How to spot a property scam

We’ve all heard horror stories about intelligent, everyday Australians who have somehow been sucked into a real estate scam that stripped them of their hard-earned money.

Who among us is not tempted by the thought of making a quick buck?

Despite working hard for their money, many Australians feel stuck on the treadmill of money coming in and money going straight out again.

They just can’t seem to get ahead.

Sure, we’re told that the best things in life are free and while I don’t disagree with this, in order to be fully free to enjoy our lives we need enough financial freedom to focus on what matters to us.

Residential property is a great way to make money but the gains are built over the long term.

You are likely to see healthy returns if you hold property for 10 years and buy in the right area, then.

But most of us are in too much of a hurry to wait years and that’s why many investors are susceptible to the get-rich-quick schemes that proliferate not just in residential property but all parts of the investment pond.

If you are an impatient investor you could end up in hot water so it is important to tread very carefully when assessing the merits of a new venture.

Here are a few things to look out for:

1. I’ll take care of everything

Often novice investors are keen to get into property because they believe that property is a good investment – but they’re daunted by the whole process.

It all seems too complicated.

And then someone comes along and offers to “take care of everything” giving our beginning investor a feeling of relief.

A one-stop shop sounds convenient, but be wary.

Firstly make sure you know who pays your "advisor."

If the advice is free you are the product so run away very quickly.

Many so-called advisers are really property marketers representing developers so they can't really be on your side, can they?

Protect yourself by getting advice from an independent lawyer who has no connection to the company selling the property, a finance broker who represents you, and either a valuer or independent confirmation of the property's value.

2. Marketing materials

Watch out for those emails in your inbox that promise the world.

“Guaranteed income,” it assures you. “Risk-free investment.”

Or even, “Become a millionaire in 3 years.”

If it sounds too good to be true it probably is.

3. Beware the seminar or the webinar

Firstly, a quick disclaimer – I speak at seminars and our company Metropole Property Strategists conducts webinars to educate clients – we don’t sell properties at the back of the room – in fact, we don’t sell properties at all.

Having said that…I am sure you have received an invitation like in the past:

Come to our ‘free’ seminar or attend our free webinar (why would I pay anyway?) and hear about how they can deliver you to financial freedom in six easy steps.

There is usually engaging, upbeat music at the seminars or glossy graphics on the webinars and charming presenters who will tell you that they hold the key to unlocking the secrets of successful property investment.

They’re often highly sophisticated sales operations with everything conveniently available to tempt inexperienced investors to buy on the spot.

You may even find they have mortgage brokers 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.

My advice would be to give these schemes a wide berth.

Often these seminars or webinars on residential property are fronts for developers wishing to offload stock to investors.

Sure they may promise huge rental returns and great properties, but you have to ask yourself the question: if the properties are so great why are they not brought to market where more people can fight over them and potentially up the sale price?

The truth is, that properties sold this way are often priced well above their worth.

Of course, not all investment seminars are run by shonky salesmen, but many are so keep a close eye out for people trying to flash their wealth in front of you and give you the hard sell.

4. Off the plan

Buying a property off-the-plan means signing a contract to purchase before the property has been built.

You’ll usually be offered incentives such as reduced stamp duty, tax and depreciation benefits, rental guarantees, and below-market prices.

The problem with a lot of off-the-plan stock is that you are investing in an unknown and all of the risks are yours.

You put a deposit down on a property at a value that has been determined by the developers, even though that property may not be ready for a few years.

As we all know, a lot can happen in the residential property market in that time.

The contracts lock you in, you have very little room to get out of the contract, and yet often the developer can back out at any time.

There are many unknowns – will the market be like when the development is completed, what will the standard of finish be will there be other competing developments?

With all these uncertainties you should be paying a discount for “off-the-plan” properties however you usually pay a hefty premium which includes the developer’s margin and marketing costs

A word of warning, too, about rental guarantees.

If a developer has to offer this kind of inducement to sell their new development, then ask why.

5. House and land package

Entire new suburbs areas mushrooming all around Australia with house and land packages being offered to first-home buyers.

But there is also a whole industry of property marketers built around selling these properties to unsuspecting investors.

The lack of scarcity in these estates, the demographics of young families who are very interest-rate and jobs sensitive and the lack of tenants for these locations often mean that you've been sold a dud.

Unfortunately, you may not realise you’ve been scammed until years later when the value of your property is still below your original purchase price,

6. Overseas markets

Australia is one of the more expensive residential property markets and as people are priced out of capital cities, some are beginning to look overseas.

The Internet landscape is littered with stories of people who have lost a fortune investing overseas following various properties spruikers.

It is hard enough to get your due diligence right in a familiar culture, let alone in a foreign country with a foreign residential property market.

You may be tempted to buy that run-down home in Sicily, which is worth a car space in Sydney, but if something seems too good to be true, it generally is.

There is no path to financial freedom other than hard work, patience, due diligence, a good team, and a bit of smartness.

And it certainly isn’t going to come from someone in an expensive suit offering you false hope.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.