How to Avoid Property Investment Scams
You receive a pamphlet in your mailbox that promises the world. “Guaranteed income,” it assures you. “Risk-free investment.” Or even, “Become a millionaire in 3 years.”
Property investment scams are on the rise in Australia, with perpetrators continuing to find new ways to get around the law and avoid prosecution. Scams can be highly sophisticated and convincing, and the ramifications devastating with inexperienced buyers losing their life savings.
The trap of clever marketing campaigns can be extremely tempting, so here are some typical scams to watch out for:
The Property Investment Seminar
You’re invited to a seminar that promises to share secret wealth creating tips. They lure you in with ‘get rich quick’ schemes or exclusive deals. The problem is, most of the time these types of seminars have an ulterior agenda. Perhaps they charge an attendance fee or they’re promoting the sales of a report or book. Often the seminar is a guise to sell properties on behalf of developers.
They’re highly sophisticated operations: everything conveniently available to tempt inexperienced investors to buy on-the-spot. Mortgage brokers and financial advisors are ready and waiting in-house to assess your financial situation and approve your loan. Contracts are already drawn-up. They convince you they are selling the deal of a lifetime. You’re pressured to make decisions instantly, or risk losing out.
But the truth is, properties sold this way are often priced well above their worth.
House and land package scams
With entire new suburbs mushrooming across Australia, house and land packages are big business. Often pushed through investment seminars or savvy marketing campaigns, packages can be sold well above their real market value.
In some cases, opportunistic companies get a discounted rate when they buy bulk blocks of land from a developer. They hire cheap construction workers and builders, often producing poor quality houses, and flog them out at inflated prices.
You may not realise you’ve been scammed until years later when the value of your property is still below your purchase price, even though the market has climbed.
Buying a property off-the-plan means signing a contract to purchase before the property has been built. There are many incentives including tax benefits, reduced stamp duty and cheaper-than-market prices.
But like all investments, there are also risks. For example, savings in stamp duty and reduced buying prices can be outweighed by hidden fees and commissions. You can’t be assured of the quality of the building and the finished product can be very different from the initial sales pitch. What’s more, the contract is not usually finalised until the building has been completed. If you paid a large deposit and works are delayed, you could be out of pocket and paying interest on funds borrowed well before your property can generate an income.
Warning Signs to Stay Clear!
- Unrealistic promises of above average rent
- A guarantee of rental returns
- Act now or limited, one-time only offers
- Discounts for buying off-the-plan
- Get rich quick promises
- Assurances of strong capital growth
- Loan offers to cover investment costs
- Educational seminars that don’t highlight the risks as well as the advantages of investing in property
- Pressure to sign contracts or make a commitment on the spot.
How to avoid being scammed
- Seek an independent valuation from a valuer not connected to the company selling the property. Qualified, independent valuers can be hired for a fee, and if the property purchase is an investment, the expense is tax deductible.
- Insist on using an independent solicitor or conveyancer with no connections to the company selling the property.
- Never buy on the spot. Always take time to evaluate the information provided to you so that you can make an informed decision when you are ready. Understand the market you are buying within and make sure the sales price isn’t over-inflated.
- Understand a promotor’s ulterior motive. Many seminars can offer educational value so long as you understand what they are promoting or selling. Equip yourself with the facts so that you can recognise biased information.
- Research the promotors of an event or sales scheme. Are they even legal? Visit ASIC Connect and search within ‘banned and disqualified’ or the ACCC’s Undertakings Register to see if any legal action has been taken out against them.
It’s easy to become tempted by the prospect of making quick money, or buying property for a bargain. But there’s one important truth to keep in mind –
If something sounds too good to be true, it probably is.
Clever marketers know how to appeal to your needs and desires. So make sure you do your own homework before making any decisions. Realistically, what can you expect from the property they are promoting? What are the risks? How would such an investment fit in with your overall financial strategy?
‘Get rich quick’ schemes are rare when it comes to property investment. More often, success comes as part of a pre-planned long term financial strategy.
Have you ever been a victim of a property investment scam?