Danger, Danger, Danger ! ! !

I read a rather disturbing article in the real estate section of last Saturday’s West Australian (July 16) with the headline Aussies Home in on US Market for Bargains.

The article read more like an advertorial promoting the benefits and rewards of purchasing cheap property in the United States and achieving something like a 20% pa return on the investment.

There is a company in town promoting the idea to unsuspecting Aussie investors. The company, ‘Foreclosed American Homes’ is quoted in the article as only dealing in areas offering capital growth, strong rental yields (around 20%) and lower risk.

This is where the alarm bells should be ringing. The first rule of investing is ‘if it sounds too good to be true, it usually is”, and the second is “High reward equals high risk.”

To achieve a high yield on any investment, never mind property which offers typically low yields, there must be a higher than usual degree of risk. Someone offering yields of 20% with low risk should make any reasonable investor doubly cautious.

What do the experts say? …

Property prices in the US have fallen by over 30% since 2008 and Professor Robert Shiller one of the founders of the Case Shiller Index which tracks house prices, is suggesting the property market could decline by a further 10-15% as the US teeters on the edge of a double dip recession.

Many unsuspecting people have lost money on these types of schemes and I would advise you to be very careful if it is something you are considering. At this point I would like to direct you to a piece written by consumer advocate Neil Jenman about the traps and dangers of investing in US property headed American Warning – A Deadly Trap for Aussie Investors

In case you missed the article in the West Australian here it is: Aussies Home in on US Market for Bargains

I’m interested in your thoughts so have your say….

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