WHEN the property market is hot, the sharks begin to circle; recognising the opportunity to fleece the rest of us out of our money.
The problem with property scams is that they are hard to detect and often perfectly legal. They are marketed convincingly and professionally, unlike the instantly recognisable scams we are used to in other walks of life.
For example, an error-ridden email from a Nigerian prince looking to give us millions of dollars in exchange for a few personal details is unlikely to fool anyone. We also recognise that winning the Mexican lottery without entering or even having been to Mexico is extremely unlikely; as is being notified of the win by snail mail from an Australian PO Box.
Property sharks are harder to pin down. Commonly they are investment spruikers, claiming to be a group or club made up of like-minded investors, looking to help each other out.
In reality, they are marketing companies, helping developers sell overpriced properties to unsuspecting investors. They charge the developer high commissions, in return for quick, hassle-free sales. Such companies are legal simply because they do not charge buyers fees for their advice, but their commission ends up being paid by the buyer anyway, as the developer adds it to the sale price.
The buyer is then behind the eight ball, often struggling to pay off an overvalued property. Mum and dad investors were ruined in such scams on the Gold Coast when values plummeted after the GFC.
The spruikers will approach you through cold-calling, letterbox drops and newspaper ads. They promise unbelievable returns and property secrets that will make you millions. They first ascertain that you have the finances to buy an investment property and then they pounce.
I answered the phone to a cold-caller last week, who embarked on a lengthy spiel. I was told I could attend a free information night, including a three course meal, where I could learn how to build wealth through property investment. I asked the posh sounding British woman on the phone if she was looking for media coverage of the event, to which she paused briefly, sounding confused. I asked her if she knew she had called a real estate reporter from the Daily Telegraph. Suddenly, for once, she was the one trying to get off the phone.
Now, this was a classic case. At such information nights, expect to be subjected to a lot of high fiving and hand clapping; designed to get you emotionally charged. You will be offered a chance to sign up for an investment on the spot. They want you to commit there and then; to stop you going home, sleeping on it and realising it does not make sense. To keep you there, they might offer you a one stop financial shop, featuring in-house solicitors, accountants and financial advisers. They say this is for your convenience, but in reality, it’s to stop you getting independent advice from outside professionals, who would warn you away from the deal.
You don’t find out about great property deals from a telephone marketer. Property data is more accessible than ever before thanks to newspapers, websites and apps; plus advice from real investors on web forums.
You have probably heard about doing your due diligence when searching for an investment property. You should always do the same when considering which company or buyer’s agent to seek help from.
To make sure an investment group or buyer’s agent is legitimate, check their website for company details, including staff and directors. If details are vague, it’s best to avoid them. If there is no evidence that the company has been around longer than a year or two, steer clear. Not only is there no track record, but known fraudsters will often dissolve companies that have developed a bad reputation and simply start over with a freshly registered business.
Testimonials from ‘happy customers’ with only a first name or initial (eg ‘I can’t believe I became a millionaire, the service was great’ – Doris G, NSW), are also dead giveaways. A good company will have testimonials from people who actually exist! With full names, faces and contact details.
Always seek independent advice. Separately engaging solicitors, accountants, financial advisers and mortgage brokers will mean you are safe from being ‘teamed up on’ by a dodgy group. Remember that if it sounds too good to be true, it probably is.