As I’ve written in previous articles, some clients either have a bias for or against a particular brand of lender. When they’re against a brand, the words “never again” are often used. Some of you may recall a couple of articles from this site. One was about destroying a brand and the other was partly about never dealing with a particular bank again.
We all have preconceptions about particular brands despite having no direct previous experience with them.
For example, even though I had no personal experience of ever owning a BMW, I once purchased one (a 2008 model 323) based on what I had heard or read in the motoring media. Based on those sources that had influenced my decision making I thought it would be great to drive, reliable and bring a smile to my face.
My preconceptions of this particular brand could not have been more wrong. It was the worst car I’ve ever owned and I’ve owned some truly awful cars (LC Torana with no steering wheel and half the floor missing and a poo-brown Mazda Capella come to mind). It was so unreliable that turning the ignition key would cause mild anxiety as to whether it would start or not. The list of problems this car had is too long to list here but the cost to repair them ran into the tens of thousands of dollars.
Last week, despite every fibre of my being telling me not to, I purchased an Alfa Romeo. If ever a car required a danger, warning and caution sticker affixed to it. This brand is it.
Which got me thinking about brands again.
I’d briefly owned an Alfa (for a couple of days) thirty-six years ago. When the gear box fell out of it I quickly returned it to the dealer (on a tow truck). I’m hoping they’ve come a long way since then (the Alfa not the dealer). I’ll keep you posted. I had sworn then that I would never again buy another Alfa (indeed any Italian car).
For some of us, this was the era of impressing Italian girls in Leichhardt (Little Italy in Sydney). You had to drive an Italian car (or so we thought). Obviously, personality and character or even looks would not impress them – just an unreliable Italian car.
Fast forward to last month and my favourite car show did a story on the new Alfa Romeo Giulia. Immediately after the test drive the presenter drove into an Alfa dealership with the intention to purchase one. Two days later, despite every mechanic I know giving me advice to the contrary, I was at an Alfa Romeo dealership myself.
Buying an Alfa (or any prestige car for that matter) is not a rational decision. If everyone used rational decision making to buy a car, we’d all be driving Toyotas. If you’re a Toyota owner you can take that as a compliment (if you wish).
But I did try and rationalise it. I noted that the dealer had reduced the price of this particular car (a demonstrator) by $18k (which is important because it’s value will fall like an anvil thrown into a lake attached to the Titanic’s anchor). I noticed that Alfa had a 1.9% leasing deal (which is far better than I can do for my clients) – I didn’t really know about this until I saw the large poster at the dealership if I’m honest.
I also did some research. I asked a guy who, 12 months earlier, had purchased the same car that I was about to purchase about its reliability. He had had no problems. When the dealer threw in an extra 2 years warranty (taking it to 5 years), I just couldn’t not buy this thing (excuse the double negative).
I didn’t care that it didn’t have Apple Carplay or Android Auto (these were on my rational list when I was deciding which car to buy) nor did I care that the shiny new low-profile alloy wheels would be scratched very quickly (and they are). As previously stated I didn’t heed the advice of every mechanic I spoke with who all told me not to buy it. What would they know?
On that, if we listened to mechanics the modern motor vehicle would never have progressed beyond the Model T. I recall buying my first fuel injected car many years ago and a mechanic telling me that these new-fangled fuel injectors might fail. Another told me never to buy a car with an airbag because it may kill you when it deploys (Takata airbags notwithstanding, he was wrong).
I threw caution to the wind. I was like a teenager on a first date – all hormones and damn the consequences.
All of these tid-bits were me rationalising an irrational decision. My brain was trying to convince itself that this was not the worst purchasing decision that I’d ever made.
So why do we do things that are irrational? In the case of the Alfa…just look at it. It’s not a boring BMW 3 Series or Mercedes C Class or Audi A4. Sure, the Audi has Apple Carplay and a fantastic virtual cockpit but it’s the automotive equivalent of Prozac. I just don’t trust the VW Group given their recent blatant dishonesty. I know what you’re thinking. He’s made up his mind about the brand based on media reports. That’s how he purchased the BMW.
…Well yes. What’s your point?
I guess the point I’m making is we act irrationally when we have wanted something badly. Last week I wrote about a client who put themselves under so much financial strain that it almost broke him mentally. He’s still recovering.
Home buyers are the worst at this behaviour. I’m guilty of that irrational exuberance myself when buying a home.
Some of you know what I’m talking about.
You see the home you want – you and your partner fall in love with it – do the research and carefully decide on what your budget is. You then go to the auction and exceed that budget by 20%. You haven’t even factored in the renovations you want to do yet nor the stamp duty payable. Then you’re amazed to see that Sydney home prices are rising by 15% each year…but that’s a whole other article (yes people, it’s not the foreign buyers, it’s us – apologies to the xenophobes whose narrative this doesn’t align with).
Eventually you come to us to help you fund that dream. We tell you that you don’t earn enough to repay that debt. So, after having a series of panic attacks (because you actually paid a deposit) you go to your parents for help.
Here’s a top tip, come to us before you go bidding on the property. We’ll calculate what your maximum borrowing capacity is and get pre-approval to save you a lot of time, money and anxiety.
And if you think you’re a property investor and are getting advice from a “property adviser” who is trying to sell you an investment property 40kms from Brisbane with a 3% net yield and a possibility of capital gain at the wrong end of the longest bull market in recent history, report them to ASIC immediately. They have no licence to be giving you financial advice. In fact, check to see if they have any licence at all – ask them to produce their property credentials (you know like a real estate licence). If you do proceed with them, call me. I have a good used BMW I can sell to you – just kidding that was trashed ages ago.
Just remember that when you place a deposit for a house and land package many kilometres outside BrisVegas, you’re usually buying off the plan. You put down your 10% or 20% deposit and wait for construction to finish. What most people don’t realise is that you do not have credit approval from a bank at this stage.
The bank will value the property on completion. In our recent experience the valuations for these properties have come in significantly under the original purchase price. Now you have a decision to make. Do I walk away from my deposit or do I top it up so that I meet the bank’s LVR threshold?
You decide whether or not this is a good investment decision to make. On the one hand you will lose your deposit. On the other hand you will have to pay more than what the property is actually worth.
At the end of the day, you have to take personal responsibility for your own decisions. If everyone you speak with is telling you not to buy that property and you still do then don’t go looking for someone to blame. Not the property adviser (their job is to sell as many of these properties as they can otherwise they don’t get paid), the financial planner, accountant or broker.
That would be a little like me blaming the car dealer and the mechanics I spoke with for my purchase of the Alfa.
You may argue that you’re not an expert on finance or property. Agreed. But I’m not an expert on cars either. But at least my car has a five year warranty and I know it will depreciate in price. If you’re about to buy an investment that’s about to do the same…
There is no legislation that can be enacted for stupidity.