Elizabeth Kerr questions if property mentoring companies are a waste of money - or could they in fact boost your money machine?

Elizabeth Kerr questions if property mentoring companies are a waste of money - or could they in fact boost your money machine?

By Elizabeth Kerr

This week's column is inspired by an article I read in this month's New Zealand Property Investor magazine (page 34).

 It won't apply to everyone, but if property forms part of your money machine, I thought it prudent to touch on it sooner rather than later.When the property market is going well there is a lot of money to be made by everyone involved, and most recently, property mentors are getting in on the action too.

Are these mentoring companies just here to take your money? Or could they actually   boost your money machine ?

And how can you tell if they have your best interests at heart, or are just out to make a buck?

My research shows that not all property investment mentoring companies are created equal. They generally fall into one of the three categories below:

  1. Web based coaching: These companies educate you through webinars/teleconferences that you can log into from home.  This type of mentoring is great if you live in the wop-wops and can’t get to monthly meetings.  Most have "unlimited" email and telephone support from coaches help you on your journey - although "unlimited" really needs to be defined.  Some companies may offer you properties to purchase from them. The downside of this mentoring approach is that you have to be self-motivated to participate and that you miss out on networking with other investors to really learn and compare investment journeys and challenges.
  2. The ‘One Man Band’ coaching: This type of coaching is usually just one person who has a passion for property, has experienced some property success, and gets a kick out of helping people.   The downside is, if they get hit by a bus then your coaching relationship and any investment you have made comes to an end.  Also, if they are super-busy you might not get their best efforts as they spread themselves thinly between so many of their clients.  Additionally, these sorts of coaches are usually only as good as their own experience or their own purchases.  The last property boom brought us lots of these types of mentors; one of whom purportedly declared bankruptcy and left the country when caught with his financial pants down in the Global Financial Crisis.
  3. The One Stop Shop: These companies are slick and backed by good sales processes offering everything except giving you a kiss and tucking you in at night. They hold meetings, offer email support, one on one coaching, and lifetime membership. They are typically affiliated to an investment broker to help you with your finance and insurance, and can recommend legal support. They may also source properties wholesale, which they can sell to you at market discounts. Not only do you have someone to help you through the theory of property investment they conveniently have properties ready to sell you as well. The downside may be the initial fee, which can range between $8k-$20k, depending on which company you go for - and they tend to operate only in the main centres.

As they say a smart person hires people smarter than themselves and I don’t see why this should be any different. After all, you are investing hundreds of thousands of dollars, so having someone who has done this a few times over can only be helpful in my opinion.

But you might want to think about my personal thoughts below before jumping into bed with any of them.

"Are they Authorised Financial Advisors?"

Property investment advice is not considered financial planning, therefore is not covered by the same AFA guidelines that financial planners are. Whilst they might say that they have your individual goals in the forefront of their intentions; in reality they can disguise any old box of Weet-Bix as a great property investment for you.  

Therefore I would look for mentors that are affiliated with a mortgage broker who is an Authorised Financial Advisor and therefore would have to declare an investment fit for your individual financial goal and current circumstances.

"Aren’t property mentors just glorified salespeople?"

Yes and No.

Yes, they are there to sell a service and make some money so that they can keep a roof over their head just like everybody else.   But it’s hard to sell property investment without passion and experience and this is where I think the power is. Educating someone about property is not the same as selling whiteware or used cars.

"What about the fees...Elizabeth, I thought you were about saving money?"

One way to look at this point is that a bad property investment will cost you far more than any mentoring fees would. You may not have all of the cash up front to pay for their fee, but some companies accept it in instalments and you may be able to finance the fee inside your next property purchase with them.  Additionally, having a mortgage broker who specialises in investments look over your current mortgage arrangements and equity will find a few thousand dollars worth of savings to comfortably offset the fee.

"Are there cheaper alternatives?"

Yes, you could read all the books, but I don’t know a single book that explains what to do in a market like ours right now.  Most of the gems were written pre GFC; nevertheless property is not rocket science, so you could piece it all together from reading. 

Additionally, there are some great networking events up and down the country provided by your local property investor association.  I attended my local one for a bit and heard some good and bad presentations.  If you are the type of person that can really work a room and separate the experienced investors from the dreamers then you might find some success here.

“What if they take advantage of me?" 

Look, no one forces you to buy a property – you sign the documents, therefore you need to be totally comfortable with the decision.  You are going to need your own lawyer to help you, so it’s worth letting them know you are using a mentor and encourage your lawyer to ask enough questions of you to make sure you are not being taken for a ride.  A good lawyer should do this as a matter of course anyway.  

“I’m worried I am going to be ripped off…”

If you are worried that you are going to be ripped off, then do your research and speak to as many mentoring companies as possible and ask to speak to some of their clients. You could get a trusted friend involved and ask them to come along to the meetings to be your conscience if you’re worried that you are going to get swept away in a sales pitch.

All mentoring companies should have a trial period where you can experience some aspects of what they offer without having to pay a fee.  I would take this further by discussing a money-back guarantee, how often have clients taken this up, and under what circumstances this would not be applicable?  Get all of this in writing before you hand over any money!  

MY VERDICT

Property mentoring gets a bad rap in the press sometimes. But as they say, two heads are better than one, so having someone smart about the commercials of property investment on your side can only be a good thing.  However, it is important that you are very clear with them about your money machine goals and what you want to achieve so that they can tailor their service to you.

Whatever reasons you have for exploring property mentoring the most important thing to remember is that you are in the driving seat, not your mentor!  You still have to apply yourself to learning and managing your finances responsibly and it should go without saying that you should not sign anything that you do not understand.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I've enjoyed free siminars etc but never got my wallet out for this sort of thing.  The ones I went to involved large smiley faces drawn next to a variety of 'housing market factors', so basically talking up the property market.  But I will admit, he was bang on the money predicting in 2010-2011 the price rises that followed. (This was steve goodey, who started off selling pizzas, then TVs/stereos, then bought a block of flats in lower hutt and never looked back).
I'd rather pay infometrics money for an indepth report on a market of interest, as they access info and have phd qualified economists who offer something that isn't so easily figured out yourself on the weekends

Thanks for reminding me Simon.  I forgot to include infometrics in my column above.  You are right you can purchase information to help you with a particular property purhcase.
What infometrics would you look to if you are speculating?

They do an annual residential property report, made it free to public for a few years as QBE paid for it and obviously didn't mind sharing. They predicted the price rises in Auckland too.

Also do regional reports which i would consider if i wanted to buy in a new region that I'm not clued up in already.

Last report in 2011 here:

https://www.google.co.nz/url?sa=t&source=web&rct=j&ei=osXiVPmKDobn8AXI64...

Underestimated auck saying 4.9% yoy growth over 3 years, probably been 10%.

"When the property market is going well there is a lot of money to be made by everyone involved, and most recently, property mentors are getting in on the action too."

Pretty also guarantee you should be paying tax on the resale:  What is your long term plan for the property?   please answer with the options & examples.

Like any advisor industrty.  Good consultants can help - but note they've spotted that there's a better deal regularly selling services  than investing in the target asset themselves.....  Ask what skills are they actually bringing to the table.

You also need to have enough skill in which ever field it is to check their reports to see if it lines up with your plan.

Morning Cowboy.... what do you mean by "Pretty also guarantee you should be paying tax on the resale:  What is your long term plan for the property?   please answer with the options & examples"??  I've lost your train of thought there....

Why is the buyer buying the property?

There are a lot of advisors about. Sometimes it's somebody who finds people on the internet and tries to sell you a sure fire method for making zillions on the stock market.
The problem with that is plain. If there is zillions to be made, why aren't these people doing that. Rather than trying to sell a dubious product on how to do it.
Similarly, why would a property finder, find the great property, and then sell it to you for a fee. If it was so great a deal, why would they pass it on.
And - Remember Bluechip.

.... or zillions at the casino.
I hear your question and for the most part entirely agree.... but aren't the skills for being a good property finder and having the money to invest in property two different things?   To me it's the same as asking why all accountants aren't rolling in money and retired by 35 seeing as they should know how to manage it the best?

Exactly...which tells you straight away that accountants aren't money makers but counters.

making money from scratch/low income and making decent returns from larger amounts of money & credit are quite different things.

Not necessary..maybe they are just human....they just want more and more!

Reading this, two names come to mind; Rich Mastery and Phil Jones!

Yes... where did they dissapear to in the end??

Bankrupt and receivership I believe. I went to one of those seminar years ago, I came out with this thought; if they, the property mentors are on to a good thing why tell eveyone else!

I was suckered in and went to the three day property course. Think I ended up forking out approx $5k for memory plus I bought some of the extras such as the pretty average software etc for calculating cashflow. However, I did manage to give up smoking due to Kurek Ashley also attending. It was a pretty intense 3 days of brainwashing which even included dancing on chairs at stupid o clock in the morning! **Cringe** However, it did teach me to budget early on in life albeit an expensive way to find out!

3 days - wow that sounds intense!!!   Good on you for giving up smoking that is epic and so i think that was three days and $5k well spent !!!

In the "one stop shop" section, "They may also source properties wholesale, which they can sell to you at market discounts".
It eludes me how this "wholesale" could possibly exist in property, the vendor and the agent they employ, is clearly going to want to maximize the sale price regardless of who the buyer may be. Clearly what happens here is that an inflated value is presented first to allow "discount" to the real value. If you accept any valuation of any property without doing your own homework you become that money machine for others. Blue chip gets mentioned again............

My impression is that there is no agent involved.  For example they may deal directly with a developer who needs to sell a certain number of apartments in a complex before they can move onto the next stage.   So with no agents the vendor can afford to sell cheaper ('a bird in the hand worth more than in the bush' and all that) and the wholesaler could afford to add their margin for their fair work and then offer it at a discount to their clients who would get it cheaper than if they tried to buy it retail off an agent.  It comes accross as win win win for all accept an agent who totally misses out on any of that stock.  I don't know this for certain so I may be wrong ........

The key is your own independent valuation, not rely on theirs...seen it countless times people paying based on an optimistic valuation in these situations...that is where the money is made.

For reasons I have yet to understand, property "mentors" are unregulated.   They basically teach you how to borrow, borrow and borrow again because property investment is a helluva sure thing.   They will make you feel like a big shot, owning multiple properties.  Look at *you* Rockerfeller!   You are taking all of the risk - and if it goes bad, you are on your own.    
If a mortgage broker is an AFA, I don't think they are going to have in their disclosure document anything to do with property seminars or mentors.  They may know people who they consider to be trustworthy - but if they're not - again, you are on your own and the AFA's dispute resolution scheme will not be available.
Elizabeth, I think you play down or underestimate the persuasiveness of the people in this game.  I think that engaging with them even at the fact-finding research level you suggest - is a risk.