New Property Investors Beware

These days we seem to be inundated with offers by wealth gurus, marketing companies and businesses who seek to gain a big slice of our hard earned money. Many of them are doing this using very deceptive and misleading techniques.

Unfortunately, because threads that identify the rogue companies and sprukiers are considered defamatory, they are often moderated. The result is that consumers who are new to investing are left with no warnings about who they should deal with and who they shouldn't or indeed what signs to look out for.

For this reason I decided to start this thread to give some of the newcomers to property investing some ideas about what they should be watching out for and what things present as 'warning flags' for the more experienced investors.

1) Beware of any company offering a 'one stop shop'. By this I mean, never use lawyers, valuers, mortgage brokers etc recommended by the marketing company or salesman. Seek independent advice before you sign anything.

2) Beware of companies who call themselves a 'club'. This is often a disguise to make you feel like they have your best interests at heart. Look closely at how these 'clubs are being paid. If they receive a commission from the developer or seller (often well above that of a normal real estate agent) be very careful. The whole concept is not dissimilar to a pyramid scheme.

3) Beware of companies or gurus who say that 'property doubles in value every 7 - 10 years' If their business philosophy is to borrow to the max, purchasing negatively geared property on interest only loans using the 'Property doubles every 7 -10 years' myth, this is a serious warning flag. It is very poor advice and advice that has huge potential to ruin you financially.

4) Know who the directors are of the company that you are dealing with. Do some research on them. What is their history? Don't take their word for the amount of experience and expertise they claim to have. Start by typing into google the name of the company or spruiker and include the word 'scam' in the search. This often leads you to the articles and forums that the spruiker is attempting to hide from.

5) Beware of dodgy testimonials. Many of the testimonials are fictitious or in some cases have been provided by people who are emotionally charged after attending a property boot camp or seminar. If the testimonial does not come with a full name and contact number ignore it.

6) Don't sign anything without getting independent legal advice and an independent valuation by a well known and respected valuation company in the state you propose to buy in. These are golden rules you must not break. Don't rely on the valuation given by the marketing company and don't believe them if they say that the bank won't borrow against the property if it is overpriced.

7) Beware of companies who pressure you into signing up with urgency. They may tell you that you will miss out if you don't get in quick. Decide at your own pace.

8) Beware of 'money back guarantees' being offered, especially for courses. Often they are not worth the paper they are written on and any claim on the guarantee will immediately be denied. Read the fine print.

9) Beware of gurus who claim to have written a book on the 'how to' of wealth creation. Their books (which they often claim as 'best sellers') are often full of other peoples ideas or plagiarised material. Also any company who markets using the word 'secrets' should be treated with caution. The reality is that there are no 'secrets' in property investing.

10) Beware of spruikers who publicly flaunt their philanthropy. Many of them consider this as nothing more than a marketing ploy to promote themselves. Many do not donate anywhere near the sums they claim to. Also beware of companies who use PR people or companies to promote themselves.

Some of you may be surprised at the level of deception that is involved in the property investment world. Don't be naive about the tactics used. Some gurus have very polished sales spiels and will even warn you about the scammers in the industry so they don't appear like one themselves.

Good luck with your investing. I have only covered some of the traps but I'm sure others will be able to add to this list.
 
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You seem, dare I say, 'professionally interested' yourself.

Nothing to disclose (a relationship to Destiny Financial Solutions, or an affiliate) perhaps?

Forgive my curiosity, but it's meant only in the spirit of absolute transparency and genuine concern for the vulnerability of newbies that your own post here speaks to.
 
Not sure about Fox's interests, but as a Destiny client I can vouch they are pretty damn good at teaching you about property!

Cost me $5k for their education (which is for a couple of years with as much communication as you need) and on my first property I was going to fix the rate at 7.6% about 6 months ago - my 'mentor' went through the reasons I shouldn't fix and as a result went variable - and have saved over $5k over the 5 years (assuming I fix lower soon) just from that one decision.

Main good thing they taught me was to look outside NSW and about not having to view the properties personally.

This has allowed me to find great deals I would not have been comfortable looking at interstate.
 
6) Don't sign anything without getting independent legal advice and an independent valuation by a well known and respected valuation company in the state you propose to buy in. These are golden rules you must not break. Don't rely on the valuation given by the marketing company and don't believe them if they say that the bank won't borrow against the property if it is overpriced. This is garbage, especially if you are using another property as security.

Especially so if you are " silly enough" to allow your lender to use that other property as collateral security.

To add my 2 c worth From a finance POV, some flags are

1. An adviser that has an "undue" like for primarily one product , lender or structure.
2. Tax aggressive lending structures without asking your to get personal and specific independent taxation advice
3. Cross collateralisation where no obvious borrower benefit exists
4. Lack of choice in lender panel
5. Reliance on lenders that have no val policies for purchases under X lvr
6. Overly complicated and lengthy Credit Advice or Mortgage Planning / reduction Documentation displaying graphs and data showing how to pay of a 30 year home loan in 4 or 5.

ta

rolf
 
You seem, dare I say, 'professionally interested' yourself.

Nothing to disclose (a relationship to Destiny Financial Solutions, or an affiliate) perhaps?

Most definitely Bilbo. And a liking for Jenman as well. The post is not one which has come off the top of a Fox's head. Well thought out and constructed. Nevertheless, some handy info for beginners.

These days we seem to be inundated with offers by wealth gurus, marketing companies and businesses who seek to gain a big slice of our hard earned money. Many of them are doing this using very deceptive and misleading techniques.

Even so, who are we to judge unless we have personal been deceived? I consider myself fortunate to have been influenced by some of the so called wealth gurus and I feel it is a little unfair to assume that they are merely out to deceive us and take a large slice of our hard earned money.

I think it is more of a case of the gullible being attracted to the greedy - a karmic phenomena. I don't say this to protect the greedy or criticise the gullible. I respect what you are trying to do but am not sure if it will change a gullible person into a wise one. But this might? :D
 
I learned a new acronym yesterday, this is my first chance to use it:

TL;DR

(too long; didn't read) :D

Hi Vaughan

That is an INCREDIBLY important point for the thread starter.....................and I hope they take it as useful feedback to improve their message penetration.

ta
rolf
 
TL;DR

I tried to use the acronym by itself but the forum gave this message.
"The message you have entered is too short. Please lengthen your message to at least 10 characters."
 
Fair enough comment TLDR. (Too long didn't read) I have shortened it up as best I could.

For those of you who have already started theorising about my 'professional interest' let me clarify this. I am sick and tired of seeing 1st time investors being ripped off by marketing companies and spruikers with slick sales pitches designed to look after their interests, and not that of their clients (despite what they may say to the contrary.) It is unethical and unnecessary. I make no apologies if you are one of these people in the industry. I am also aware that these are the people will be the most critical of this thread and attempt to make judgements about my agenda. So be it!

I do not sell property or any of the services associated with property. However I know enough to understand that many involved in it have their own secret agendas. 1st time investors need to be aware of this and too many are not.

You will notice that I have not attempted to single anyone out, nor have I attempted to push a barrow (like at least one of you has by posting a link which is an advertisement). I ask that you now stick to the spirit of the message I have tried to convey.
 
Not sure about Fox's interests, but as a Destiny client I can vouch they are pretty damn good at teaching you about property!

Cost me $5k for their education (which is for a couple of years with as much communication as you need) and on my first property I was going to fix the rate at 7.6% about 6 months ago - my 'mentor' went through the reasons I shouldn't fix and as a result went variable - and have saved over $5k over the 5 years (assuming I fix lower soon) just from that one decision.

Main good thing they taught me was to look outside NSW and about not having to view the properties personally.

This has allowed me to find great deals I would not have been comfortable looking at interstate.

Haha not sure if you're being sarcastic or not.

So instead of paying the bank $5k which would've been tax deductible and therefore cost you maybe $3k, you paid the $5k to your mentor...?
 
How do you know if you're with one of the bodgeys?

Hi Fox,

I'm a new PI'r. Bought in Dec last year. Not great timing but I'm in and can safely hold in this envionment.

Bought below median, high land content, new house and land( hmmm?)-only regret so far with the 12month long wait for getting in tenants.

The company IS one of these one-stop-shops. The information given and learnt over a 12 month period before buying was as is usually spruiked. Tax benefits, likely long term growth, rental demand, future lack of affordability (wage:prop VAL), high land content, etc.

I feel I've learnt a great deal from them. I have though being the analytical type, gone on to source further information and received information from various other sources. It all seems to stack up pretty well as a long term strategy as long as you stick to what you're trying to achieve and in what time frame.

It seems as though the red flags you've mentioned would be very common amongst many Prop Investment Companies. So how do you know the good from the bad?

My answer to this quandry since becoming interested and involved in IP's, is to know enough and learn enough to know how to ask the right questions to these companies. I like using a golf analogy:

Many people I know self teach with learning how to play or become better at golf. I know being off a low handicap that their concepts are often flawed and they are going bout it the wrong way. The odd few that it works out for are supremely talented or plain lucky.

If I took this approach as a first time investor, I knew nothing and would have definitely made a series of poor choices and not realied future goals. I atleast know some basic rules and strategies, and understand that it's crucially important to have a plan in place and to set your investments according to your goals.

What I have learnt in a short timeframe is to know exactly what you want and then you can work backwards and make better decisions going forward.
I might be naive, but so far I feel that this company has served its purpose and I feel that self-education can assist in a long term partnership with them to achieve my goals and to steer the ship in the right direction.

Thanks for the post Fox. That's great stuff. :)
 
To clarify, when I said one stop shop, they are not that. The broker, accountant, lawyer, insurance and financer are all mutually exclusive.

They are obviously "recommended" by the Investment Property Company (who get trailing commisons for thereferral) if you wish to use them.

I thought first time, we'll give it a go and then we'll take it from there based on what I want and learn.

Cheers.
 
Haha not sure if you're being sarcastic or not.

So instead of paying the bank $5k which would've been tax deductible and therefore cost you maybe $3k, you paid the $5k to your mentor...?

If they learnt something which saves them money and they can re-use it (unlike the example listed) then it's potentially money well spent. We all have to learn somewhere.
 
I suppose. Unless you need to pay him every time to get his current views on interest rates, because there'll be a point where fixing will win long-term.
 
If I took this approach as a first time investor, I knew nothing and would have definitely made a series of poor choices and not realied future goals. I atleast know some basic rules and strategies, and understand that it's crucially important to have a plan in place and to set your investments according to your goals.

Exactly VP, which is why many of these companies can serve a purpose for the beginner. Some of them have done so for me though I mainly attended the shorter seminars rather than the full mentor program (I did attend one 3 day seminar once). I am grateful for all the information I have gained from the so called spruikers so I don't agree with Foxes' blanket blacklisting of them as a group of immoral rip off artists. Having said that, I am sure there are bad apples among them as there are in all areas of business. Remaining vigilant and maintaining self responsibility and control is the key here. There are always those who let themselves be ripped off.
 
Cheers RS,

Had a good year last year up on the North East Coast. Played golf with a guy in April up there (complete fluke we bumped into each other on the first tee) who introduced me to the ideas and methods you can use for IP's, then a month later when back in Melbourne a friend of the family invited me to one of his seminars on IP's. It was like deja vu.

So from there my wife and I were very interested to learn more and things snow balled from there. Very exciting, and I'm grateful for the information, advice and it has really done wonders personally (not yet financially).

VP.:)
 
I actually owe part of my start in property investment to the Investors Club.

I don't remember how, but I ended up in one of their seminars. I generally liked what I heard, so I attended the same seminar again.

There was lots of good stuff like, "Buy 7 properties in 7 years and become wealthy", and, "It'll only cost you $14 per week". The fundamentals of it all were right there.

I then investigated more. Spoke to other property investors, read some books etc.

Needless to say, I did not purchase anything via the Investors Club (nor would I ever recommend anyone do so), but it did start to open my eyes to property investment.

There's definitely a large element of truth in what all the sprukers say. It's what they don't tell you that you've got to watch out for. Notably, this tends to be around due dilligence on their recomendations, often combined with how they are paid.

To ask the question, "Would you pay $5k for a mentor?" is a fair one. My answer would be yes, for the right model and for the right person. I've actually paid considerably more than $5k, but it's earned me almost 20 times what it costs me. It's also a model where I was sufficiently motivated to actually perform.
 
TLDR, that's great, I'm a member of several forums all different interest/topics and by far people here write the most. Must have time to kill.
 
... There's definitely a large element of truth in what all the sprukers say. It's what they don't tell you that you've got to watch out for. ...

So true. I bought two Central Equity properties off plan when I lived in the UK - sold each one after seven years for more or less what I paid. What they say in the sales presentations is true, but heavy on assumptions - "Take this flat at $500K with 6% guaranteed rent return. You just need $100K deposit. If rents and property prices go up by just 5% a year, in seven years you'll have turned your $100K into $300K and be getting an 8.5% return". 5% seems such a modest ambition placed alongside the graph showing how Melbourne property prices (established properties of course) have grown that you don't begin to question it. All very clever.
 
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