(Recorded 3rd July 2008.)

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So when you are investing in real estate don’t trust or rely upon property information published by newspapers. It very well could be only part of the full story – the part favourable to agents and developers. Broaden and deepen your research using other information sources.

Watch or read the full Media Watch story here on the ABC website. (5 min video)

Media Watch revealed that The Age newspaper had published an online article critical of real estate agents and their ‘dirty little secrets’. The article received lots of reader comments but was quickly removed after The Age received “a forceful complaint from the Real Estate Institute of Victoria”.

So why would The Age remove such a popular story that was driving people to their website and engaging them in the content? This is what Media Watch revealed:

“Well, perhaps because of another “dirty little secret”: property ads placed by real estate agents are worth around $60 million a year to The Age, we’ve been told. That’s more than a quarter of its total advertising revenue.

So keen is the paper to keep on the good side of the property-wallahs that it takes up to seventy of them on an annual junket – this year’s trip departs to China soon.”

And newspaper journalists and editors think the financial planning industry is corrupted by how some advisers are paid? Sounds like a case of the pot calling the kettle black!

(P.S. I am a fee based planner who rebates any commissions to you.)

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Following the recent drop in real estate prices I have noticed many spruikers coming out again in force promoting their services and properties. If you perceive property to be “cheap” and are tempted into buying now please read Jenman’s article.

One of the valuable insights in Jenman’s article is when he busts the myth that property prices double every seven to ten years:

“In 1890, the average Sydney home price was $1,446 (£723). If property really does double every seven years then, in 2009, the average Sydney home will be worth $189,530,112.”

Neil Jenman has been in the real estate industry for decades and is now also a consumer advocate. Here’s his view on investing through property investment clubs and the like:

“In my opinion, investing in property via a Selling Machine company, which is rapidly becoming the most common way to invest in property, is the worst way to invest in property.”

“…all [investors] have been ripped off because they have paid far too much at the start – and they often pay far too much in holding costs.”

When direct investment in real estate becomes the right strategy to achieve your life goals find the right mentor to help you and ensure they are biased and/or incentivised to achieving your best outcome rather than theirs.

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For years I’ve been earbashed by people enamoured with investing in residential property. Apparently it’s THE best investment and “you can never lose money in property”.

Out of curiosity I enquire of these people what makes them hold that belief. Sadly most can only regurgitate the words of others and have never done thorough comparative research.

I am not against residential property investment. I am against blind faith in absolutes, especially in the area of investing.

If you would like to add some breadth to your views of property investing I recommend the following two resources:

• Read Scott Pape’s article from the Herald Sun (20th June 2009) “Wealth starts at home” where he and Neil Jenman share some of the lies spread by property spruikers.
• Watch the documentary “The Ascent of Money” by Niall Ferguson on ABC TV this Thursday night. This episode is about property. If you miss the show you can either buy the DVD or read the book of the same title.

Coupled with the recent publicised falls in property prices you should by now realise that ‘safe as houses’ is absolute rubble!

If you are going to invest in residential property be broad and deep in your research so that when the wolf comes along he can’t blow your house down.

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Let us remember this is the lowest interest rate in over 30 years. Rates are artificially low to stimulate the economy short term. This is not normal or even an average.

So it is fair to assume that over the 25 to 30 year loan term that interest rates will go up again. If you can’t afford the repayments when interest rates go back up (as they will) then buying a house now is a recipe for future financial stress.

The current interest rate only makes a home more affordable if you can fix your rate at current levels for 30 years.

If you still buy even though you can only just afford the repayments now then you are betting that your income will increase quicker than interest rates. Start praying that it does.

The only thing that makes the house more affordable is free cash in the form of the First Home Owners Grant.

House prices will perhaps stop decreasing so rapidly. Lower interest rates reduce the pressure on would be sellers so they will be less inclined to drop the price of their house. It is suddenly more affordable for them to hold on.

Of course you could be really creative and just buy a less expensive house that you could afford.

TIP: calculate your affordability based on the repayments if interest rates are 3% higher than they are at the time of purchase. Then make repayments at that level right from the start.

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