Getting Good Advice
Andrew Nicol on the benefits of getting personalised advice from a professional and avoiding the potential mistakes of going it alone.
30 November 2022
When I started investing in property, I went to every property seminar, every course and every presentation I could. This was me investing in myself.
And that’s part of why today I own over 40 investment properties and have done ok for myself financially.
But it’s not enough to learn. You also have to do something with it. And that’s where all investors need to surround themselves with investment professionals.
People who can guide you along the way and tell you what you need to do.
Here are a few war stories of mistakes I’ve made when I didn’t get good advice, so you can avoid making the same mistakes
How I bought my first property
You see, despite going to all these seminars and presentations, I was still terrified when buying my first property.
I’d gone to over 50 open homes, looked at countless more online, and read every Property Press from cover to cover and still hadn’t pulled the trigger on anything.
It wasn’t until I talked to mortgage adviser – and local Christchurch legend – Tony Mounce that it all fell into place.
I’ll never forget the day Tony and I were driving along between appointments. I was a fresh-faced 19-year-old and had saved up a $10,000 deposit. I mentioned that I was thinking of buying a property.
He said, “That’s enough, just buy something.” And with his guidance, I eventually did. But without that blunt encouragement and Tony’s guidance along the way, I wouldn’t have taken action as early as I did.
Lesson: Learning about investing isn’t enough. You need to get someone to look at your personal situation and give you advice on what to do.
The time I didn’t use a professional
Every time I’ve made a major mistake in property, it’s been because I either didn’t use professional advice … or got it, but didn’t act on it.
Early on in my property investing days, I started to diversify my portfolio outside of Christchurch, purchasing a property in Tauranga.
It was a brand new build that I hoped would attract good tenants. Even though I was a two-hour flight away, I still decided to manage it myself, from a distance.
And because it was a new-build, I wanted to set the rent at an aggressive price, which really meant advertising the property above the market rate.
Because of the high rent, there wasn’t a lot of interest. So I said “yes” to the first person who came along.
A good property manager would do full credit and reference checks. But, I didn’t do any of that.
The tenants quickly got behind on the rent. By the time we got to the Tenancy Tribunal, the tenants owed me $5500.
I won the case. But they still didn’t pay. In the end the tenants were means-tested through the tribunal. The missing rent would still be paid back – but at a rate of $5 a week. It would take them 21 years to pay back all $5500.
I’m not telling you this story to play the victim. In fact the moral of the story is that it was my fault: I should have hired a property manager in Tauranga to look after the property.
That would have meant that the proper credit, background and reference checks were completed, and the rental application from these tenants wouldn’t have then been accepted in the first place. The property manager would also have made me be realistic about the right rent to charge.
Lesson: Get the right professional for the job. As a minimum property investors should have a mortgage adviser, property manager and a financial adviser.
The case of the missing property manager
Another notch on my property belt is the cautionary case of the missed mortgage payments. After trying to manage my properties myself, I learnt my lesson and went to find a property manager.
I ended up going with a “5-percenter”. These are low-cost property managers who charge under the market rate, and cost substantially less. Unfortunately, in these situations you often get what you pay for.
All went fine for a couple of months before ring ring, ring ring – it’s Westpac calling. “Mr Nicol, your mortgage account is in arrears.” I’d missed my mortgage payment. This was surprising, since the rent was meant to cover all of the mortgage payments, and the property manager hadn’t mentioned any issues with the tenant not paying.
In fact, I hadn’t heard from the property manager at all, so I had assumed that all was well.
Imagine my further surprise when I looked at the bank account and discovered that no rent had hit my account in the previous two months. I jumped in my car and drove over to the property manager’s office – he was nowhere to be found.
I later learned that the property manager had succumbed to a drug problem and skipped town along with two months’ worth of my rent – and probably the rent
of quite a few other landlords as well.
Suffice to say the missed mortgage payments left a hole in my personal bank account, because I had to cover the costs since the missing money wasn’t recoverable. I never tracked him down.
Lesson: When it comes to working with professionals in your investing, don’t just go for the cheapest option. The cheap option can often be lower quality and end up costing you more when things go wrong.
What professionals do I need?
At a minimum property investors need:
- a good mortgage adviser to help them get the money from the bank
- a quality property manager to look after the tenants, do the correct background checks and follow the Residential Tenancies Act by the letter
- a financial adviser to help them achieve their goals through investment property, and decide what to invest in.
If you get all three of these you will be far more successful, and you’ll avoid many of the same mistakes I made.
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