The market became too expensive almost everywhere in the metropolitan areas and the main regional areas. I often see a lot of sponsor Ads of “cheap cheap’” opportunities

e.g $400,000-600,000

Is that a problem or an opportunity to buy cheap?

Let me explain:

  1. You can’t buy anything than one bed at the above price and often without a car park.
  2. Usually, those asset classes in those locations are associated with high equity and cash flow risk and often exist in oversupply areas.
  3. It is cheap for Sydney or even Brisbane, but it’s not the preferred configuration that will do 30% growth next year.
  4. A rental guarantee of 4% or even 5%, which sound good to most of us, is only the gross yield. If we take out the heavy strata fee, Management, and other rates, we can find ourselves on 2-3% net, which is very poor before mortgage repayments.
  5. Often, we see on those Ads that it’s only $20 per week for the incredible opportunity. Immediately we can figure out that it’s a negatively geared opportunity and $1,040 out of pocket loss in a year. Although it’s not a massive loss over a year and we have high depreciation, it’s not ideal for $400-600k as we can get to ourselves a good block of land, good size and four beds with more chance to accelerate capital and net rent in the same price.
  6. Free advice and no cost – we get that a lot! It’s mean that the seller has a vast interest in the deal, and we are the product, not the customer. There is no such FREE service or product, someone needs to pay for this, and it’s the buyers in those cases. Free means more cost for us.

Usually, when I see property flyers or promotions on Facebook, I know that there is a catch. First, the price is so low, no free lunch, then second, the “so-called” high rental yield and third, an offer for free advice and no cost. Those are the three red flags?. Be cautious!

Other ads show unique buildings with affordable prices ( “from $395k”) and more notes about “building wealth” and becoming financially free in 6 -10 years.

  1. The financial security statements are ridiculous as those units or tiny houses won’t double in 20 years, and rent will be mediocre.
  2. If those deals do not push significant equity, how we can accelerate our asset base? Usually, in half of a property cycle, we reach the limit of our borrowing capacity without equity.
  3. Why mention wealth, faith and multimillionaires’ stories if there is no concrete evidence that those properties will work? Usually, this is the sale pitch covering behind a lame real estate with a vast interest in the deal on your back!
  4. When we press on the Ad, it often takes us to a Testimonial video that shows real people who talk about how they built their wealth with the seller’s help to buy a unit or two on those buildings. The video ended in 10-15 seconds with no further talks about the deal, the equity growth in the first few years, and the in-demand for the location and the product.

On the contrary, there are good Ads; however, they are not very cheap and not suitable for every pocket. Often it is a direct promotion without all the above points and nothing to hide.

Always there is a range of real estate opportunities in a hot market, and you will need to assess each one to avoid a crucial investment mistake.

Let us know if you are about to buy a property. We are happy to give advice in a short chat and give you a better-informed decision. Be cautious with your hard-earned money. It is very challenging and often impossible to change your mistakes!