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Beware the Magic Tricks of a Buyers Agent

Last week I was walking through the city and passed a busking magician dressed like Harry Potter, frozen in space like a statue, waiting for the next coin to arrive in his hat before he would perform his trick.

I always like to see what people do in these situations – how many keep walking, how many stop and wait for someone else to drop a coin in, how many actually drop a coin (very few!). I think it gives an interesting insight into how people behave in general.

Are you someone who likes to watch to see what happens before you make your move? Do you look ahead and foresee how much value there is in the performance and give accordingly? Or do you think it’s all just a bit of nonsense?

I see the same thing happen when people ask about my services as a Buyers Agent. “Sounds expensive, I can do that myself” I hear them say before walking off. “But you haven’t seen my magic tricks!”, I shout back.

So what can a Buyers Agent – a professional property expert – actually do for you? We’re all familiar with the usual lines, “we save you time, money and hassle”, but in the investment arena what does that actually mean and how will it effect your bottom line? What magic do we bring to the table?

Let’s take a look at an example.

All suburbs have an average annual growth rate that can be used to determine how your investment may perform over time. Units in Bondi Beach for example have an average annual growth rate of 7.7%* which indicates that their value will double in just under 10 years. The key word here is “average”. By definition some units in the same suburb will perform better, some will perform worse.

The advantage of hiring a professional in this situation is that they’re trained to identify properties that will outperform the market due to a variety of factors that they know make a good investment.

But like all good professionals, Buyers Agents come at a price. With fees of around $15,000, can that price be substantiated and how much does the property need to “outperform” the market in order to do so? Let’s look at the figures.

A property is purchased for $650,000 and has an average annual growth rate of 7% over 20 years. A professional Buyers Agent identifies a superior investment for an equal amount in the same suburb before making their purchase. This property performs slightly better over time with an average annual growth rate of 8%. The growth in equity can be seen below.

 

YearGrowth RateEquity Difference
7.00%8.00%
1$650,000$650,000
2$695,500$702,000
3$744,185$758,160
4$796,278$818,813
5$852,017$884,318
6$911,659$955,063
7$975,475$1,031,468
8$1,043,758$1,113,986
9$1,116,821$1,203,105
10$1,194,998$1,299,353$104,355
11$1,278,648$1,403,301
12$1,368,154$1,515,565
13$1,463,925$1,636,811
14$1,566,399$1,767,755
15$1,676,047$1,909,176
16$1,793,371$2,061,910
17$1,918,906$2,226,863
18$2,053,230$2,405,012
19$2,196,956$2,597,413
20$2,350,743$2,805,206$454,463

Over a period of 10 years, thanks to the magic of compounding equity, the property growing at 8% is now worth an additional $104,355 than it’s poorer brother, a return on investment from the original $15,000 fee of 695%. Over 20 years the property is worth an additional $454,463 more than the inferior property, a return on investment of 3029%.

So although the initial fee is felt in the hip pocket immediately, the value of the Buyers Agent increases with time just like the property itself, and therein lies the magic.

Remember, property investment is a marathon, not a sprint. Pulling a rabbit out of a hat is not our gig, but those prepared to take a long-term view and invest in professional advice will be well rewarded.


By Josh Masters

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