HOW TO SPOT THEM AND STAY SAFE
by Neil Jenman
READING TIME: 8 MINS
People in the bush know the first rule of snakes: Assume all snakes are deadly. They also know the second rule: Avoid all snakes.
Now, of course, everyone knows how to spot a snake. So, theoretically, if you follow the “stay away” rule, you will be in almost no danger from snakes.
But there’s another dangerous creature that preys on people. Property investment scammers.
Sadly, every year in Australia, thousands – yes, thousands – of people get hurt by investment scammers. They have their financial lives almost destroyed and, worse, their emotional lives wrecked. The stress of a property scam kills many people.
So, believe it: Property investment scams can be deadly.
Unfortunately, very few people know how to recognise investment scammers. They can spot a snake, but they can’t spot a scam.
First, let’s understand what is meant by a property investment scam. It’s a property presented to you as a great investment in a great growth area with high capital gain prospects and high rental returns.
At least that’s the appearance of the property. That’s the “sell”.
So good, you’d have to wonder why the people selling it – the builders, the developers, the agents, the financial planners, the accountants or whomever – aren’t keeping it for themselves. If it was this good, why sell it to you?
Because it’s a scam, that’s why. And you are the victim.
A SCAM INDUSTRY
This is a scam industry. Thousands of low-quality homes are built outside dozens of cities and regional centres (like Toowoomba) with one aim: to scam naïve investors.
The first part of the scam, therefore, is that the properties are not what they are cracked up to be: They are not great value, they are not well-built, they are not in high-growth areas, and they do not attract good rental returns.
As for good capital gains, forget it. At least for years. If ever.
You see, the second part of these scams is that the properties are not just horrendously over-priced, they are horrendously “profit-loaded”.
The scammers are making as much as two, sometimes three hundred thousand dollars per property. Some victims are paying, say, $700,000 for a property that, even at $400,000 would not be a good investment.
Garbage is never good at any price. These properties are garbage properties.
This is a scam industry.
HEDLEY THOMAS EXPOSED THIS YEARS AGO
Thanks to his acclaimed podcast, The Teacher’s Pet, many people have now heard of the brilliant journalist Hedley Thomas.
For years, Hedley has been exposing scams and identifying crooks.
Back in the late 1990s, he wrote a series of stories revealing how thousands of naïve investors get scammed by skilled deceivers – crooks, for want of a better word.
Hedley Thomas explained how everyone was “in on the scam” – from the developers to the builders, to the sales teams, to the financiers and, most disgracefully, the solicitors who were ‘in-the-pockets’ of the developers. He described the series of crooks and their crooked ways as “a gravy train of deceit”.
Nothing much has changed in 25 years, except that crooks are smarter. With the internet they build themselves slick websites that fool just about everyone – unless you know what to look for. They provide glowing testimonials from customers that are so convincing – except there’s one thing missing that most people never notice (see point 4 below).
And then, of course, investment experts (as they call themselves) tell naïve investors exactly what naïve investors want to hear. We will set you up for your retirement. We will help you pay off your existing home sooner. We will show you how to reduce tax.
Please, no matter how good it looks, these scammers are the slipperiest snakes of the real estate world. They will rip you off. That’s what they intend to do. That’s the industry.
Just as it was when Hedley Thomas exposed it 25 years ago.
THE EXAMPLE OF TOOWOOMBA.
Take Toowoomba, a beautiful city – one of the loveliest in Australia – but a place that’s attracting some of the worst scammers pushing some of the worst real estate at horrendously over-priced figures.
As one local agent explained this week:
- In his agency, he often gets owners coming to him looking to sell properties that had been bought years earlier for more than their value.
- There are many pockets in the region where homes are shoddily constructed and sold for the same price as quality-built homes.
- They often see newly built rented homes that are having problems that should apply to homes that are more than 20 years old.
- Fly-by-night builders come in and don’t bother doing the normal soil tests, so don’t spend the tens of thousands of dollars needed for footings. They build homes that are soon in a state of near collapse. The dodgy builders have long gone.
- The agent explained that they have large suburbs around Toowoomba – some have good parts and bad parts. He cited Glenvale as an example. There is a gorgeous section with lovely homes but then a rundown section. It is easy to convince out-of-towners that they are buying in the best part of Glenvale. Especially those who don’t visit.
- Most of the people who get caught buying over-priced and under-quality homes have never been to Toowoomba. That’s typical of what happens all over the country – in many areas.
- No one in their right mind should ever buy real estate without inspecting it.
- The agent said there are many homes in Toowoomba that can be bought through normal real estate agencies for between $375,000 and $425,000. But similar homes would be selling with so-called “investment experts” for between $500,000 and $700,000.
HOW TO AVOID INVESTMENT SCAMS
- Only buy from traditional real estate agents.
- Stay away from investment companies.
- Be very wary of buyers’ agents – many are double-dipping which means charging the sellers and charging the buyers. Illegal, but who cares? This is real estate, remember.
- Ignore the testimonials. None ever say: “We bought from XYZ company and then re-sold and made a great profit.”
- Most of the customers of investment companies are happy because they have not yet realised they have been ripped-off. They are like cuckolded husbands.
- Never allow yourself to be pressured with lines such as: “Prices are about to rise.” Or “Get in quick as there are only two left.” There are always plenty of scams.
- Do not buy one of several near identical properties. If one owner must sell urgently for a give-away price, that will lower the price of all the properties.
- Check with at least three local real estate agents. Tell them what you are intending to buy and ask for their opinions.
- Never use a solicitor recommended by the person selling you the property.
- Beware of the words “one stop shop” – it usually means everyone is out to get you.
- Watch out for “rental guarantee” – a sure sign of a scam.
- Look at the faces of the people selling you the properties. Come on. Many look like crooks. Use your common sense, for goodness’ sake.
- Hire an independent reputable valuation firm such as Herriot’s in Queensland.
- If the lender (bank) wants your own home as additional security, that’s a sure sign that the investment property is a dud
- Ask Jenman Support for our opinion. We’ll charge you nothing and gladly tell you what we think. It only takes a few seconds to protect you, but it can take weeks to get you out of one of these horrendous deals.
Do you know what is the best real estate investment most people ever make? Their family home. And how did they find that? Not with an “expert financial planner”. No, they traipsed the streets going from house-to-house until they found the one they loved.
And guess what?
That home was the best investment of their lives.
Most wish they had bought a second one.
Well, that’s what you should do. Just repeat what you did when you bought your first family home. You don’t need to consult any experts.
Indeed, just haunt the auctions and you’ll soon realise how you can pick up some top-quality properties for bargain basement prices.
Stay away from the property experts, however. They are all dodgy.
PS Neil Jenman’s latest book 88 REASONS WHY YOU MUST NEVER SELL YOUR HOME AT AUCTION, also includes instructions on how you can buy well at auction. At $14.95 plus postage, it’s one of the best real estate investments you’ll ever make. And it’s guaranteed. If you don’t like it, return it and we’ll give you a refund. Click here to order.
NB: The book, 88 REASONS, is free to nurses and paramedics. Thank you for all you do.