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Knowledge is power and education is a great thing, especially if you're thinking about investing a considerable amount of money in property. Unfortunately, not all property seminars are on the same level. In fact, some of them are downright scams perpetuated by property spruikers.
Here are some common signs to look for that should ring some alarm bells.
These types of seminars are always initiated by them – not you. They'll send you an invitation to a "free" seminar teaching you how to build wealth through property. They'll call you on the phone and ask if you want to reduce your tax bill at the same time as becoming a property millionaire just by turning up to their seminar. They'll email you out of the blue with an awesome opportunity to get rich, but only after you've listened to their entire spiel. You get the idea.
The seminar might feature some interesting tips and points about investing in real estate, backed by a few speakers. Then the real sales pitch will begin. The spruiker will need to set up an appointment with you at your home to talk with you personally about how it all works and to see if you qualify for their deal. These types of spiels have been known to last for up to six hours, after which time anyone will be willing to sign up for almost anything at all.
Constructing a new home for investment purposes isn't a bad thing, but when you're being sold an overpriced property that costs you far more than what other similar homes in that area are worth, you could be in trouble. You'll be told that you can save on stamp duty, which is true. You'll be told that building a new home gets you some better tax advantages, which is also true. Then the sales person will point out that you could try to do it all by yourself, but you won't get as good tax benefits as you would by buying their deal instead. This is simply because they can hike up the price you pay and boost their own profits.
The majority of these types of "deals" will offer you the opportunity to construct new homes in outlying suburbs or low socio-economic areas. You may also be offered investment opportunities in different states to the one in which you live.
Experienced investors understand that it's very possible to build wealth by seeking good quality properties that are priced well and that represent good value for their own investment strategies. However, these property spruikers will make it very clear that they have already done all your homework for you. They will tell you they've struck a deal with a developer so they can get better prices through bulk buying. They'll even tell you that there's no way you could possibly go out and get it right if you do it all on your own. You need them or you'll fail!
The sales sharks pushing these deals will be keen to take control of the entire transaction. They'll control the conveyancer working on your transfer documents, the mortgage broker arranging your finance, the builder you have to build the property through, and the rental agent handling your tenants. While this might sound like an easy solution for many newer investors, it's simply a way for the sales person to keep control of the transaction so you don't get to see that you're buying an overpriced dud.
The mortgage broker recommended by the property spruiker will be extremely well informed about exactly what property you've been set up to buy. That broker will then work on ways to set up a mortgage over your own family home. This is usually done in an attempt to stop you seeing that the property you're buying is overpriced. After all, any bank taking security over a property for a mortgage will conduct a licensed valuation on that home. If that valuation shows that the real property value is tens of thousands of dollars lower than the amount you just paid for it, you might not proceed. The spruikers really don't want that to happen.
Perhaps the best possible way to avoid being caught by these types of property investing scams is to sit down and do your homework yourself. The key is to be sure you understand what you want to buy and how it will affect your overall financial and investment situation before you begin.
Take the time to research any suburb in which you want to buy. Understand the median prices for homes in that area and compare the options of buying an established home versus building a new home in the same area. Do the sums and work out whether you're able to build any capital growth into your property simply by choosing construction in a given area. Do a little research into the anticipated rental income you're likely to receive.
Talk to a good accountant about how to structure your investment loans and about your taxation options before you buy. Ask plenty of questions until you're sure you understand. Discuss the differences between negative gearing and positive gearing and decide which one is better suited to your own investment strategy.
Then spend some time talking to your bank or a good mortgage broker about setting up your investment loans in the way your accountant suggested.
If you can do all these things on your own, you should find that you end up with some great real estate bargains that can become excellent investments over time.
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Is there any thing you can do if you think you have been scammed?
Hi Stephen,
Thanks for your inquiry
Yes, absolutely. It is crucial that you report the incident to the proper government agency. This will help you find out about your rights and the chances of getting your money back. This will also help the government inform the public about the scam which in turn helps it stop from spreading.
Hope this information helps
Cheers,
Arnold
There is a company which source then sell off the plan properties in upcoming booming areas. Have you heard of them and are they fair dinkum?
Hi Paul,
Thanks for your question.
Unfortunately we’re not in a position to comment. Please see this ASIC website for more information.
Cheers,
Shirley