BUYERS BEWARE
Property scams are on the rise in Australia and the perpetrators are constantly finding new ways to get around laws and avoid being brought to justice.
These scammers are very well practiced at manipulating people and will play on your emotions to coerce you into parting with your savings. They and their associated companies & body corporates, had used high-pressure selling tactics while failing to disclose their secret commissions. They know how to appeal to your needs and desires. So make sure you do your own homework before making any decisions.
The most common scam is for property spruikers to sell house-and-land packages to investors at greatly inflated prices with the package arrangement intended to disguise the true value of the properties. These so-called investment packages are sometimes hiked up by $40,000 to $100,000 (and even more in some cases) above the real market price.
When you buy this type of property, factored into the price is the developer’s profit margin and a proportion of the high marketing costs that come with selling this type of property. These hidden ‘costs’ could be the equivalent of a few years of capital growth, putting you behind the eight ball from day one.
Example: A couple borrowed against their home and other sources of finance to buy a land-and-house investment package they thought was worth $520,000 but its market value was really just $450,000. And they had also paid $40,000 in fees and other expenses. The couple is left deeply in debt after losing all of the equity in their home.
There are hundreds of these properties being sold and sadly whole suburbs are being setup in this way.
House and land package scams
There are some problems with house and land packages that you should be aware of before you go ahead and put down your deposit and sign a contract. Failure to be aware of these problems could leave you in a poor financial situation.
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.
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.
Rent to own scams
As the name suggests, renters are given the option to rent out a property, which they can at some point buy. The deal is orchestrated by a “wrapper” – a middleman between a seller and a buyer.
Wrappers typically source properties for these deals by trolling property listings and noting which aren’t selling. They approach these people with a new idea of how they can sell their home, offering to buy the property for the full asking price.
The catch is that they will only purchase under an option agreement, where the wrapper purchases an option (but not the obligation) to buy the property for a fixed amount at a certain date in the future, maybe within two or three years. The wrapper also gets the right to sublease the property to a rent-to-buy tenant. In most states rent to own deals are legal and not all are set up to be exploitive. The problem is that the idea tends to attract con artists.
Sellers facing difficulties getting their properties off the market and wannabe buyers who are struggling to get loans. Victims can lose anything up to $150,000.
Rent guarantees
To attract buyer interest, a seller or developer guarantees a certain rental return over a period of time. Up to $60k of your money could needlessly end up in a seller or developer’s pocket.
It’s become common for developers in Sydney, Melbourne, Brisbane and elsewhere to attract investors by guaranteeing 6% or 7% returns for one, two or three years. The problem is that the guarantee comes at a cost. It is usually factored into the purchase price. Unknowingly, you pay the developer upfront for the rent he will repay you over the next few years.
100%, but what few realise is that the guarantee is usually factored into the purchase price and that in most cases you’d be better off without it.
The only way to experience major success in any type of investment is to do the hard yards. Diligence and thorough research are the foundations for making money in any field and property investment is no different.
The key is to weigh up the pros and cons with reference to your needs. If a house and land deal is right for you, be sure you choose a reputable builder and understand exactly what is included in the contract price. The more you know about the package you’re buying into, the less opportunity there is for costly surprises once construction gets underway.
For an honest and unbiased opinion, talk to us today on 03 8390 5855 or email mitesh@thinkandgrowfinance.com.au