Financial Adviser
8 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Reviewed by: Laine Moger
Journalist and Property Educator, holds a Bachelor of Communication (Honours) from Massey University.
When you invest in property, you’ll have loads of questions. There are so many things going on at once.
So you’ll want to seek a range of opinions. And you absolutely should.
But where investors go wrong is when they weigh all opinions equally. This can mean you listen to opinions from people not qualified to give them.
Everyone has expertise.
But as you are listening to people, you need to be asking yourself: “How much weight should I give to this opinion?”
Here at Opes Partners, we help people buy New Build investment properties. So you might think we're going to say, “Only listen to us, we are the only ones who know what we’re talking about.”
That’s not true. Lots of other people are experts too, so we’re not going to say that.
We believe in helping you make high-quality decisions backed up by facts and analysis.
So, in this article you’ll learn who to listen to in each decision. That way you can make the most informed decisions possible.
Real estate agents help you sell and buy properties. They have in-depth knowledge about the specific location they work in.
But when you get advice from a real estate agent (and anyone else), keep in mind the Dunning-Kruger effect.
This is where people who know a little about a topic perceive themselves as experts, so they come across as confident even if their competence isn’t high.
Because you perceive that person as confident, there’s a risk you pay too much attention to their advice. That can lead to a bad decision.
For instance, take a real estate agent in Stonefields (Auckland). They know exactly what properties are selling on each street in that specific suburb.
They will have high confidence and high competence/wisdom. They know what they’re talking about.
But they won’t have as much understanding about other parts of Auckland or in other parts of the country. They’re not economists or long-term property investment advisers. Their goal is to broker a transaction.
So, if your question is “How much will my property sell for?” or “How do I get the best price for my property?” talking to a real estate agent is the right thing to do. They are experts in this area.
But they aren’t the best people to talk to about how to grow a property investment portfolio.
Friends and family can offer pearls of wisdom, based on their own experience. This experience can be either good or bad. Everyone loves a good war story.
It can be easy to hear the experience of a family member and think you need to copy that.
For example, Uncle Bob might say: “Property investment is amazing. Everyone should do that because property goes up in value.”
Sure, that can happen. But that’s his experience.
Similarly, Aunty Mavis might say: “Investing in property was terrible. All I had was awful tenants.”
That can also happen, but that is her experience.
The truth is that one person’s experience doesn’t tell you what generally happens for most people.
So, the best thing to think, when you’re listening to someone’s story, is:
What can I learn from them, based on the principles they are telling me about?
There are different types of accountants.
Some accountants specialise in business, while others specialise in property.
Property investors want to work with a specialised property accountant.
But even then, there are limits to what advice you should listen to them about.
Accountants are going to give expert advice about structure.
For example, are you going to own the property in your own name, or are you going to set up a trust, or a Look Through Company?
They are also going to give you (legal) strategies on how to minimise the amount of tax you pay.
Even though accountants deal with money, they can still step outside their lane.
This is the best/worst example of what can happen.
This is a true story.
A pair of investors bought a property off-the-plans in Christchurch. They had a year to settle.
Their accountant suggested that the wife quit her job and become a contractor. He said she’d make more money.
It sounded great. She followed through on that advice and started making more money.
But she was now a business owner with variable income.
So, when it came to settling the property, the bank could no longer honour the pre-approval.
So they were at risk of losing their $100k deposit (10%).
This is another example of the Dunning-Kruger effect. The accountant was at the peak of “Mt Stupid”.
Their misplaced confidence meant that the investor followed bad advice.
She should have talked to their mortgage adviser before quitting her job. A mortgage adviser would have picked up this issue.
Property managers can help you with many specific details about renting your property.
They’ll also be able to help you understand what makes a good and a bad tenant as well as the process they go through for vetting tenants.
They’ll have a few horror stories up their sleeves too.
Usually, they understand the city they are managing properties in.
A property manager in Christchurch can usually tell you:
All investors will have some experience in renting properties. So, it’s easy for them to seem confident, even if they aren’t an expert.
But the same principle applies here. Your property manager knows more about renting properties than your accountant. They know more about renting properties than your financial adviser.
So listen to the property manager when it comes to finding tenants.
Like accountants, there are many different types of lawyers.
Any diligent lawyer can run the conveyancing of your property.
But, if you’re going to be a successful property investor, you need more than the basics.
Let’s say you are buying a New Build property off the plans. Lawyers who don’t deal with turnkey contracts can be startled by some of the clauses.
They might end up quibbling about non-issues. This can waste time and cost you more money since they charge by the hour.
This is why different lawyers can be at different parts of the Dunning-Kruger curve.
When it comes to off-the-plan purchases, a business lawyer might be at the peak of “Mt Stupid”. A property specialist, on the other hand, may have more competence.
If it was a question of business law, it could be the other way around. The business lawyer would be more competent and the property lawyer could be closer to “Mt Stupid”.
The point is that we should listen to experts who actually have expertise.
Mortgage brokers are experts in getting you your mortgage.
This means figuring out:
As integral as mortgage brokers are in the property investment journey, their sole job is about getting you the lending from the bank.
However, they move outside their area of expertise when they start talking about things like yields and cashflow. That’s not their area of expertise.
Here at Opes Partners we are financial advisers who specialise in property investment.
These financial advisers have expertise in creating a long-term financial plan. They are also good at choosing the right New Build investment property for you.
But before we get into that, it’s important to mention – our advisers aren’t experts in everything.
They don’t know everything about shares, property management or property accounting. For some things they are at the peak of “Mt Stupid” too.
That’s OK. That’s why we recommend you seek advice from people who are experts in that area.
When it comes to your property portfolio, they can find the right property.
That can be a different question to “What is a good investment property?”
For instance, there are good properties all around New Zealand. But the right one for you might be in a different city to where you live.
You might need to diversify your property purchases to even out your returns over time.
So when it comes to buying a New Build and building a long-term plan, listen to your financial adviser.
Sometimes people come across as confident when talking about property investment.
This makes you think: “Wow, they must know what they're talking about.”
But this doesn’t mean they are giving you good advice.
Keep in mind the Dunning-Kruger effect.
Sometimes people know just enough about a topic to be dangerous and give you bad advice.
But sometimes the more you learn, the less confidence you have. That’s because you start to realise how much you don’t know.
Your confidence only starts to build again once you learn more and gain experience.
How do you see through this? Don’t just think, “This person seems confident, they must know what they’re talking about.”
Instead, ask yourself: “What is this person an expert in? What should I listen to them about?”
Everyone has a perspective and expertise to give. The trick is to figure out which advice to listen to and how much to weight it.
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
This article is for your general information. It’s not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isn’t telling you what to do with your own money.
We’ve made every effort to make sure the information is accurate. But we occasionally get the odd fact wrong. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
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