Property Investment
6 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Reviewed by: Ed McKnight
Our Resident Economist, with a GradDipEcon and over five years at Opes Partners, is a trusted contributor to NZ Property Investor, Informed Investor, Stuff, Business Desk, and OneRoof.
Investors like to get lots of different opinions when deciding where to invest. That’s important: You’ll spend hundreds of thousands of dollars when you invest in property.
Through that process, sometimes investors get advice from real estate agents. While that advice is often good ... in some situations it’s inappropriate.
Here at Opes Partners, we have New Build investment properties you can buy.
That does give us an incentive to say, “Don’t listen to real estate agents. Buy from us instead.”
But we believe in being blatantly honest here at Opes Partners. So we’re not going to say that. Here’s the truth – we’re not the right fit for everyone. In some instances you should get advice from a real estate agent.
That’s why in this article, you’ll learn the 5 truths about getting investment advice from a real estate agent. That way you can make an informed decision about who you take advice from and when.
Real estate agents help you sell and buy properties. They have unbeatable knowledge about the specific location they work in. They are experts when it comes to knowing what properties will sell (and at what price).
But (like all of us) there are limitations to their knowledge.
This is where it’s helpful to know about the Dunning-Kruger effect.
This is where people who know a little about a topic perceive themselves as experts. They come across as confident even if they aren’t experts.
As people learn more, they realise how much they don’t know, so their confidence goes down. Then it gradually rebuilds as they become more of an expert.
Where do real estate agents sit on this graph?
When it comes to knowing how much a property will sell for, they are experts.
Think about a real estate agent in Stonefields, Auckland. They know what properties are selling for. They’ll know whether they’re selling by auction or deadline sale, and what buyers want in that area.
They’re at the right-hand side of the graph. They have high confidence and are skilled in that area. They know what they’re talking about.
What if you ask them for advice about what makes a good long-term investment? Or how to build a diversified portfolio?
Most real estate agents don’t specialise in property investment. It’s not what they do every day, so their skills won’t be as sharp. They might know how to sell property, but they’re often not as clued up about property investment. That’s normal. It’s not what they do every day.
The risk is that you mistake an agent’s confidence (and genuine desire to be helpful) as expertise. That can mean you pay too much attention to their advice and make a mistake.
Real estate agents tend to deal in one-off transactions. They don’t stick around to help you grow a portfolio.
Think about the last time you bought a property from a real estate agent.
How did you buy it? Perhaps they advertised a property, you went to the open home, then they helped you buy it.
But, did they discuss your property portfolio? Did they ask you what your long-term goals were? Did they talk about how this purchase would help you build a portfolio?
If you’re like most people the answer is “no”.
That doesn’t mean the agent didn’t do their job. An agent’s job is to sell their vendor’s property. Their focus is to help you buy a property, not build a portfolio.
Real estate agents are experts in the specific location they work in.
This is why Ray White have over 193 offices around the country.
They employ agents to become experts in one specific area. This is why most agents will only provide properties in their specific area.
This works really well if you know exactly where you want to invest. An agent in Central Wellington knows which properties are selling on which streets, and they have properties available in that area.
But they might not have listings (or as much understanding of what’s happening) in Upper Hutt.
That does provide an incentive for an agent to say, “Buy an investment property in my area. It’s a great place to invest.”
Again, you can learn a lot from a real estate agent. They can help you find a property in a specific area. That’s what they do every day.
But most aren’t experts at helping you analyse different areas, or deciding which area to invest in. That’s not what they do.
Real estate agents work for the person selling the property (the vendor). They get paid a commission. The more expensive the property, the bigger the paycheck.
Don’t get me wrong, an agent will be happy to sell you any property; they’ll offer you a range of choices in the area they work in.
And if you buy a more expensive property, they get paid more. So there is an incentive to push you towards a more expensive property.
Typically, real estate agents focus on existing properties.
If you know you want a 3-bedroom existing house in Christchurch for around a certain price ... a real estate agent will find a good match for you.
But most agents don’t focus on New Builds. That’s because they usually get paid once the property is built (and you pay for it).
So, if you buy a New Build from them they don’t get paid for a while. Again, it provides the incentive to focus on properties that are already built.
So, if you know you want to buy a brand new property, a real estate agent will generally not be the right fit.
The alternative to using a real estate agent is to use a property investment company. This is an option that a lot of property investors don’t consider.
It’s important to say – we here at Opes Partners are one example of a property investment company, but there are others too. I’ll list some of our competitors below.
The difference between agents and property investment companies is what they do every day. Their specialty.
As mentioned, real estate agents are a great fit for people who want to buy their own home. Property investment companies are a better fit for property investors.
This is because they hire financial advisers to work with you.
They help you create a financial plan, and find you properties to build your portfolio. This relationship can last years.
If you’re looking for New Builds, you might use us. You can use us here at Opes. Or, some of our competitors are:
Want to follow a renovations-based investment strategy? You might use Wolfe Property Coaching, AssetLab or Property Apprentice.
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.
