Investment strategy ideas

Heard about a place called Wholesale Property Edge from a friend and was wondering if anyone had any experience dealing with them?

Investment strategy seems to be centred around buying new/near new properties for below market value (the wholesale part) that are positive geared (or very close to neutral) in various areas spread across Australia (they have criteria for choosing suitable areas they believe will rise in the near-ish future) and using depreciation to reduce income tax.

Thanks

 

Their strategy is likely to be or assumed to be a strategy in which they market properties for which they get a sales commission. You may also pay on top of this a fee for service. Also be wary if they funnel you through their finance broker, accountant and solicitor.

Do your due diligence.

If you want help best to consider an independent buyers agent. You just need to do enough research to determine city / region in which you want to buy.

To find an independent buyers agent:

Buyer’s Agents | Real Estate Buyers Agents Association of Australia (REBAA) Inc

 

Probably not much to be said yet since the company was only registered just over 12 months ago:
Wholesale Property Edge Pty Ltd ABN Report

No contact details such as address or phone number on the website either so that is not very reassuring.

 

Sounds like the most typical spruiker ad ever.

1. Tell people you can get magically get properties below market value and let greed do the rest of the work to make people blindly follow without asking how is it that they can convince sellers to accept less money than their property is worth.
   
   
2. New properties - the developer has made their cut and that comes out of the purchase price. That amount then disappears into the air over the next few years as the "new" house becomes not new any more and the asset value drops. But the company doesn't care because they get their commission from finding a sucker (I mean buyer).
   
   
3. Tell people it will be positively geared, without pointing out that there are serious problems with almost all strategies that do this (eg guaranteed rental return, buying in a location that has low demand/growth, etc)

It is like they took their ad right out of a book teaching them how to be a dodgy spruiker to attract uneducated people to relieve them of their money.

Instead, take control and educate yourself by reading some books and learning the concepts behind what makes certain properties a better investment so that you can avoid being a victim of these types of companies.

 

First impressions are a reincarnation of Henry Kaye some 15 years later.
Cycles in the property game are alive and well.
Time to play it again for the current generation.

 

Let me guess, the wholesale prices mean you dont even need a deposit, just use your own home!

 

I've had a bit more of a chat with my mate and this is roughly what he said.

Yes, I believe they get a commision. This is supposed to come from the developer. My suggestion would be an independent valuation of any property before proceeding.

I found this as well, was hoping someone on here or one of their clients may have had dealings (either good or bad) with them as being fairly new, there is not a lot of info out there.

1. I would suggest an independent evaluation of any property before proceeding/believing. The savings are supposed to come from the bulk buying side and good relations with the developers.

2. I don' 100% understand what you mean. The properties have been overvalued
and will drop in the first few years?

3. I don't think they're all positively geared. I think they're close to neutral or slightly negative but being new, allow you to claim depreciation at tax time which leaves you in an overall positive position at the end of the year.

You do need a deposit, you can redraw from your own property but that's not required.


The strategy is targeted at mid-high income earners with little to no personal debt and works mainly by using the depreciation to reduce your income tax.
It sounds too good to be true to me but if the math they use and the valuations are correct, I can't find fault. Was hoping someone had heard of them or knew people that had dealt with them.
So far I have spoken to one person that started investing with them about 6 months ago (I've known him for 5+ years) and he has run it all by his own financial planner and accountant and they were fine with it.

My recommendation was, run it by your accountant, planner and mortgage broker before you sign anything and get your own valuations.

 

Seriously?

Everything I've heard so far makes it sound like a borderline scam that tricks people by using depreciation benefits to hide the fact that they've overpaid for a dud property.

 

And hide crappy valuations by crossing existing property.

 

When you purchase a property, you are actually buying 2 things - a piece of land and a dwelling.
Even though they are packaged together, they each have a separate value and the value changes over time independently. The land goes up over time. The house, just as a boat or a car, goes down over time. And just as a brand new car or boat loses the most value in the first year and then the next most value is lost in the next few early years, so too with a house. The first few years see the biggest drops in value of the building.
What you find with brand new properties is that any growth in value of the land is offset with the significant drop in value of the house during the first few years resulting in no profit, generally for years.
I think just about every author I have read from has warned of this. I suggest you read some books before continuing your search for an investment.

 

Would you say that is amplified when buying a new apartment, because your share of the land value is much smaller?

 

It's about land 'value', not land 'size'. They're not the same thing. You could have a bigger land size closer in and a smaller land size further out and both be the same price/value.
Also I've heard multiple people mention that apartments are more expensive and multiple people say houses are more expensive, so I don't know which one is correct.
There are other problems with most apartments though such as ever increasing supply and limited ability to add value.

 

A smaller block further from a cbd could be the same price as a bigger block closer to cbd?
For my own understanding can you expand on that please? As in why would a smaller block of land further from cbd be worth more than a larger block closer

 

Sorry, meant smaller block closer in could be same value as larger block further out.

 

If you are looking to buy property with them, you need to look at their proven track record first and see what properties they have successfully found for clients (if they have any).

In addition I think it’s best you take a look at the developers who they are working with to see what the build is like and ask them to disclose how much commissions they are receiving so it’s all transparent.

 

@Thomas Cale, are you a salesman for the company?

We get questions worded just like yours fairly regularly here. The sales pitch you stated is so very familiar.

 

Tough crowd...

 

thanks, makes sense that way around

 

What makes you think he's a salesman?
Sounds to me like he's been pitched the deal/strategy and is asking for feedback from experienced investors etc. Please don't be so dismissive, people come here for assistance

 

No, just wanted to see if anyone had any experience with them. Have one friend that has already invested with them and he seems happy (although it hasn't been long enough to see any real growth yet. He has also run it by his financial planner and accountant and been given the ok) and another that is looking into it at the moment. I might in the future so have basically been searching for any horror stories if they're out there.

For me, it keeps coming back to a few big "IF's"

If your bank val comes back higher than the sale price.
If the tax benefits they quote are accurate - run this by your accountant I assume.
If the area you are buying in experiences capital growth after the purchase.
If the property is going to be consistently tenanted.

The first two IFs I assume you can be fairly certain about and if either of them failed then I would suggest walking away, the last two you would be relying on their advice and reading of the market/trends in that area.

For me, I think everyone's advice on where to buy is basically educated guessing, some are a lot more educated than others and some make a lot better guesses than others but none of us has a crystal ball. Yes, I could go and do all my own research on what to buy where and when but I have another full-time job and responsibilities that would mean I would do it fairly half-assed and I would still be relying on other peoples advice/research.

To me, it feels like they're basically a sellers agent. Their job is to find properties in rising (or soon to be rising) markets that they think will make gains in the future and negotiate with the developers to get a better price than I could if I walked in off the street. Yes, they get a commision but so does my mortgage broker and I'm pretty sure (hope) he has my best interests at heart.