Beware of property spruikers: How to spot a property fad 

I define a property spruiker is someone who promotes or recommends property investments that are unlikely to achieve adequate returns, primarily to serve their own financial interests rather than the investor’s.  

As with most things, the nuance matters. Most professionals in the property industry are paid a commission when a property is purchased, so there’s always a perceived conflict of interest. 

However, the existence of a commission does not automatically mean the advice is biased. There are excellent property professionals who are prepared to advise a client not to buy, even if it means they won’t get paid. That’s the real test. For advice to be trustworthy, it must be based solely on what’s in the investor’s best interests. 

There have always been, and always will be, property spruikers. That won’t change. Therefore, it’s critical that investors learn to distinguish between trends or fads fuelled by spruikers, and sustainable, evidence-based investment strategies. 

Can you make money from a property fad?  

Yes. If you buy in early and sell at the peak, you can absolutely do well. Some investors have pulled that off. 

But there are two big challenges. First, the costs of buying and selling such as stamp duty, agent fees, and tax, eat into your profits. Second, you need to time your exit and your entry into the next opportunity perfectly. Doing that consistently is incredibly difficult. 

As I shared in last week’s blog, the real magic of property investing lies in how growth compounds over decades. I have previously compared buy-and-hold strategies with short-term ones. No prizes for guessing which one comes out ahead mathematically. 

Here are some of the property fads from the past few decades    

When I started my business back in 2002 (!), the property fad of the time was positive cash flow property. Former accountant, Steve McKnight wrote a bestselling book, From 0 to 130 Properties in 3.5 Years, which sold over 160,000 copies. The premise was simple: buy cheap residential properties in small towns, typically between $50,000 and $100,000, that delivered high rental yields, enough to cover all costs including loan repayments. On paper, you could keep buying more and more. 

The book’s success led thousands of investors to follow the strategy, and properties in those regional locations surged in value. However, while those areas enjoyed a short-term boom, their long-term performance has lagged. Over the past 20 years, their growth has underperformed capital city averages by 1.5% to 2% p.a. 

To be fair, I doubt Steve ever imagined the scale of influence his book would have. 

After 2007, the next trend was buying distressed US residential property after the GFC crash, where prices had fallen almost 30%. Now failed, Dixon Advisory even launched the US Masters Residential Property Fund (URF) in 2011 to capitalise on this trend. It ended in disaster – investors lost between 60% and 90% of their capital. 

Then came the mining town boom in the early 2010s. In Investopoly, I mention a property in Moranbah, Queensland that sold for $850,000 in 2012, thanks to inflated leases from mining companies. By 2016, it resold for $300,000. 

Around the same time, many property spruikers in Sydney and Melbourne were pushing off-the-plan apartments in Brisbane. These often sold for around $500,000, but within a few years, owners would be lucky to get $370,000 for them. Only recently, more than 15 years later, have some of those apartments recovered to their original sale price, thanks to Brisbane’s recent apartment rebound. 

How do you spot a property fad or spruiker?  

As you can probably tell, I have seen my fair share of property fads over the years. And I have consistently voiced my concerns about each one. In fact, the very first article I had published in a national magazine back in 2003, was about the pitfalls of positive cash flow investing. 

Looking back, each of these fads tend to share a few common traits: 

Fast money is the hook  

Most people do not enjoy delayed gratification, so it’s no surprise that “get rich quick” strategies often grab a lot of attention. But one of my favourite quotes, credited to Howard Schultz, the founder of Starbucks is: “Short-term profit never drives long-term value.” 

And that’s really the whole point of investing for retirement. It’s about building long-term value. So, by definition, chasing short-term profits usually works against that goal. 

Therefore, if their investment pitch focuses solely on short-term returns, that’s another red flag. Long-term investors should always be focused on long-term returns, not quick wins. 

Promoters experience huge business growth  

It’s very difficult to scale an advice business quickly without compromising quality. The biggest constraint is almost always finding highly experienced, high-quality people. Therefore, if a business has expanded rapidly in a short period of time, that should be a red flag. 

The only way to grow that fast is usually by lowering hiring standards or systemising the advice process so heavily that it strips out nuance, which can lead to generic, cookie-cutter advice. At that point, you must question whether the businesses core competency is advice… or salesmanship. 

And if their job involves sourcing investments, like a buyer’s agent, for example, then rapid growth usually means one of two things: they must expand into geographical markets they don’t know as well, or they must lower the investment quality bar to keep up with demand. Neither is ideal. 

Absence of long-term evidence  

Some property investors get caught up in short-term thinking. Momentum over a few years can spark investor FOMO, and property spruikers know it. They often market results based on the past 2–5 years. Of course, making money is the goal of investing, so short-term returns aren’t “bad” in themselves. The problem is they don’t tell you much about what’s likely to happen over the long term. 

Take the US share market as an example. Over the past decade, just 10 large-cap stocks have driven most of the S&P 500’s returns. By many measures, the market is now dangerously overvalued, trading at levels similar to the lead-up to the tech wreck in early 2000’s. While recent returns might excite some investors and tempt them in, the reality is they have probably already missed the boat. And the weight of evidence suggests the next decade’s S&P 500’s returns are more likely to be below average. 

Property is a long game. To benefit from compounding capital growth, you need to hold for decades. That’s why property investors should be obsessed with long-term return expectations. Unfortunately, many spruikers distract attention with shiny short-term numbers, often because there’s no reliable long-term performance history to point to. 

Unrealistic return expectations  

Benchmarking future expected returns is one of the best ways to spot a property spruiker. 

Over the past 45 years, both property and share markets have delivered around 10% p.a. on average. Property has typically provided capital growth of 7% to 7.5% per year, plus a gross rental yield of 2.5% to 3.5% p.a. The Australian share market has returned 4.5% p.a. in income and 5.5% p.a. in growth. International shares have yielded 2% to 2.5% in income, plus around 8% p.a. in growth. These share market returns are based on investing in low-cost, highly diversified, rule-based index funds – a proven and reliable investment strategy. 

As I write this blog, I’m looking at a LinkedIn post from a commercial property buyer’s agent promoting an industrial property in regional NSW, claiming a total return of 12% p.a., made up of 5.5% rental yield and 6.5% capital growth! While anything is possible, returns at this level are highly unlikely, especially in a regional location.  

In my view, expecting a total long-term return above 10% p.a. for an investment-grade asset is unrealistic. And if the asset isn’t investment-grade, your return expectations should be set even lower. 

Benchmarking returns against asset quality is crucial for setting realistic future expectations. 

A handful of businesses make the market  

There have been many instances where advisory firms have artificially created a market to drive short-term returns, particularly in more affordable, secondary locations. 

What happens is they identify a location and start buying property. Before long, they become the dominant buyer in that area. As a result, vendors’ price expectations rise, and prices follow suit. Local real estate agents use these transactions to generate new listings, and the cycle repeats. After a while, the firm can use this short-term growth data to justify their investment recommendations. 

It’s crucial to buy property in areas that attract multifaceted buyer demand. In other words, the demand should not be overly reliant on one type of buyer, like interstate investors. If the location and property type are fundamentally sound, there should be more owner-occupiers than investors (this applies to both residential and commercial properties). 

Investors are always happy after they invest 

One thing I have noticed is that some firms, despite being in business for less than a decade, quickly amass an abundance of 5-star Google reviews. I know I’ll probably come across as ultra-cynical, but how on earth could they accumulate so many reviews in such a short time? Their job is to buy good long-term investments, so realistically, no customer should be fully satisfied yet as there has not been enough time to prove the long-term results. 

There could be a few factors at play here. It’s possible that customers have experienced short-term gains, which might prompt them to leave a glowing review, and that’s understandable. Maybe the firm even incentivises customers to post 5-star ratings. Confirmation bias is also likely a factor; once we make an investment, there’s a natural tendency to convince ourselves it was a smart decision because living with uncertainty or holding the opposite belief can be painful. 

In my view, the most credible reviews come from long-term clients. As the saying goes, the proof isn’t in the pudding, it’s in the eating! 

Current and recent property fads  

Over the past five years, we have seen many investors lose significant amounts of money after being sold the idea of buying a property development site. The pitch is simple: buy a property with a large plot of land, build a few townhouses, and make a fortune. The problem is, developing that property was never financially viable – the buyer’s agent sold them a dud. As American billionaire, Mark Cuban says, “Never take advice from someone who doesn’t have to live with the consequences.” The buyer’s agent sells the idea, gets paid their commission, and moves on, leaving the client stuck a dud property which they must sell at a loss. We have seen many situations like this.  

Another recent property trend is buying commercial property – almost any commercial property, anywhere! It’s easy to see why this idea has gained popularity. Tighter borrowing capacity pushed investors into more affordable residential markets like Brisbane, Adelaide, Perth, and regional areas. However, these markets have boomed over the last five years, so they are no longer “cheap.” That’s why the idea of buying commercial property, with higher yields and tenants covering most of the expenses, seems appealing. However, a few agencies, which are excellent at marketing themselves, are now buying a high volume of property. Buyer beware! 

Don’t get distracted by shiny objects! 

The key to building long-term wealth is repeatable success. Listen to people who have built wealth over decades, who have weathered many cycles, and who have seen it all: taxes, rule changes, new products, market fluctuations, and more.  

There will always be property fads and property spruikers. The goal for long-term investors is to avoid both.