Property investor tips - pay for independent advice
Recent media attention has highlighted the dire situation of 'mum and dad' investors who have lost life savings through failed investment schemes and also of numerous professional investors and lending organisations (including finance companies, mortgage trusts and high net worth individuals) burdened with toxic debt and other problems.
The Bernard Madoff scandal in the US and the (perversely named) 'Blue Chip Investments' fiasco in New Zealand epitomize for me the Jekyll and Hyde personality of so many investors. The very same investors who are quite happy to risk their entire life savings by failing to read the legal fine print before signing a contract, or by not seeking quality independent advice, probably wouldn't dream of leaving a room in their own house without first turning off the light so they can save a few cents!
Contradictory? Yes - but sadly true.
Although 'raised with a plastic spoon in my mouth' and educated to empathize with the less fortunate - I am really struggling to feel any sympathy for the Blue Chip investors who in reality chased 'unreal' returns and were naive enough to hand over their hard earned money without taking independent professional advice. Independent advice doesn't mean advice from the peddler of the investment product. The army of snake-oil salesman who were flogging property-backed investment products in finance companies, property companies and mortgage trusts were paid by the promoters of the investment products. Is that independent? I think not. Advice is something you seek, it is specific and you pay for it yourself.
Being a 'tight-arse' with money is OK up to the point where you risk your life savings or family inheritance by not paying for good advice. Beyond that point you become a 'silly-arse'!
And...whatever happened to the notion of 'personal responsibility'? Polish poet Stanislaw Lec said that "You can close your eyes to reality but not to memories". It was just 10 years ago when we all witnessed the same lemming-like rush by investors to capture unreal market returns and which ended (after more than ample warning) with the same short sharp market implosion and loss of investor confidence. It's not like history hasn't provided us with plenty of investment lessons from which to learn. Perhaps the real confidence trick is not one which has been played on an unsuspecting public by unscrupulous con artists - but rather one that has been played by a greedy investing public on itself (through memory loss)!
As for the finance companies, the mortgage trusts and other money lenders who are now saddled with the task of off-loading mountains of bad debt...I think they got what they asked for in most cases and as (supposedly) 'professional' lenders they have absolutely zero excuse.
Having worked in the property industry (in Australia, New Zealand and England) on the opposite side to financiers, I have often been amazed at how ready they are to part with money (which in many cases is not even their own as they are public listed companies).
Many executives working for lenders are happy to rely on something as simple as a (backward-looking) property valuation for funding a project and seem to exhibit little knowledge of (or ignore) the risk factors affecting major development projects. They seem especially eager to lend money against projects associated with previously failed or bankrupted developers...perhaps because in some cases the lenders themselves were directors of previously failed businesses!
Having also worked in the SME sector it is apparent that few companies even know what their weighted average cost of capital is or how to calculate this or apply it when assessing investment alternatives. Yet these and a host of other analysis tools have been around for years and are taught at every university. 30 years ago when I started my career at with a well-respected international construction company I received on-the-job training in risk/sensitivity analysis and how to assess a project against a minimum internal rate of return.
Incredibly I have never seen a proper risk or discounted cash flow analysis applied by any lender I have dealt with to a development project they are assessing. I try to convince myself that they must do this kind of careful analysis somewhere behind the scenes - but the number of projects that seem to end in receiverships (many promoted by the same disqualified directors and bankrupted developers from the decade before) belies my faith.
If as an investor you haven't taken good independent professional advice, or you choose to ignore lessons from the past, or you choose not to apply best risk analysis practice and you get just a little too greedy - then don't point the finger or try to shift the blame to someone else.
Both 'mum and dad' and professional investors need to take a hard look in the mirror and take some personal responsibility for the situation they now find themselves in. If we don't learn from history - history will repeat.
© Copyright Nigel Mayson. All rights reserved.
The Bernard Madoff scandal in the US and the (perversely named) 'Blue Chip Investments' fiasco in New Zealand epitomize for me the Jekyll and Hyde personality of so many investors. The very same investors who are quite happy to risk their entire life savings by failing to read the legal fine print before signing a contract, or by not seeking quality independent advice, probably wouldn't dream of leaving a room in their own house without first turning off the light so they can save a few cents!
Contradictory? Yes - but sadly true.
Although 'raised with a plastic spoon in my mouth' and educated to empathize with the less fortunate - I am really struggling to feel any sympathy for the Blue Chip investors who in reality chased 'unreal' returns and were naive enough to hand over their hard earned money without taking independent professional advice. Independent advice doesn't mean advice from the peddler of the investment product. The army of snake-oil salesman who were flogging property-backed investment products in finance companies, property companies and mortgage trusts were paid by the promoters of the investment products. Is that independent? I think not. Advice is something you seek, it is specific and you pay for it yourself.
Being a 'tight-arse' with money is OK up to the point where you risk your life savings or family inheritance by not paying for good advice. Beyond that point you become a 'silly-arse'!
And...whatever happened to the notion of 'personal responsibility'? Polish poet Stanislaw Lec said that "You can close your eyes to reality but not to memories". It was just 10 years ago when we all witnessed the same lemming-like rush by investors to capture unreal market returns and which ended (after more than ample warning) with the same short sharp market implosion and loss of investor confidence. It's not like history hasn't provided us with plenty of investment lessons from which to learn. Perhaps the real confidence trick is not one which has been played on an unsuspecting public by unscrupulous con artists - but rather one that has been played by a greedy investing public on itself (through memory loss)!
As for the finance companies, the mortgage trusts and other money lenders who are now saddled with the task of off-loading mountains of bad debt...I think they got what they asked for in most cases and as (supposedly) 'professional' lenders they have absolutely zero excuse.
Having worked in the property industry (in Australia, New Zealand and England) on the opposite side to financiers, I have often been amazed at how ready they are to part with money (which in many cases is not even their own as they are public listed companies).
Many executives working for lenders are happy to rely on something as simple as a (backward-looking) property valuation for funding a project and seem to exhibit little knowledge of (or ignore) the risk factors affecting major development projects. They seem especially eager to lend money against projects associated with previously failed or bankrupted developers...perhaps because in some cases the lenders themselves were directors of previously failed businesses!
Having also worked in the SME sector it is apparent that few companies even know what their weighted average cost of capital is or how to calculate this or apply it when assessing investment alternatives. Yet these and a host of other analysis tools have been around for years and are taught at every university. 30 years ago when I started my career at with a well-respected international construction company I received on-the-job training in risk/sensitivity analysis and how to assess a project against a minimum internal rate of return.
Incredibly I have never seen a proper risk or discounted cash flow analysis applied by any lender I have dealt with to a development project they are assessing. I try to convince myself that they must do this kind of careful analysis somewhere behind the scenes - but the number of projects that seem to end in receiverships (many promoted by the same disqualified directors and bankrupted developers from the decade before) belies my faith.
If as an investor you haven't taken good independent professional advice, or you choose to ignore lessons from the past, or you choose not to apply best risk analysis practice and you get just a little too greedy - then don't point the finger or try to shift the blame to someone else.
Both 'mum and dad' and professional investors need to take a hard look in the mirror and take some personal responsibility for the situation they now find themselves in. If we don't learn from history - history will repeat.
© Copyright Nigel Mayson. All rights reserved.
Source...