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Margaret Lomas: "the dodgy spruiker is back"

Posted by on in Consumer Warnings
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I’m extremely worried ...the dodgy spruiker is back, in fine form, and investors, many with memories too short to recall the bad old days of rip-offs and questionable deals, are just begging for their money to be taken, and I am seeing more people being taken advantage of, and a return to a situation we saw in the early 90s.

How can you tell if a deal is dodgy? You can’t, but here are some clues to protect yourself with the following guidelines:: ~

1) Become educated [then] you will know how to spot a dodgy deal at 10 paces: ~

2) Beware of property being marketed by a seminar or telemarketer as these people are paid big commissions: ~

3) Never sign a deal on the day you see it ['caveat emptor', "buyer beware"]: ~

4) Always confirm the value of a property through recent sales to determine actual value ['comparative sales']: ~

5) Be aware that forecasts on income are based on historical figures and do not consider 'future' supply [of new stock flooding the market]: ~

6) Be extra careful of [buying] "off-the-plan": ~

7) Too many people decide to invest and then go looking for a property, and this is why they are so vulnerable

 

No sign of a property bubble, but dodgy spruikers are taking advantage of investors: Margaret Lomas

For the past four years we’ve been waiting for the property bubble to burst. To be honest, it’s been a little like waiting for the end of the world.

When I was a kid, there was a slated date for the end of the world to occur. We knew what it would look like – black thunder clouds, strong winds and then judgement day would be upon us. Depending upon your religious persuasion, a couple of things would happen on that day – you’d either be saved while non-believers everywhere perished, or the entire world would disappear in a fireball. There was also the threat of the nuclear bomb giving us incurable cancer, turning the earth to fallow pasture and causing slow and painful deaths always foreshadowing our everyday existence.

More recently, another end of the world date came and went, but the realone, sometime this December, is still before us, scaring our children and creating lively debate.

For property investors, though, we haven’t given the imminent destruction of the world a second thought, given the more dire situation surrounding the property bubble and its impending bursting. It’s consumed us and dictated our every investing move, and it seems like we are finally sick of it. Property investors have decided that enough is enough, and that if something was ever going to happen, it should have happened by now.

I’m somewhat cheered that there seems to be a renewed confidence in the market, but extremely worried, too. You see, the dodgy spruiker is back, in fine form, and investors, many with memories too short to recall the bad old days of rip-offs and questionable deals, are just begging for their money to be taken.

A recent Sun-Herald investigation established that “aggressive marketing by Heritage Financial Solutions of often overpriced and second-rate Queensland properties has left a trail of burned investors, bankruptcies and broken hearts”. This is by no means a one-off situation, and I am seeing more and more people being taken advantage of, and a return to a situation we saw in the early 90s.

The problem is this – there is no regulation to protect property investors, and therefore literally anyone can call themselves a property investment adviser and get away with it. In doing so they create around them an illusion of expertise and qualification, and usually their websites are so professionally created that this illusion appears real and legitimate.

So what is happening here? Well, it’s quite simple – the spruikers are once again convincing a whole new generation of property investors that they have only their best interests at heart and selling them deals with exceptionally poor underlying assets. And the investors, often time poor and looking for the solution to their retirement income woes, are lapping it up, neglecting due diligence and choosing to place their trust in those who have a big financial incentives to tell them what they want to hear.

How can you tell if a deal is dodgy? You can’t, but here are some clues:

 

  • If there is a middleman between you and the supplier (excluding standard real estate sales), then there is going to be big commissions built in. While the property may be OK, the commissions usually run from around $15,000 up to $40,000. You won’t know about it, as it’s often provided as an after-sales “kick-back” and it doesn’t have to be disclosed – there is no law around property investment advice, and so no disclosure requirement. Such a big commission will, in this subdued environment, take years to recoup and put a dampener on leveraging ability.
  • If the property exists in a state other than where it is being marketed, there has to be a reason why the locals haven’t snapped up the deal.
  • If the person advising you to buy the property is also representing the seller then it is not possible for their advice to be independent – it is biased, and the deal is likely better for the marketer than it is for you.
  • If the company selling the property waxes lyrically about how you are their first concern, it’s likely to be dodgy. It’s fine to sell property as a middleman but not fine to claim that your interests are with the buyer.
  • If there is any kind of incentive scheme, such as a rent guarantee or bonus, something is likely to be up. Property that makes a viable investment can sell itself.

Now is the time to take extra care. If you’d like to invest in property, you can do so safely, but you have to have your eyes open and take responsibility for your own successes and failures. Protect yourself with the following guidelines:

  • Beware of property being marketed by a seminar or telemarketer – such campaigns are expensive, and these people are paid big commissions that are hard to recoup through capital appreciation. Don’t believe claims that commissions aren’t built into the price – this is simply not possible.
  • Never sign a deal on the day you see it. If an extra incentive is offered to do so, be doubly wary!
  • Always confirm the value of a property through recent sales. Only recent sales can determine the actual value.
  • Be aware that forecasts on income are based on historical figures and do not consider future supply.
  • Be extra careful of off-the-plan – especially tax advantaged ones. They are often part of a huge development which will affect future supply and impact on your yields.

Most importantly, become educated before you become an investor. Too many people decide to invest and then go looking for a property, and this is why they are so vulnerable. Get that education under your belt first and then you will know how to spot a dodgy deal at 10 paces.

 

 

 

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Comments

  • doyla66
    doyla66 Monday, 05 November 2012

    Very sage advice. Wish we'd heard it before making those very mistakes Ms Lomas talks about here.

  • Denise
    Denise Monday, 05 November 2012

    Best advice is to stay out of the "Creating Wealth" Industry FULL STOP. Only ones becoming wealthy are promoters. Do not attend seminars - spruikers have continued all this time. They have run all through the Noughties. BFCSA is actively attempting to stop this madness for future generations [email protected]

  • doyla66
    doyla66 Monday, 05 November 2012

    Very good idea to right stay away. The purpose of all 'WEALTH CREATION' events is to make you spend your money before you get out of the room using multiple techniques.
    My general rule: Don't sign ANYTHING until you're sure beyond all doubt. Too easy to get into, too hard to get out of. Even simple contracts, with multiple forms of legal advice, and not involving money, can lead to life chaos, from experience.

  • doyla66
    doyla66 Tuesday, 06 November 2012

    I agree. I always thought, "if these promoters have the knowledge on how to make plenty of money, then why on earth would they want to tell everyone" It's because they can make so much more by dragging others into it and at the end of the day, they win we loose.

  • doyla66
    doyla66 Wednesday, 07 November 2012

    Well, Ali, that's part of their spiritual thinking: giving back to others, sharing the opportunity, helping others to do what they've done. That's why they offer such great value for money intensives with lots of information in folders and other goodies. Not all are ratbags, BTW, but most have been trained from similar schools. Like all things, the tools can be used for good or greed.
    Why do they want to tell everyone: all or any of the following reasons/justifications:
    - they make money from their seminars (especially when a market has been flat)
    - some of them really do like teaching others
    - having others out there talking about them and helping others to be successful is good advertising for the teacher
    - having lots of other people doing (or trying to do) what they did means there is a greater mass of people building "energy" and "mass";
    - enlisting and alliance building through teaching and mentoring can neutralise competition in a particular market
    - they actually believe in what they do and say
    - some are better at teaching than doing what they say

    Remember some spruikers tell people what they DID, after the event, after that market could be depleted and they leave out a lot of information about what really happened (the less ethical ones).
    They sell books, CDs and other merchandise - learned from the rock industry, quite possibly.
    Some become like cults leaders, with hysterical fans, who like to feel like they belong to a particular spruikers team, there to sell as well and the whole kit and kaboodle.
    It's a lot like some of the multilevel marketing companies and early pyramid selling.

    They're not all bad people, at all, but they're very convincing and their teaching techniques are very sophisticated, where their information/methods can be wildly inaccurate, their claims unsubstantiated (or falsely substantiated), their guarantees unreliable (based on the assumption that only a small percentage will want their money back) and some of their strategies only suitable for a narrow group of investors and downright dangerous for the majority who cannot replicate the strategy from cradle to grave on the plan. None of this is obvious to the average person who goes to the first free event just out of curiosity.

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