Seven warning signs of a questionable property investment


By Adrian Barclay
Friday, 21 June 2013

Baby boomers are guinea pigs in many ways. They are Australia’s first generation to retire on superannuation. It is an experiment designed to relieve the public purse of the burden of Centrelink pensions.

One of the side effects of an experiment is mistakes. And there have been plenty of those. The problem is that trial and error with a lifetime’s worth of earnings isn’t a mistake you’d want to make, and one that many people can’t recover from.

Noel Whittaker said that one of the ways people can be undone, is by attending a free property investment seminar. “The seminars always follow the same pattern,” says Whittaker. It starts by illustrating the growing strain on government budgets along with the pressure of longer life expectancies. Attendees are encouraged to take action to avoid certain poverty. The message is a pity one, rooted in essential truth. It’s the spruiker’s solution to the problem that’s often skew-whiff.

“The killer blow is that the spruiker then convinces the victim that the best property for them is one that the spruiker, or its associates, will build on their behalf,” says Whittaker.

Warning signs abound with dodgy property investments. Although, obviously not all investments touted at seminars are sour, Noel Whittaker has seven warning signs that you’re dealing with a questionable investment:

1. You haven’t initiated the contact

Whether it be an offer or phone call for a “free” property seminar, you usually won’t have sought out the contact, they’ll have found you. Once you’re in, they’ll draw you in and ramp up the pressure for the sale.

2. They claim they are the only one who can find the deal for you

The spruiker’s aim is to sell you a property at well above its value so they can make a large profit for themselves. Contrast this with the common trait of successful property investors — who almost always search for properties themselves, or through a buyer’s agent they’ve contacted.

3. A building contract is involved

From the outset, you’ll be told that having a building contract in place is great as you won’t have to pay stamp duty costs. But this can give a spruiker the chance to extract more profit out of you by loading the building costs with their own commissions and profits.

4. They manage all the aspects of the process

A dodgy investment will have the one salesman who has a solicitor, mortgage broker, builder and property manager all working for him. This way it is hermetically-sealed environment with no independent advice reaching the client.

5. The property is in a different state

Your own backyard is the one you’re likely to know best. When you’re taken from your knowledge zone, you rely on the information provided by property spruiker. This is where their powers of persuasion (and deception) can paper-over a dodgy investment.

6. Your property is used as security

A spruiker will try to get you to use your own property as security for any home loan. This is a sleight of hand which is an attempt to avoid you getting a valuation for the investment property (which clearly won’t be worth nearly what you’re told it is — or will be when finished). Valuations are required when the investment property itself is used as security for a home loan.

7. A flashy website with plenty of testimonials

Good looking websites create trust, and no one knows this better than a spruiker. Expect their websites to be flash, with plenty of success-story testimonials.

Adrian Barclay is a finance journalist from Finder.com.au

About Bernie Kroczek

Bernie Kroczek has been in real estate for over 26 years. He prides himself on offering an alternative to the usual way of doing real estate. He also likes to offer plenty of free information to help people make the best decision when buying or selling property.

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