Richmastery Property Deals

[sarahd]

Has anyone bought a property through the Richmastery Property Deals?

For those who don't know, Richmastery send out emails with 'property deals' showing you a pre-approved price, valuation, current rental, but for a finders fee.

Wondered whether anyone had taken up this offer and what they thought.

[drelly]

I've never bought one but I have seen the deals. If you're so stuck for time that you can't find a property yourself, chances are that you don't have time to manage one either. You'll have to use a property manager which will add to costs and the cashflow +ve properties on offer may not be +ve for long. Add to that the finders fee and the possibility that the way a finder calculates cashflow may be different to the way you calculate it.

In short... even when presented with a property as a possible investment by a finder, you still need to do your own calculations and due diligence. No one is offering a smorgasboard of great "just sign here", "no risk" properties.

If you can find something that fits your criteria through RM including the finder's fee, then go for it. Make sure you know what your criteria are and why!

good luck!
Dave.

[spurner]

From the looks of it, most deals are negatively geared.

Their definition of "cashflow" includes depreciation and a tax rebate on your personal income tax.

So yeah, do your figures.

I have seen most properties listed with a regular agency before being registered as a "property deal" with a finders fee.

[BusyLizzy]

Their deals have extremely low allowances for Repairs and Maintenance, and no allowance for Property Management. Always double-check their figures.

Also - always check with council the legality of sleepouts, etc and the claims of potential for adding MDU's or subdivision. I looked into one that had a shed/garage that could be converted to an MDU. Checked with council and the section wasn't big enough. Yet RM included rent from the MDU in the rental income calcs.

BTW - this applies to ALL property finders, not just RM. Due your due diligence - don't just rely on what other people (who are trying to sell you something!) say.

There have been several discussions on this in the past... search some of the older threads.

[SuperDad]

Hi sarahd,

I have also been receiving these emails, although I haven't (until now) bothered looking into any of the deals. When I saw your question, I looked more closely at one of the deals in my local town (Hamilton).

The purchase price was 485K, 25K below the independent RV of 510K. I'm not a valuer, but this RV seems a little high to me. The deal is one 3 bed house and a 3 bed ancilliary dwelling (max floor area of 60m2 in Hamilton), on one title. The 2003 CV for the property (at 15 Cleveland St) is 139K (of which 62K is LV). It looks like the secondary dwelling was added after this CV, and the main residence has been totally renovated. 510K is a big jump from 139K, even granted the secondary dwelling, the renos, and capital growth.

Still, lets say the independent valuation is fair. (And who am I to say it is not - after all, I'm not a valuer.)

The next worry is the cashflow projection. Firstly, this does not take into account any legal, valuers, or finders fees. Now, RM points this out, so they are not guilty of cooking the books here. My main worry about the cashflow projection on the Hamilton deal is that it is based on a weekly rental income of $700. That's $350 per dwelling. The dwellings are in a relatively-shitty (for Hamilton) location, close-ish to the Hospital. The average rent for this area (Oct 05 - Mar 06) was $269 for a 3 bed. $350 seems high. Say they are currently tenanted at that rate - how easy would it be to get new tenants in at that rate? I have just had a quick look through the "To Let" adds in last week's Waikato Times. I found 8 3 bed houses available in the Melville/Hospital area, listed at: 240, 250, 270, 275, 280, 290, 300, 320. The last two had "special features", such as an ensuite and an additional outside room.

Finally, the person who has researched this property had the following to say:

This property is 5% under registered valuation. Hamilton property market is currently growing at 20%+ per annum. The Hamilton rental market are in need of a correction upwards given the recent rise in property values which will see this properties [sic] 7.5% return rise closer to 10% in future months.

My thoughts.
1. The property might be 5% below RV, but why not by at 10-20% below RV. (I know not everyone has time to sniff out such discounts as drelly notes, so 5% below RV is better than 5% above.)
2. Will Hamilton continue to grow at 20%+ PA?
3. Given my thoughts above on the stated rental return, you can imagine what I think about the prosepcts of the return rising "closer to 10% in coming months". And to say that Hamilton (or any area) "needs" a rise in rents given recent rises in property values is just plain wrong. Property values have risen partly on the back of investment, ergo more rental properties in supply. Greater supply = stagnating or even lower rents.

In short (and some of you will have noticed that I never take 10 words to say what can be said in 100 words), buyer beware.

If someone from RM reads this, please take the time to explain the Hamilton deal in more detail. And please don't simply say "if you'd like more information we'd be happy to discuss this with you privately".

Paul.
(Potential RM client.)

[SuperDad]

Further to my previous posting, I now see both of the houses on the property in question are being sold fully furnished. In light of this, the current rental of $350 seems fairer than it first appeared to me.

This is a good lesson to me - what seems to be a funny deal at first glance might well stack up differently upon digging deeper.

Paul.

[whitt]

Well this thread has quickly come to the same conclusion that almost mirror threads have done previous.
Whether a finder is RM or not you need to be happy and check the numbers yourself. Often a deal can easily be made to be cash flow positive by presenting different figures. That is the beauty of doing your own numbers. You can run what I call "What if" scenarios. Rent down, interest rates up etc..

Remember the golden rule. Independently check all figures yourself.
P.S
Body-corp fee also changes the picture on some deals. A 9% yield may well only be 7-8% if you account for these fees.

[whitt]

As a side note refer to this thread

http://www.valuit.co.nz/currentissues_may2006.asp

Rates depreciation is set to change and some property finders figures are about to be completely wrong.
This just means the large 1st year figure we normally get will be spread over more years=Less initial cashflow.

[xris]

Hello Paul,

I am compelled to step in here. Your post is acting as a magnet to my idle fingers.

A long time ago on this site I made a dismissive remark about these Richmastery deals which were being advertised. I did this because a couple of years ago I saw a three properties being advertised that where in my area and which I knew. What absolutely nonsense was being stated on the ads. The rents obtained were clearly jack-up jobs and were way above market; the properties were old and in need of a hefty input of maintenance money; no mention was made of the costs you talk of – legal, “finder’s fee” and so on. Oh, and the advertised prices were considerably above market, backed up by obviously dubious valuations. At the time a chuckled to myself and dismissed the whole set up as bordering on a scam while thinking of the poor devils who might fall for all this and be throwing their money away. (A quick note here – some may be a bit closer to reality, but the ones I saw were not.)

But enough negativity from me on this point. You may see there is another thread running at the moment about misleading advertising carried out by RE agents. The example used and complained of was something like: ‘This property would make a great investment’. I submitted a post saying that I did not think it was misleading. However, if the advertising you quote for this Richmastery deal is correct then it is grossly misleading and most definitely will be in breach of something or other, perhaps under the Fair Trading Act. For example:

Hamilton property market is currently growing at 20%+ per annum.

Totally wrong. The person making that statement is using past information and stating that it is what is happening now, which it is not.

The Hamilton rental market are in need of a correction upwards given the recent rise in property values which will see this properties [sic] 7.5% return rise closer to 10% in future months.

Total guesswork again being stated as a fact. Not even an attempt made to cover themselves by using words such as: may; might; possibly; based on passed performance.

You, Paul, seem to be one of the first people to have picked this up, even if you bring it up in a less confrontational and negative way than I do. It does puzzle me a little to see so much derision directed at “This property will make a great investment”, a statement which really says nothing at all, while statements like the ones above and many others, appear to be so blindly received as acceptable.

Anyway, I could say more, but it might be prudent at this point to stop whingeing and go back to doing something a little more productive.

A quick final question. Has anybody bought a property based on advertising like this and later found out that all was not as it initially made out to be?

xris

[LondonKiwi]

"A quick final question. Has anybody bought a property based on advertising like this and later found out that all was not as it initially made out to be?"


Good question Xris. I asked the same question many moons ago but didn't really get much feedback then.

LK

[Emblaze Pete]

I raised this exact point a month or so ago about RM advertised properties. I had been trying to CF+ their properties with realistic data with absolutely no joy, and have been trying ever since and have always been unsuccessful!! I came to the conclusion that either i was thick or these advertised RM properties were aimed more at inexperienced investors or Mum & Dad or anyone with no clues or Real Estate agents. In which case, i suspect there is a huge market for RM to offload their properties, but i doubt anyone would touch these in this community (to many sharp cookies)

[revdev]

HEAD <<bang bang>> [Brick Wall]

G

[SuperDad]

Hi Xris,

I too suffer from idle fingers, paired with a critical mind.

Obviously I have concerns with the advertised deal, some of which I have already mentioned and a few more which I shall now outline.

1. The claim that "the Hamilton property market is currently growing at 20%+ per annum" is true (contra xris). A quote from the latest QV stats report I have received: "Hamilton residential property values increased by 23.9% over the past 12 months, this was down from 25.1% growth reported to March." So the claim, as it stands, is true - when assessed simply on a "last 12 months" basis. But, and as the QV stats note, the worm is turning. If assessed on a "one month" basis, the QV figures do not support the 20%+ annual growth claim. So the problem I have with the claimed 20%+ growth claim is that it is stated in such a way as to suggest this level of performance can be expected to continue.

Even having said this, I'm not sure that the person who has researched this property is guilty of intentionally misleading readers. Perhaps instead the person is simply an idiot, or at least has a poor understanding of statistics. I'm still trying to be charitable - I figure it is more charitable to accuse someone of stupidity than intentional wrongdoing.

2. In the advertisement for the property the growth figures provided are:
Last 10 years: 97%
Last 12 months: 33%
Where the hell did these figures come from? They cannot be specific to the property in question, for the simple reason that the property has recently had a secondary dwelling added. This has taken the value from a 2003 CV of 139K to a RV of 510K in less than three years. So where do the figures come from? If they are figures for Hamilton City as a whole, then they are useless. RM might as well pull figures out of their @r$e$ (like the valuers have).

3. Another concern centers around the valuation report for the property.

The general price range for homes in the immediate vicinity is from $210,000 to $260,000..."

But the valuation on the property comes out at $510K - why is this? Persumably because the property in question contains a secondary dwelling, and the primary dwelling has been refurbished. Three methods were used in assessing the value, providing values ranging from 367K to 524K. That's a big variation, and the valuers have gone for the higher end of the range. (I think I'll get these guys to do my valuations when I need to refinance for further borrowing!!!)

What about comparable sales? The valuers list...5. 3 single dwellings, ranging from $227K - 239K, and 2 two-dwelling sales, one of which is not at all comparable IMHO. The comparable sale was at 520K, which is closer to the 510K valuation. But there are differences. The 520K property comprises 2x90m2 houses (vs 90m2 + 60m2) on crosslease title (not 1 fee simple lot as the valuers claim) as opposed to no separate title for the ancilliary dwelling. The houses in the 520K sale can be sold separately, those in the RM property cannot. That's gotta be worth more than 10K. Further, the valuation lists the sale of these two houses as a single sale, which might be misleading. Given that the houses are on their own (x-lease) titles, wouldn't there need to be 2 S+P agreements and hence two "sales". It's not even clear that the two houses were purchased by the same party. But whether they were or they weren't, at least they could be, unlike the RM deal.

My conclusion - the valuation figure of 510K is too high. Given that the single dwelling sales mentioned in the report sold for between 227K to 239K, and each was on its own title, an investor would be better off buying two of these dwellings, and spending a bit on renovation. That might come up to 489K, (485K + RM finders fee) but the investment would be much better.

4. For me, the funniest thing about this "deal" is the "pre-negotiated purchase price" of 485K. This is a whopping 4.9% below an inflated RV. If this is the best RM can do to negotiate a price for its clients, I for one won't even consider buying the forthcoming RM book on negotiating tips. Here's a negotiating tip for you RM: try harder.

Paul.

P.S. Where are you RM? I saw you lurking here yesterday. You're very quick to ask for our intellectual property (negotiating tips) - why don't you reciprocate by saying something about the specific deal in question?

[Emblaze Pete]

Perhaps buyers advocates are heading in the same direction as real estate agents - Will do anything for a deal and a commission. At the end of the day they are all middlemen with probably their own interests at heart. Bottom line is, you have to rely on your own DD if you are to succeed, and not that of a third party with a vested interest in the deal.

[JohnL]

You always have to look at key drivers in any situation. With a property finder, turnover is the key driver. When the market is down, they can generally find plenty of great, deeply discounted deals. When the market is 'hot', they are much harder to find so you can start to see some strange behaviours occurring. After all, low turnover equals downsizing and/or business failure.

You can run similar processes on real estate agents who are 100% commission based. It can create certain behaviours, both external and internal within an office, which perhaps aren't very nice and/or ethical.

Also financial advisers, steering people into products where they get the best commission.

Obviously, this is a generalisation and there are great people in all professions.

Its best to understand the drivers and factor them in to your decision making.

My only concern with a thread like this is that it is focusing on the negative. It is mentioned often that investing is 90% psychological and its important to surround ourselves with positive people, keep our own thoughts positive and be in action.

This forum's participants are the few percent of 'investors' who want to really get ahead. They are not your average ma and pa investors with a few rentals, who make up 90% of the market.

Most service providers are making their living from your average ma and pa investor, so why be surprised about their advertising techniques.

So lets keep learning and supporting each other, but try to avoid getting bogged down in negativity. Its a very effective form of self sabotage.

John