Are property coaches biased?

Considering a property coach?

You might be wondering whether you're really going to get good advice, or if you're just going to get a biased sales pitch.

In this article we'll break down how to discover if your property coach will give you genuine advice … or is just trying to sell you a property.

What is a property coach, and how do they work?

Many Kiwis dream of becoming property investors, but no-one teaches you how to do this at school.

Some investors will figure it out by reading books or getting their hands dirty on a renovation project.

If that’s not for you, a property coach may be more appropriate. That’s because a coach can either teach you how to invest or find potential investment properties for you.

These businesses call themselves different things – like coaches, mentors, or property partners. Generally, they fall into three categories –

• They teach you how to invest and charge you a fee to do so, e.g. $8,000 – $25,000. It’s then your job to find properties to invest in. They often continue to mentor you after you complete an initial learning phase. The idea is that the education sets you up to do the property investment process yourself.
• The next is that they find a property for you to invest in based on your criteria. They will charge you a fee for this service, e.g. $11,500. Once they’ve found the property, like above, it’s your job to run the property investment process yourself.
• The list type of property coach will find a property for you to invest in and offer property advice. These property coaches don't charge you a fee. Instead, they charge a fee to the property’s current owner if you invest through them. This is a done-with-you type of service where they manage you through the property investment process.

We at Opes Partners fall into that last category. We offer a complimentary property advice programme and earn a fee if we can find the right investment for you.

Because this service includes guiding you through the property process, it generally suits investors who want to take a hands-off, passive approach.

That's why these type of property coaches tend to recommend new properties, which are bought from a developer.

Why might a property coach be biased?

For property coaches in that third category, you might think: "How can I trust your advice if you have a financial interest in recommending me a property?"

One listener of the Property Academy Podcast recently asked:

"Hi Ed, been a listener of your podcast since last year. How do you balance your product (i.e. project in a suburb say Rolleston) against bias in your content? Isn't it conflict of interest if you're saying Rolleston is booming on your show when you're marketing projects there? Thanks, Matthew"

This is a great question and one worth answering. So let’s unpack it step-by-step by first considering what financial incentives property coaches have.

What financial incentives do property coaches have?

Some in the property industry worry that unscrupulous property coaches will try to “just sell a property” to an investor, even knowing that it’s not a good investment.

After all, “that’s their financial incentive”.

But is that really how people in business operate?

Accountants and lawyers often bill by the hour. These professionals are incentivised to sell you additional billable hours that you don't need by that logic.

But, on the whole, do we see that practice widely spread across the accounting and legal professions?

No.

That’s because while it may make sense in the short term to bill for hours not worked, or to sell a product that someone doesn’t need, it doesn’t work out in the long run.

Client-service businesses need ongoing customers to be sustainable.

If word gets out that a property coach’s advice is poor, or that it’s just a thinly veiled sales pitch, the business won’t do well.

Like any industry, there will be ethical and unethical property coaches.

A good property coach doesn’t want to recommend new-build properties to people they aren't the right fit for. If they do, they'll get a bad reputation and ruin their business in the long run.

For instance, here at Opes Partners, before we even show properties to an investor, we first determine whether new-builds are the right fit for the investor’s strategy.

The pros and cons of new-builds are also detailed on our website and on the Property Academy Podcast.

And if an investor isn’t right for this strategy, we will tell them.

That honest approach helps create long-term relationships with investors, which allows us to be a sustainable and growing business.

Key takeaways:

• While both honest and unscrupulous businesses operate in every industry, most companies want to do the best by their clients. They’re not out to sell you something you don’t need.

Actionable tip:

• When working with a property coach, ask them who their strategy is and isn’t the right fit for. If they can’t give you a clear answer about who doesn’t suit their system, how will they know if you fit it or not?
• Look to see if the process for how they deliver their advice is articulated online. Is the scope of advice vague and unclear? Or is it detailed and well-scoped?
  • Someone giving genuine advice has a structure and a process for providing it. A property coach’s service should be robust and content heavy, but also easy to articulate.

Can you be unbiased if you’re recommending a property?

The next question some in the property investment community ask is "can you be unbiased if you have a financial interest in recommending a property?"

The answer is … it depends. And it chiefly depends on how the property coach decides which property to recommend.

Will they recommend any property that someone pays them to, or will they only recommend something they’ve specifically chosen?

Here's a screenshot from a LinkedIn post from a property coach who took to social media to find properties to sell. Rather than looking for something specific, the approach was to look for anything:

That’s one approach.

On the other hand, some property coaches will only look for specific properties in chosen areas because they believe it will generate the best return.

For instance, at Opes Partners one of the areas we have previously recommended is Rolleston in Canterbury.

The recommendation was not given to investors because we happened to have properties there to sell.

Instead, we went to find the properties in that area, because we believed they would make a good investment.

Another example is the Tauranga market. Between 2014 and 2017, we recommended several developments to investors within the Bay of Plenty.

We no longer do that. Not because properties aren't being built there or that we couldn’t get them on our books. But because prices are so high, our reading of the data doesn't support continued investment.

Key takeaways:

• Some property coaches will aim to sell any new-build property they can find that their clients can afford. They will take what comes to them. Others will hunt to find properties that meet their investment criteria. Investors are likely to get better results if they work with a property coach who handpicks their investment recommendations.

Actionable tip:

• Ask the property coach what their criteria is when selecting investment properties to recommend. A good property coach will be able to outline what they look for in detail.
  • Do they look for 4-bedroom standalone houses in the west side of Rolleston? Or perhaps they stand behind 2-bedroom townhouses in Hamilton Central above a 5% gross yield?
• You’ll need to judge for yourself the quality of the property recommendation. But, the more specific the property coach is, the better.
• Digging into further detail, ask the property coach why they recommend the specific property they’ve put in front of you.
  • Can they give you a compelling data-driven reason for recommending that specific property?
• Is it because it's new and looks nice? Or is it because the suburb grew in value by 6.45% per year over the last 20 years? Or perhaps it’s that the property's net yield is above average?
• Is their answer based on fact or feeling? You can’t fake facts.
• Ask the property coach who in their team finds the properties to recommend and how they do it. It’s a better sign if they outline how they actively look for stock. You don’t want to work with a property coach who will just try to “sell” anything that comes to them.

Can property coaches mitigate any potential bias?

Even if your property coach has a commitment to honesty and improvement, many biases could come into play.

But there are ways to mitigate these.

Each business will come up with their own ways to address bias. For instance, here are some of the measures we've put in place here at Opes Partners to stop bias creeping in:

• We actively address concerns about bias by talking openly through articles like this, participating in Facebook groups and through the Property Academy Podcast.
• We charge a flat fee to developers. We’re paid the same price whether we recommend an expensive property or a more affordable one.
• That means we're not incentivised to recommend something expensive, just to earn a higher fee. Instead, we are incentivised to do what’s right for the investor.
• Before we build a portfolio plan with an investor, we confirm the strategy we coach – a passive approach based on new-builds – is the right one for them.
• We are about to launch a service where investors are coached on renovations (the first type of property coach mentioned above).
• Coaching multiple strategies means there is no incentive to try to get a client to use a particular way of investing that isn’t right for them. We can match the right strategy for the investor’s goals.
• Finally, we run a sizeable business. We’ve been around for 8 years and have built a substantial base of investors who chose to work with us.
• That means we don’t need to convince someone to use a strategy or buy an investment property that isn’t right for them. We’d prefer to work with investors who actively want to implement the approach we’re skilled at coaching.

So are property coaches biased?

In every industry, there will be good and bad companies.

There will be companies interested in genuinely helping their clients and others out there to make a quick buck.

There's no list online of biased and unbiased property coaches or financial advisers. So you will need to do your research and make the decision yourself.

Once you’ve done that, you may even decide a property coach isn’t the right fit for you … and that’s OK.

Although you may also decide that you are the sort of investor who prefers a passive investment strategy … in which case finding an unbiased property coach may be the right next step for you.

Postscript

Even after all of this, some in the property investment community will still think property coaches who earn a fee when recommending a property can't give unbiased advice.

Here’s one such investor talking about it on Facebook 👇

Here's a story about Andrew Nicol, the Managing Director of Opes Partners, that shows the commitment some property coaches have to honest advice.

Andrew worked with a pair of investors who already had 2 properties under contract, which they were running due diligence on. This meant the couple had the right to buy these properties, but they could still pull out if they wanted.

The investors found these properties through another, competing property coaching company.

Technically, Andrew's financial incentive would have been to say "don't invest in either of those … here are better properties that I can get you."

That didn’t happen.

Instead, gesturing to one property, he said: "This one here probably isn't the right fit for the portfolio you want to create. Let's see if we can find something more appropriate.

"But this second one is better than anything I've got available right now. I think you should invest in it."

Yes, even when it means earning less money, the right property coach will tell you to go with a competitor’s recommendation if it's right for you.

That’s because unbiased property coaches understand that it is the long-term relationship with the investor that genuinely matters.