on the build of the property; which means they’re only going to offer you newbuild properties
where they can get a commission from the developer. Which limits your pool of potential investments.
Meaning, you can only buy new properties and also means that there’s a conflict of interest
there and it may lead to you overpaying for the property. Now, property advisors also tend to make money
through mortgage brokers. Either they offer these brokering services themselves or they
refer you to someone and receive a referral fee. Look, I have a relationship with a mortgage
broker myself. If I recommend someone to him and they end up going through him then I get
a commission based on the commission that he gets paid. And if they’re doing it in-house,
then chances are, they’re getting the full commission from the bank. And look, this is
very common in the mortgage brokering industry, this is not something that I would be worried
about. It’s very common for mortgage brokers to get paid a commission from banks and if
they’re acting as mortgage brokers, it’s going to be common for them to get paid that. And
that won’t inflate the price of your mortgage. So that’s not something that I would be worried
about. There’s also a possibility for them to make
money by either providing insurances – generally, that’s not the case. Generally, they’re going
to recommend you to an insurance provider and they might get a referral fee off that.
Again, it depends on which property advisor you’re going to and what different things
they’re offering. The other way that property advisors tend
to make money is if they’re helping you invest through your self-managed super fund. Then,
they may be able to charge you fees to help you setup your self-managed super fund or
to help you manage your self-managed super fund. Or they may offer that as a free service
in order to make the commissions on the property. So, as you can see, there’s a myriad of different
ways that property advisors can make money by offering you a free service. It does, in
my mind, provide a big conflict of interest if I was working with you as a client and
I’m going to say, well, I’m only going to offer you the properties that I get paid.
There’s no incentive for me to offer you an existing property, even if that’s a great
deal. There’s no incentive for me to offer you a property in an area that I think is
going to grow or going to be better if I’m not getting paid. There’s no incentive for
me to offer you a property that is under-valued if I’m not going to get a commission on that.
So, the only incentive for me, if I was a property advisor offering my free services,
is to offer you the properties that I get a commission on; whether they’re a good deal
or not. And so that’s what worries me about property
advisors and, look, there are some great deals out there. There are some great properties
advisors out there but I hear way more bad stories about people working with property
advisors than I do hear good stories about people working with property advisors and
getting good deals. I hear good stories, the majority of good stories, come from people
who work with buyer’s agents that they pay themselves, rather than these free property
advisors. So, some better alternatives, consider going
to a property buyer’s agent. Now, this is someone that you pay yourself out of your
own pocket. Generally costs about 1-2% of the purchase price. So, on a $500,000 property,
you’re talking $5,000 to $10,000 in terms of payment that you need make to them. Is
it tax-deductible payment? Look, it does cost you money out of your pocket; which is something
that the free property advisors take advantage of because you feel like you don’t have to
pay for anything even though you are paying at some point down the line through their
commission. But property advisors, especially ones who are exclusive, I’ve only work with
ones who don’t get commissions as well from the properties they buy. They’re only getting
paid by you. So, their incentive is to provide you with a great service. The other thing that I would do is just simply
do your own research. Always do your own research. That’s a better alternative than just going
to a property advisor and hoping for the best. Even if you go to a free property advisor,
you decide even with the commissions they’re getting and stuff, you still want to go through
them, always do your own research before buying a property. And again, I’ve got a free checklist for the
7 things that you should do before buying property from a property advisor and you can
check that out by going to this episode at onproperty.com.au/283. So you can go through
that and you can make sure that you’re covering your bases so you know you’re not overpaying
for a property. You know that you’re going to get the rental income that you’re promised,
etcetera, etcetera. So you can download that free checklist and I hope that helps. I hope that this has explained to you how
property advisors offer their services for free. They also call themselves property mentors
or property marketers or property re-sellers. There’s a few different names out there but,
I guess, most people would present themselves as an advisor trying to help you invest in
property and achieve financial freedom. When the reality of the situation is the majority
of them are making money on a commission from the developer, which can present a conflict
of interest. So, I hope this has helped. Whatever you decide,
good luck! I wish you the best in your property journey. I’m Ryan McLean from onproperty.com.au
and I help you find positive cash flow properties. Until next time, stay positive.

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