I understand the irony of writing an online article about the dangers of internet information, but bear with me, because property investors need to heed some advice about self-education via the internet.
The net has heralded a brave new world in all aspects of life, and the trading of real estate is no exception. Most property pundits love having easy access to a wide range of data and opinion, but if you park your scepticism entirely and walk blindly into cyberspace, there are hazards afoot.
Brave new world
The modern incarnation of the internet may have found its feet in the 1980s and ’90s, but we’re now firmly entrenched in the era of social networks dominated by businesses like Facebook, Twitter, Instagram and LinkedIn.
I’m all for the free flow of good information, but today’s online structure can be distinctly perilous for property investors.
Nowadays, anyone can be a self-proclaimed “expert”. Social media has enabled the pop-up strategist to be like some small retailer taking casual space in a shopping centre to market-test their new range of scarfs.
The difference between selling scarfs and property advice is that, in the latter, there’s large amounts of money involved and people’s financial futures at stake with real estate.
For starters, you no longer need a computer science degree from Harvard University to create an online profile. It’s easy to set up a page and invite users to join with the intent of building a following.
In the last three years, the number of advisors/mortgage brokers/renovators/buyer’s agents has been rising exponentially, and not all provide high-quality professional services.
You used to have to commit thousands of dollars to advertise your wares and usually build business through word of mouth over years, if not decades. Nowadays, for a few hundred bucks you can reach thousands of people through a Facebook post.
And let’s face it, many “experts” who use examples of recent investment success in Sydney as evidence of their money smarts were, in reality, just plain lucky.
What we’ve lost is the filter between the originator of information and the end user of information. If the source is underqualified, or worse still unscrupulous, there’s little protecting the unwitting end user from their bad advice.
In years past, this filter was in the form of specialist publications and writers who would/could seek information from multiple sources and put together balanced stories on the pros and cons of a particular investment strategy or location.
There was also an element of data analysis and interpretation carried out by these expert journalists, and their role was to produce balanced stories.
Without this filter, the data can be swayed to tell whatever story the “expert” wants to.
Too much trust
Problems have also been compounded because the next generation of investors are comfortable with believing that what’s written online is factual. This young cohort has grown up with internet over-sharing, and too many seem to believe the online world is about the free exchange of ideas without an agenda.
To me, this is risky.
You can instantly create a cult-like following based upon how well you can communicate your opinion, regardless of how substantive it is. With that sort of power, it is simple for an unprincipled marketeer to perpetuate the myth of a location’s “successful” performance out of thin air in literally weeks.
Many internet users are now substituting “online research” for actual due diligence.
Until recently when it came time to research a potential investment suburb, the buyer needed to apply their skills in picking a group of locations, property types and price points they felt held the greatest potential.
It was then necessary to gather data and get your feet on the ground in order to gain a tangible appreciation of a location. This was often coupled with talking to local agents and sellers face-to-face.
For mine, there’s no substitute for this sort of “ground truth” regardless of how reliable your online information sources appear to be.
I think, without fail, regulation is a full-stop, end-of-story way to create a better experience for the consumer. It’s important that our industry includes minimum standards of education and conduct for those dishing out advice.
What we do as advisors can have a huge impact on our clients, and without regulation secure financial futures are put in jeopardy.
Advice for new investors
The internet is a great start to help you move in the right direction, but it’s just that â€” a start. Your next step should be to get practical about your research because, as I said, nothing takes the place of ground truth. Collect your data and walk the streets.
Also, surround yourself with subject-matter experts who are members of a reputable organisation like Property Investment Professionals of Australia. These advisors will be appropriately licensed, held to a code of conduct and can put you in touch with a swag of their clients who will talk to you about their experience.
Nothing replaces proper due diligence because, at the end of the day, you’re not buying a laptop; you’re spending half a million dollars planning for your future â€” so put some time and effort into it.
Steve Waters, Smart Property Investment, 18 June 2018