A very good friend of mine recently was looking to buy a property and came to me in total surprise and said “I didn’t know that buyer’s agents actually found a property for you.
I thought all they did was ask you what you wanted to buy and then point you in the right direction.”
I wonder how many other people think exactly that, that’s what buyer’s agents do. Last week on Real Estate Talk I interviewed Buyers’ Agent Shannon Davis from Metropole Property Strategists in Brisbane.
Here is the transcript:
Kevin Turner: Good day, Shannon.
Shannon Davis: Good day, Kevin.
Kevin Turner: True story. Being a good mate of mine, I thought he knew a fair bit about property. I wonder how many people don’t understand fully what a buyer’s agent does.
Shannon Davis: It’s quite common in other more mature property markets, where there’s an agent on both sides of the transaction, the buyer’s agents representing the buyer and a seller’s agent representing the seller. In Australia, it’s probably a little bit of a newer concept.
Kevin Turner: Okay. What does a buyer’s agent actually do?
Shannon Davis: We can look after the buyer. In a typical real estate transaction, the seller’s agent is working with the buyer and the seller, but he or she only has one boss. It’s a fact of buyer beware.
What people do when perhaps they’re time poor, or they’re unable through distance or they’re just not sure of what they’re doing in the property market, they’ll engage a buyer’s agent to help them source a property and successfully negotiate it all the way through with due diligence all the way to settlement. It can be an investment property or a home purchase.
Kevin Turner: Do you actually help work out a strategy as well or is just a matter you find a property and then just make sure that they buy it?
Shannon Davis: We’ll give a strategy, depending on what the client’s personal circumstances are, what they’re looking to achieve, the time frame they’re willing to do and whether they’re wanting to be passive or perhaps manufacture some of their own equity through a renovation or perhaps development strategy.
Kevin Turner: What do you mean by passive?
Shannon Davis: Passive is more like the buy and hold investor that just wants to purchase and have a property that sits within the property cycle and moves up with the market.
Some people want to be a little bit more active than that. They choose a cosmetic or a structural renovation strategy. Some people also want to get involved in small developments.
Kevin Turner: Do you find that people nowadays are more holding onto their properties or is there a place for people to buy a property, do it up and then make a profit out of it by selling it?
Shannon Davis: I think in boom markets past, there’s been definitely times when you can have a short-term strategy and make good profits, but I think with Australian charges on entry and exits, there’s the taxes that you have to pay and the commission and some of the expenses that you face, it makes it more difficult.
If you hold your property, there’s no taxes to pay. You can just sit and enjoy the capital gains.
Kevin Turner: What are the stages you take someone through. If they’re interested in getting into property and they come to see you, what can they expect to have happen?
Shannon Davis: Usually, we’ll first ask lots of questions to see what they’re trying to achieve and try and tailor a strategy to their personal circumstances.
Some people come and see us and they haven’t started at all. Other people are having children and down on one income. Some people are nearing retirement.
It just depends on their strategy, but usually we will help them with finance. Then once we know that they’ve got that pre-approval and their comfort zone of what they’re wanting to borrow, we’ll look for the property that fits that circumstance.
Kevin Turner: How long does that whole process take?
Shannon Davis: Usually, depending on the amount we can get the paperwork back and things like that, it can be as quick as one month.
Some people already have done their pre-approvals and they’re just ready to shop and that’s the part that they need help with. They’re a little bit quicker, but we’re quite discerning in what we buy.
We believe only 5% of property is investment grade. They’re the opportunities we look for and it could take 2 days up to 2 months.
Kevin Turner: I had a question the other day from someone and you might be able to answer this for me. They were wondering if on an average income of maybe $70-80,000, can they become an investor? What sort of properties should they be looking for?
Shannon Davis: It all comes down to serviceability, especially post GFC. Someone on that type of income, if they had some cash or equity for their deposit … Banks are lending up to 90% at the moment. They’d be able to purchase something around that $450,000 mark.
Kevin Turner: How long should they then be holding onto that before they could look at getting their second property? How do they do that?
Shannon Davis: With the second property, it just depends how kind the market has been to you because you’d essentially be using the equity gain to form the deposit for the second purchase. A lot of that is beyond our control, but we can undertake cosmetic renovations, buy well and add some equity ourselves.
Kevin Turner: When you’re talking about that property, or the growth in that property, helping you get into another one, is that through leverage? Is that what you’re talking about?
Shannon Davis: Yeah, leveraging and getting a property portfolio. Most Australians don’t get to a level of financial independence because their asset base isn’t wide enough.
It will take more than just one property to gain a level of financial independence because you’ll always need that place to live.
Kevin Turner: How many properties do you think someone needs to get? Over what period of time does it take them to build that kind of portfolio?
Shannon Davis: We prefer quality properties, high capital growth properties. There are people that want to buy one a year and then people that want to buy 10 and sell 5.
What I would say to them is just buy good quality properties and maybe have less, but better quality, higher-performing properties in your portfolio because it’s capital gain that will count more in the long run.
Kevin Turner: So is capital gain more important than a positive cash flow?
Shannon Davis: Yeah, because when you get positive cash flow, A, your returns are going to be taxed. It’s not going to be life changing but where some of those positive cash flow properties are tend to be volatile investment areas.
People that were getting positive cash flow from mining towns a couple of years back now are looking at a big drop in rents and even a drop in equity in some cases.
Kevin Turner: Yeah. Been great talking to you, Shannon. I appreciate you giving us all this time this morning on the show. Shannon Davis from Metropole Property Strategists. Shannon, thanks for your time.
Shannon Davis: No worries, Kevin. Any time.
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