I’m keeping on with the animal theme in The Daily Reckoning this week. It comes as I finalise a special report I’ve put together, which I’ll release tomorrow.
I’ll introduce you to another special kind of creature. One that can do extraordinary things. This little guy, who you’ll meet tomorrow, has many of the same abilities that I look for in small-cap stocks.
When these stocks perform like this super-creature, they can also do extraordinary things — and hopefully provide multi-bagger returns to investors.
But you’ll find out much more tomorrow.
Today I’m exploring the world of sharks.
I was talking to a friend who recently bought a house. It was his first time, so he was kind of new to it all. He couldn’t believe how the utterly useless the agents were in the process.
He had seen a place early on. He had a look at it and left. Three days passed before the agent called to ask what he thought. He didn’t end up liking it. So the agent said ‘fair enough’ and promptly hung up.
He found another place he wanted to see with the same agent. He called to arrange a viewing. The agent for the property was busy. They would call him back. Three days later he gets a call back.
In the meantime, he’d seen another property, which he bought. Imagine the seller of the second house if they ever found out how lazy their agent was?
I call agents like this ‘Wobbegongs’.
Wobbegongs are bottom-dwelling sharks. They spend almost all their time just relaxing on the sea floor, doing nothing. The way they hunt and eat is to simply catch smaller fish that just happen to swim too close. They don’t actively do anything.
Lazy real estate agents doing nothing won’t kill you. But they might slow you down so much that it’s almost like a slow death. They care about nothing, not buyers or sellers — they’re the worst kind of shark.
On the other hand I was talking to another friend’s father at a BBQ recently. We got chatting about property purchases in Spain. As you’d expect, Spanish property is a bargain at the moment. It has been for about eight years.
He was looking at getting a holiday house over there. Why not I say? Cheap property, good weather, great food and drink.
Anyway, he went over to an area called Javea. He was there for a week-long trip to go house hunting. He’d arranged to meet with an agent that specialises in Spanish property for British. He arrived at their office, a beautiful Spanish Villa. They gave him the big spiel about being trustworthy, reputable and looking after their clients.
Red flags galore if you ask me. Anyone that has to preface their corporate spiel with ‘we are trustworthy’ usually isn’t. This is even more relevant when you remember that agents work both sides of the transaction.
The agents drove him around for the day, showed him five properties based on his ‘must haves’. The explained some of the prices, €190,000, €240,000, €320,000 — the buyer’s max budget was €350,000.
On every property he asked if the price was negotiable. Every time the agent said not really, maybe 5% if they were lucky, as the prices had already been reduced.
The next day he was walking along the ‘Arenal’ beach in Javea. He stuck his head in the window of a couple of real estate agents along the way. He noticed two properties that he’d seen the day before.
Except these two properties were listed in the window at €210,000 and €280,000. That can’t be right — yesterday they were €240,000 and €320,000.
He asked inside about the properties. He said are those prices correct. The agent looked at him for a moment and said, ‘You’ve been on a trip with another agent, haven’t you?’
One 20-minute conversation later, he found out some of the agents that operate in the area will sucker in buyers with the nice office, the luxury treatment, and then sting them 10%–20% more than what the buyers are really willing to sell for.
Agents like this I call ‘Makos’.
These kinds of agents aren’t the most deadly sharks in the world. But they can be found all over the place — hot and cold temperatures. While not the biggest, when they attack they are the most aggressive shark there is.
They are also the fastest sharks in existence.
Agents like this move quick to strike. They try to get the deal done with aggression and cunning. They care little for anything that isn’t their prey. They are Makos.
The good news is there’s a kind of shark in real estate waters that you want to come across: The Whale Shark.
The Whale Shark is huge. It’s docile, almost robotic in its nature. It’s not aggressive. It’s also patient and kind to divers. It will go the extra mile when it needs to. It’s the kind of shark you want to come across.
But in the real world where can you find the whale shark?
Ever heard of Purplebricks? They just set up shop in Australia. They’re well established here in the UK. They help to match sellers with the perfect ‘local expert’. They then help manage the whole process through a user friendly web portal.
It allows the seller control over the whole process. They do it far cheaper than other real estate sharks. It also helps the buyer to communicate directly with the seller. This eliminates confusion, delays and dishonesty from aggressive sharks.
Purplebricks is the kind of company that leverages technology to benefit the end user. They use the online world to make buying and selling houses easier for everyone.
Purplebricks is an example of a good shark. The one you want to come across. It’s one of the major disruptors in the Aussie real estate market.
The good news is that more sharks are likely to follow.
Buymyplace.com.au [ASX:BMP] is another recent entry. You can sell your place using their online platform. You can do it all yourself. No shark gets a slice of your asset in commission. This is the kind of company that is changing an industry well overdue for change.
Buymyplace.com.au is listed on the ASX. It’s not really a small-cap. More like a microcap, with just a $10 million market capitalisation. But it’s the kind of company that has the potential to go from micro, to small, to maybe even — one day — a large cap company.
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