Back in 2003, invited by telephone to attend a seminar about “reducing your tax”, we wondered what to expect. What we got was a slick PowerPoint presentation highlighting statistics to which the audience murmured agreement, making the final solution the more attractive: real estate investment for those a decade or so away from retirement.
Investors may use Negative Gearing to acquire a nest-egg with minimal or no outlay. Purchased on 100% borrowing repaid interest-only, your new rental property will (depending on your country’s laws) maintain itself via rent income, depreciation and tax rebate. The task is to ride out the fluctuations in the market, and sell at an opportune time. It seemed worth considering in view of our inability to save, and the uncertain future value of the old-age benefit.
But Negative Gearing is a debated issue, and can have its downfalls. You become responsible, whatever happens. This scheme was marketed as a means of providing necessary rental accommodation, and reducing one’s future dependence upon the state: a tinge of altruism, yes.
We were to be flown to a city destination to discuss options. While we waited for a date, I consulted library books on real-estate to augment our knowledge from a zero-base. Its advice was: buy new or near-new (less maintenance) in inner-city, preferably apartments or home-units (less outdoor maintenance).
The project appeared to involve a conglomerate of various companies: publicity, investment, building development, real-estate, lawyer and insurance. And it was completely geared towards those two standpoints. So far, so good.
When we were having our flight and interview arranged, I had one question: where would I find testimonials from previous investors as to its efficacy? Treating it exactly as one would any expensive product, I was loath to let anyone supply travel and accommodation if we felt too cautious to commit.
Unfortunately this was impossible. I was told “Felicity, you’ll either join us and have money, or not join us and not have money.”
“Wait,” I suggested to my husband. “Let’s consider the product and not be deterred by the hype.” Sophisticated marketing with the seemingly one-tracked training that these representatives undergo need not devalue a particular piece of real-estate. It could be our piece.
So we went — and found ourselves across the table from a financial advisor. His “No matter how much study you’ve done, I’ve done more” was probably intended to impart confidence. But it stupefied me: had Room Service done a super-quick search of our hotel room and found incriminating library books?
In typical country-town fashion I’d stipulated to my accountant husband that, should he cark it, I needed to understand every step. He agreed. But when I interrupted the flow to ask one question too many I was accused of “blocking” our advisor.
Was I seen as the recalcitrant one? Clearly they hadn’t bugged our home! But equal to his intention to cover the steps thoroughly, was mine to understand.
I was becoming… the Investor from Hell. City folk may be more sophisticated, but never, in view of following events, try to tell me they are more efficient.
Donning fashion-insensitive garb, we visited a site under construction and saw one completed apartment fully kitted out — except for blinds. The day after we returned home, our signatures on an agreement and our apartment earmarked and due for completion by Christmas, we got a congratulatory email from the PR company. Very prompt! The sender advised us to direct any questions we had to her. I responded: we wanted our apartment to have curtains or blinds.
More than two months passed. As offices got into gear for 2004 I emailed to ask for an answer. There followed phone calls relating to the finance and mortgages and health screening for insurance required. We circulated our question around the various companies and the lawyer was the most forthcoming. She emailed us with a list of what to expect and a time-frame. Those times were way past.
Mid January came the invitation for a one-off inspection. We sent an independent assessor who raised questions it took weeks to get answered. Apparently the developer had so many apartment complexes nearing completion, that again the blinds took a back seat.
The real estate agent then supplied an answer: uniform blinds would be installed in all, as part of the purchase price. We permitted ourselves a sigh of relief…
… until the developer’s office emailed details of curtain companies. I phoned to question that: oh yes, definitely it was up to us! I contacted one of those companies immediately. Phew! Settlement must be close! It should have been months previously!
That same day came an email from the lawyer to advise that somehow or other, blinds were in, and she’d pass on the invoice. I hastily cancelled the curtain company.
Phew! again. A near Double-Blind experiment.
We were supposed to have the settlement documents in our possession for five business days. They arrived on 11 March by courier, along with a phone call from the lawyer to say the developer was threatening to sue if the they were not couriered back by overnight delivery at the end of that same day.
Stuck at home with no car, I hastened downtown to my husband’s office via the Post Shop to buy a return courier bag, shoved it all at him and said “You add your signature if satisfied, and you get it witnessed!” and trudged back home just in time for my first client of the day. The document was in our possession for three hours. Had the lawyer and courier used up four of the promised days? Who knows!
I was still convinced that the shortcomings of the process didn’t make our investment crap. But we could have been warned by the consistent cavalier attitude toward their investors. What’s more we had missed February, that being the month that student flats were established, and ours would have most likely been taken by International students at one of the English language schools nearby.
Looking back on the twelve years since then, we were satisfied with the tenanting agency that we found to administer the rental at 15% commission. But mobility in the student sector meant frequent gaps between tenants, and that was something to ride out. And a couple of English language schools folded, lessening the demand.
We recall the date exactly five years after purchase, when the bill came for the new, revised Body Corporate fees — twice what they had been before. Then came the bill for the revised Ground Rent (since we owned none of the land) — triple what it had been before.
We learned from another real estate company that the land, previously owned by a church trust, had been at some stage during the five years purchased by the developer — also that many of the apartments had been sold to a government social welfare department, and rented to somewhat less than desirable tenants. By that time the value of the apartment had fallen to 60% of the purchase price and has not risen again.
We’ve had a string of calls from real estate companies wanting to talk us into selling, and enthusiastic about those low prices. We’re not. We have a family member in there now and that suits us fine. That she has sometimes had to knock on doors or call the Police to try to prevent an apparent assault or near-murder puts a damper on things. But it is conveniently placed for her work and she has a supposed voice on the Tenant Committee, and receives our proxy vote when appropriate.
Those real-estate companies also said that without a parking slot allocated in the basement carpark, our apartment is worth less. We’d been told at purchase time that there was none available — and weren’t too perturbed because International students don’t usually come with cars. Yet some of the spaces are leased out to outsiders, and we wonder at that, along with all the other “ethics”.
My burning question is: did the developer begin the process with the intention to secure the land and sell apartments to welfare? Why weren’t investors any more important than their signatures? Why didn’t the left hand know what the right was doing? — silly question, this system was more like an octopus!
And my advice: if you wish to invest in such a way, deal directly with the developer’s company. And pursue contacts at previous complexes built by that firm, in order to be reassured. Choose other companies yourself. Don’t seal a deal without having clear knowledge of your rights and a readiness to exercise them.
Or better still, ignore the statistics that prove an investment in an area of faster growth will earn you more — and find something near where you live (like the house next door), administer it yourself, have fewer mysteries, be a great landlord and be satisfied with a lesser return.