You might be invited to a 'free' seminar teaching you how to build wealth through property.
They'll call you and ask if you want to reduce your tax bill and become a property millionaire, just by turning up to their seminar and hearing their 'secret strategies'.
Then they'll present an awesome opportunity to get rich, but you have to act now. This opportunity has a deadline and if you don't act immediately, you'll miss out.
🚩Red flag: When you're making a property investing decision, you're considering spending hundreds of thousands of dollars and getting into massive debt. This is NOT a decision that should be rushed. If anyone tries to pressure you into a fast decision, you should proceed with caution.
The spruiker will want 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.
They apply a lot of pressure to get you to sign and some will even fly you interstate to show you the properties they're so certain you'll make money from.
🚩Red flag: It's not a free flight. The cost has been baked into the property's price, along with their hefty commission. The reason they fly you in is to tap into your emotions and build hype, to convince you to make a decision on the spot, rather than taking the time to weigh up all the pros and cons.
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, established 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 also be told that building a new home gets you some better tax advantages, which is also true. But a new property has a number of massive costs built into it, including marketing costs, and again, their big commission.
🚩Red flag: If the only property they want to sell you is a specific, new property in one particular development, you can guarantee they're being paid a big fat commission, which is factored into the purchase price. This can be worth tens of thousands of dollars. Ask how much commission they're being paid and whether they own any properties in the project themselves to see if they have genuine intentions.
Quality research is good. 'Exclusive' research that only they have? This is a red flag, because if a particular area has good fundamentals for growth, other people are going to know about it.
You may be offered investment opportunities in different states to the one in which you live. This is because you're less likely to know much about the area, so they can mislead you into believing it's a growth suburb. In reality? The majority of these types of 'deals' encourage you to construct new homes in outlying suburbs or low socio-economic areas, where demand is low and supply is high.
🚩Red flag: You can nix this red flag pretty fast with your own research. See if what they're telling stacks up when you look for other sources to back up their claims.
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've 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 (the opposite may be true and the price is actually higher due to their big commission). 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!
🚩Red flag: You can nix this red flag pretty fast with your own research. As well as looking up reputable sources like the ABS and CoreLogic, check with your own sources (like local property managers who have nothing to do with the property project or sale) to make sure the area is genuinely in demand with local tenants.
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. They also may be getting referrals fees from each and every 'expert' they introduce you to.
🚩Red flag: Ask them if you can use your own experts, like your own independent mortgage broker, solicitor, accountant and quantity surveyor. If they're open to this, then they're more likely to be reputable. If they want to keep it all in house, beware.
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.
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.
Talk to a good accountant about how to structure your investment loans and about your taxation options before you buy.
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.
If you're ever worried about an opportunity being too good to be true, it may well be. But speak to a buyer's agent or property professional independent of the offer you've been given to get another perspective.
"In a hot Australian market no seller is selling something at a discount, wholesale price without a huge hidden negative.
Some scams include fake developments, rent-back schemes, incentive schemes such as NRAS and NDIS. If it promises guaranteed returns, zero risk, or 'off-market exclusives' with no proof, run a mile! Always do your due diligence (or hire someone trusted who will).
The other scam of the century is 'trusted real estate investment advisors'. This industry has been filled with untrustworthy sharks. Anyone with a simple online real estate qualification can become an advisor, guiding investors to spend millions of their money with little to no experience (personally or professionally). Most of the time this is done through clever online marketing."
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We are in the process of purchasing a new property through Freedom Property Investors. Everything is done within the group. Have you heard that they are considered a scam?
Hi Karen,
It’s a good idea to search for reviews of the company online, especially places like Reddit, where you can hear from people who have had direct experiences. You can also ask the company for testimonials and for results previous customers have achieved over the last 5-10 years. There are many investment companies that offer one-stop-shop services, where they source the property and help arrange finance, so that in itself is not a red flag that it is a scam. But they are legally required to be transparent about the commissions and fees they earn on each transaction, so its worth checking the paperwork to make sure they are being upfront. Some property advisors get paid “kickbacks” or big commissions when they sell property on behalf of a developer – it is worth asking them what commissions they earn (again they are legally required to disclose this, but some less reputable companies will bury it in the fine print. Honest companies interested in helping you build wealth will be open and honest with this information.
Lastly, if any company is using pressure tactics to compel you to sign – saying there are deadlines, you’re going to miss out, prices will increase etc – that is a big red flag and you should take some time out to consider your options. Investing in property is a big undertaking, with a lot of risk, and you need to be comfortable with the situation before you move forward. Hope this helps!
Why is it a scam just because they make a commission though? what if it is still a good house in a good area?
Hi Sue, It’s not a scam simply because they make a commission. It might be an indication of a scam if they receive a commission and don’t disclose this to you, in addition to the context mentioned in the article.
How much is usually quarterly owners corporation fees ? How do they work it out for new unit blocks ? Is there land tax or council rates for units/apartments ?
Hello,
Owner’s corporation fees really vary between complexes, depending on the features and services that the complex has and the maintenance costs. It will probably cost at least $2,000 a year (so $500 a quarter) but this is a very rough estimate.
Owners also pay council rates. This varies by the council, and unit owners may pay less than homeowners.
Kind regards,
Richard
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.
According to moneysmart.gov.au, you may refer to the list of unlicensed companies to know which companies you should not deal with.
Cheers,
Shirley